Mid-Day Report: Dollar Indifferent to Mixed US Data, Swissy Climbs Further

Markets remain steadily in range after a mixed bag of US data. On the positive side, durable goods orders dropped less than expected by -1.0% in Nov while ex-transport orders even managed 1.2% rise. However, Personal income dropped more than expected by -0.2% in Nov even though personal spending dropped less than expected by -0.6%. Headline PCE moderated further to 1.4% yoy while core PCE slowed to 1.9% yoy in Nov. Jobless claims climbed to 586k. From Canada Oct GDP contracted -0.1% mom versus expectation of -0.3%.

Technically speaking, not much is worth noting as markets are staying in range in general. Though, Swissy continues to be a stronger one in a quiet markets. EUR/CHF dives further to as low as 1.5012 after taking out mentioned 1.5163 support. As discussed before, break of this support level argues that whole rebound from 1.4315 has completed at 1.5880. Having said that, deeper decline is expected to be seen towards retesting this low. And as mentioned before, the Swissy might be taking over Euro’s leading strength against other majors.

The forex markets are generally quiet today. Though, yen is a little softer following rally in Japanese Nikkei. BoJ has just reintroduced the Zero Interest Rate Policy by lowering interest rates to 0.1% last week. The Finance Ministry proposed a record budget deficit that amounts to 88.55T yen for next fiscal year, 6.6% higher that than in the current one which ends next March. It includes 10T yen for laid-off works and tax relief and another 10T yen for the banking system, 3T yen for purchasing commercial papers.
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Weekly Review and Outlook: Forex Markets in an Highly Uncertain State after a Violent Week
By ActionForex

The forex markets are in a highly uncertain state after all the violent moves seen last week. Dollar is weak without a doubt when you saw the dollar index dropping more than 7% from 83.64 to intra week low of 77.69 after Fed cut the federal fund rates more than expected to a target range of 0-0.25% and formally entered into quantitative easing. But is it that weak? We doubt so as GBP/USD, AUD/USD, USD/CAD are still kept in range while the USD/JPY was just mildly lower.

The weakness of dollar was mainly manifested in strength in Euro and Swiss Franc which saw both currencies surging across the board. Euro was boosted by ECB’s comments that suggested it will pause the rate cut cycle in Jan to wait-and-see the effect of prior rate cuts first. EUR/GBP accelerated to a record high of 0.9554. EUR/CAD took out key resistance at 1.7 and reached as high as 1.7499 while EUR/AUD is also back pressing 2.1126 high. EUR/JPY did rebounded strongly and breached 131 level briefly. But is the common currency really that strong? Yes against Sterling and commodity currencies, but in doubt against dollar, yen and swissy.

Euro gave back much gains after ECB announced to widen the so called rate corridor and that’s viewed as intended to discourage banks from parking money with the ECB. After all, EUR/JPY is still bounded in range of 113.63 and 131.03 and there is no change to the view that it’s merely in consolidation. More importantly, such consolidation could have ended at 131.03. EUR/CHF, only other hand, as mentioned during the week, reversed after hitting an important resistance level and could have peaked at 1.5880. EUR/USD’s rally, though strong, was still limited by 1.4867 structural resistance.

What about the yen? Markets had little reaction to BoJ’s rate cut to 0.1%. Despite all the intervention talk, the Japanese currency was just mixed. GBP/JPY even managed to take out prior low of 133.09 during the week while USD/JPY’s rebound clearly lacked momentum. EUR/JPY retreated sharply after hitting 131.03 on initial strength.

After all, the markets are in a highly uncertain state and here are some points to note for the rest of the year and probably in early Jan too to clear out the messy picture.

1. Dollar index’s sharp decline from 88.46 was supported by mentioned 61.8% retracement of 71.31 to 88.46 at 77.86, inside key support zone of 75.88 and 80.38. Based on the fact that most dollar pairs are still viewed as in consolidation, we favor the case that such fall is merely a correction in the larger up trend only. To solidify this case, we’d like to see the dollar index breaks 83.11 cluster resistance (50% retracement of 88.46 to 77.69 at 83.07) without making a new low below 77.69. That will significantly increase the odds that fall from 88.46 to 77.69 is in corrective 3 wave structure and thus, retain the long term bullish scenario. Ideally, the break of 83.11 should be accompanied by at least a retest of 1.4466 in GBP/USD, 1.3015 in USD/CAD and 0.6008 in AUD/USD.

2. However, failure below 83.11, followed by a break of 77.69 will argue that fall from 88.46 is impulsive in nature. If accompanied by a break of 1.4867 in EUR/USD, that will suggest that the greenback’s trend has totally reversed and it’s indeed developing another long term down trend.

3. So far, we’re still favoring the case that EUR/USD’s rise is merely a corrective rebound. A break of 1.3629 support will add much credence to this case. Meanwhile, attention will also be paid to 118.07 in EUR/JPY as well as 1.5163 in EUR/CHF and break of which will add much doubts to Euro’s general strength.

4. Again 118.07 in EUR/JPY will be an important level for yen traders. Break of which will significantly increase the chance then yen in staging another round of massive rally.

5. 1.5163 in EUR/CHF will also be important in a way that even if Euro could maintain strength in generally, break of this support will argue that the focus is indeed shifting from Euro to the Swissy.

