Mid-Day Report: Euro Extends Losses, Dollar Rebounds Further
Euro extends earlier losses after the release of record drop in inflation and rise in unemployment that spurs speculations that ECB could cut deeper than 50bps next week. EU/USD breaches 1.27 level briefly while EUR/GBP extends the correction that started at 0.8660, heading to 0.824 level. EUR/JPY is pressing 121 level. Dollar, on the hand, strengthens generally against most currencies except the yen. Dollar index’s break of 86.43 resistance argues that correction from 88.46 has completed and more upside could be seen to retest this high. Data released in US session saw Canadian trade surplus narrowed to 5.64b in Q3. Oct PPI was flat mom.

Eurozone inflation posted a record drop in November with HICP flash estimate sank further to 2.1% from 3.2% in October. After being above ECB’s target of 2% since Sep 07, inflation is now very close to such target. Unemployment rate came in at 7.7% for October, the highest level in 2 years (consensus: 7.6%). The number of jobless people jumped by 225K to 12 million. Among the 15 nations, Spain got hit the most, with unemployment rate rose to 12.8% in October (Sep: 12.1%, October 07: 8.5%), while Germany recorded a 7.1% rate in October, which is the same as September’ data and declined from 8.1% a year ago and unchanged from. September’ unemployment rate was also revised upward to 7.6% from 7.5%. While a 50bp cut is fully expected from ECB on Dec 4, there’re increasing speculations of a larger cut considering faster than expected deterioration of the economic outlook and moderation of inflation.

Earlier today, Japan released a number of economic data which indicated the nation is in deepening recession. Manufacturing PMI for November fell to 36.7 (Oct: 42.2), the ninth consecutive fall and a record low since the survey started in 2001. Concerning the components, output index fell to 30.9 from 39.7 a month ago, its sharpest fall ever. New orders plunged to 27.3 from 34.5 while new export orders also fell to 31.1.

Household spending fell -3.8% in October on annual basis worse than -3.4% as market expected. Though better than expectation, Japan retail sales still dropped 0.6% in October from a year ago and marked the decline for the second month. Accounting for more than 50% of Japan’s GDP slowdown in consumer spending signaled the nation will take longer to recover from recession. Unemployment rate fell to 3.7% in October, much lower than economists’ forecast of 4.2% and set a one-year low.
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Investors shrug off poor economic data from US and Eurozone today and confidence is boosted by the bailout of Citigroup. Stocks in US and Europe are generally higher and the improved risk appetite triggered further pull back in dollar and yen. Dollar index’s fall continues today and is set to take on 86.14 near term support. As mentioned before, break will indicate that a short term top is in place and will likely trigger deeper correction in dollar. Gold also rides on dollar’s weakness and surges to as high as 830 today so far while crude oil is staying above 51 level in early US session.
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Mid-Day Report: Dollar Weakens as Consolidation Continues, FOMC Minutes Next
Dollar is sharply lower against European majors in early US session as consolidation continues. Technically speaking, as discussed in our technical outlook reports, more upside is still expected in EUR/USD and GBP/USD. Meanwhile, USD/CHF retreats sharply after edging higher to 1.2082 earlier today. Dollar index’s dip below 4 hours 55 EMA argues that some more pull back should be seen before resuming recent rally. Elsewhere, Crude oil, rides on dollar’s retreat and rebounds strongly from intraday low of 53.66 to above 55.6. Focus will now turn to FOMC minutes for inspirations on further volatility. Though, ,markets are pricing in 90% chance of another 50bps cut from Fed on Dec 16 and the minutes will likely have little impact to this view based on current economic and inflation outlook. Read the rest of this entry »

Mid-Day Report: Markets Stay in Range after Mixed US Data

Market remains rather quiet today, searching for direction. Mixed data from US didn’t trigger much volatility neither. One the one hand, Empire Statement Manufacturing index dropped to record low of -25.4 in Nov but was slightly better than expectation of -26. On the other hand, industrial production unexpectedly grew 1.3% mom in Oct, much better than consensus of -0.4% contraction. Capacity utilization was unchanged at 76.4%.