Weekly Fundamental Outlook for Energies and Metals - Dare To Buy Oil At Current Level?
by OilNGold
Last week was a week full of surprises: The Fed reduced policy rates unprecedentedly to a range of 0-0.25% followed by the Bank of Japan’s return to ZIRP by cutting the overnight lending rate by 20 bps to 0.1%. The Organization of the Petroleum Exporting Countries decided to lower oil output by 2.2M bpd, more than expectation of 1.5-2M bpd. However, oil price, instead of rebounding, dived to 4.5 years low of 35.98 (though partly due to January contract expiry). Over the week, the RJ/CRB index dropped 3% to settle at 220.08.
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Daily Forex Report: BoJ Cuts 20bps, Has Euro Topped?
By ActionForex

The forex markets are rather steady today so far as little response is paid to BoJ’s rate cut. the Bank of Japan cut the overnight lending rate from 0.3% to 0.1% on 7-1 vote and announced plan to buy corporate debts to help corporate raise funds during deepening recession. Tado Noda was the sole member to dissent. Basic loan rate was also lowered by 20bps to 0.3% by unanimous vote. Yen remains mixed after the decision. Note that firstly, more upside cannot be ruled out in EUR/JPY and CHF/JPY as supported by the theme of intervention. Secondly, USD/JPY’s recovery is not convincing yet as the downtrend is still intact. Thirdly, GBP/JPY, AUD/JPY and CAD/JPY are staying in range despite all the volatility elsewhere. There is not broad based direction in the Japanese currency for the moment. Read the rest of this entry »

Daily Forex Report: Swiss Franc to Take Over Euro’s Leading Strength?

By ActionForex

Dollar index extended the sharp decline to as low as 78.22 before recovering mildly. The broad based weakness in the greenback is still overwhelming in the markets but after all as the greenback is now sitting in side an important support zone of 75.89 to 80.38, some support should be seen in near term as the greenback approaches 61.8% retracement of 71.31 to 88.46 at 77.86. It’s unclear on whether dollar’s up trend has totally finished but some noticeable rebound should be seen on oversold condition in near term. The critical factor to determine dollar’s outlook will indeed be on whether another fall will be seen after the anticipated rebound to make the whole fall from 88.46 a five wave impulsive sequence, or will such fall complete in three wave corrective manner. This should be decided in the next few weeks and will set the tone for 2009. Read the rest of this entry »

4:40 pm : The Federal Open Market Committee’s decision to slash key lending rates and make a commitment to remedy the ailing U.S. economy bolstered investor optimism and sent stocks sharply higher. The major indices traded in positive ground for the entire session and finished just off their session highs.

The FOMC was expected to slash its fed funds target rate by 50 basis points Tuesday, which would have brought the overnight borrowing rate banks charge one another down to 0.50%. Instead, the FOMC stated it is targeting a fed funds rate ranging from 0.00% to 0.25%, though the effective fed funs rate was already within this range ahead of the decision.

The decision to make the cut was unanimous and marks the first time the target rate has been below 1.00% in 50 years.

The highly stimulative rate is intended to help the economy get on track toward growth. The FOMC stated that data that indicate deteriorating labor conditions and declining consumer spending, business investment, and industrial production, and the outlook for economic activity has weakened further. However, the FOMC acknowledged it will essentially employ all available tools to promote sustainable economic growth and help relieve strains in the financial system.
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After eighty-six consecutive daily declines, the average price of gas nationwide has now increased for the past two days. Have gas prices bottomed?
NEW YORK (CNNMoney.com) — Gas prices rose for the second consecutive day following eighty-six consecutive declines.

The motorist group AAA reported Sunday that the national average price for a gallon of gas rose to $1.663 a gallon from $1.66 the previous day. The reports are based on a daily survey of credit card swipes conducted for AAA. The average price of gas was $1.656, according to AAA’s Friday report.

During the nearly three months that gas prices were falling, prices decreased by $2.199 or 57 percent. The current national average is now $2.451 below or 59.6 percent off the record high price of $4.114 that AAA reported on July 17, 2008. Read the rest of this entry »

Weekly Review and Outlook: Euro Strengthened in Volatile Markets, Dollar Sharply Lower ahead of FOMC
by ActionForex

While the headlines might be dominated by the automaker bailout drama, risk aversion or dollar’s loss of its safe haven status last week, it’s Euro’s strength and momentum that should be paid most attention to and most closely watched. Dollar’s index’s sharp decline to as low as 83.22 last week was inline with the head and shoulder top scenario that indicates a medium term top is at least in place at 88.46. However, Dollar’s weakness was indeed not too severe except version the yen which saw USD/JPY dived to 13 year low of 88.54 before rebounding. GBP/USD, AUD/USD and USD/CAD are still kept by near term levels only, without significant technical breakthrough. On the other hand, while much volatility was seen in yen crosses, most of the are still held by near term low and thus there is no confirmation of a another round of massive yen buying yet. Read the rest of this entry »

Daily Report: Euro Leads Rebound against Dollar, SNB to Cut Again

Dollar’s decline continues today even though the $14b automaker rescue bill is passed in House and is set to vote in Senate on Thursday. One important thing to note is that dollar’s fall is lead by strengthen in European majors, in particular the Euro which is topping this week’s top movers chart. Swissy follows Euro’s strength despite expectation of another 50bps cut by SNB later today. Sterling is catching up in early US session as EUR/GBP retreats mildly. However, strength in Australian dollar and Canadian dollar is not apparent so far as both are still kept below this week’s high against the greenback. Yen crosses remains pretty steady so far except the apparent strength in EUR/JPY. Read the rest of this entry »