Technically speaking, though, firstly, Dollar index once again fails to take out 87.87/98 resistance level and retreats again. As mentioned before, EUR/USD and AUD/USD are likely still staying in consolidation. More importantly, GBP/USD’s recovery today argues that some more consolidation is underway. After all, some more pullback is now in favor for the greenback in short term before resuming recent up trend. Elsewhere, DOW opens mildly lower. Crude oil and gold are both staying in tight range so far.
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Mid-Day Report: Dollar Firm Despite Poor Job Data

Overall outlook in the markets remains unchanged in early US session. Dollar is generally firm in tight range despite another week of poor job data from US. Yen retreats mildly on intervention speculations but is still in favor to extend rally. Euro, on the other hand, tries to fight back against dollar and yen with support in EUR/GBP cross which made another record high of 0.8458. Nevertheless, the recovery is not too convincing yet. Commodity currencies and Sterling remain the biggest losers today.
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Daily Pivots: (S1) 1.1733; (P) 1.1862; (R1) 1.2069

USD/CAD’s rise lost steam ahead of 1.2022 resistance and retreats mildly. Intraday outlook remains neutral for the moment. As discussed before, break of 1.2022 resistance will indicate rise from 1.1464 has resumed. More importantly, this will reaffirm the case that correction from 1.3015 has completed with three waves down to 1.1464, slightly above 50% retracement of 0.9823 to 1.3015 at 1.1419. In such case, strong rally should be seen to retest 1.3015 high. On the downside, though, below 1.1464 will indicate that fall from 1.3015 has resumed. Read the rest of this entry »

Obama won the US presidential election and became the first African-American US president in history. Obama got 53% of popular vote and wong the electoral college by a big margin of 349-159.

Non Farm Payroll report showed -240k contraction in Oct, much worse than expectation of -200K. Sep’s figure was even worse after downward revision from -159k to -284k. Sep and Oct together recorded the worse two month slide since 2001. Unemployment rate surged much more than expected to 6.5%, highest level since 1994.

ISM manufacturing index continued the slide that started in Jun and reached 38.9 in Oct, much worse than expectation and was worst reading since 1982. Price paid component receded sharply to 37. Employment component also deteriorated sharply to 34.6. ISM non-manufacturing index dropped more than expected to new cyclical low of 44.4 in Oct. Employment component dropped deeper into contraction region at 41.5.

Construction spending dropped -0.3% in Sep. factory orders dropped -2.5% in Sep. Jobless claims came in at 481K. Q3 labor cost rose 3.6% in US, with productivity up 1.1%. Pending home sales dropped -4.6% to 89.2M in Sep. Wholesale inventories dropped -0.1%.

ECB met market expectation and lowered interest rates by 50bps to 3.25% on unanimous vote even though the possibility of a 75bps cut was discussed. In the following press conference, Trichet said that markets are now facing an extraordinary degree of uncertainty stemming from the financial market turmoil which will dampen demand in the Eurozone. Recent data confirms that growth momentum has weakened. Sluggish domestic demand and tighter financial conditions are expected. Upside inflation risks has fallen and Trichet expects strong CPI declines due to base effects.

European Commission forecasts contraction in the economy for three consecutive quarters. Growth forecast for 2008 was revised down from 1.3% to 1.2%. Also, the EC forecast growth to be a mere 0.1% next year, worse since 1993. Eurozone PMI manufacturing was revised down to a record low of 41.1 in Oct. Services PMI was revised lower to 42.4 in Oct. PPI moderated sharper than expected to 7.9% yoy in Sep. Retail sales dropped -0.2% mom, -1.6% yoy in Sep.

BoE surprised the markets by cutting as much as 150bps to bring the benchmark interest rates to 3.00%, lowers since 1955. Also, this was the largest single cut in 16 years. The accompanying statement acknowledged that there is a “marked deterioration in the outlook for economic activity at home and abroad,” and “availability of credit to households and businesses is likely to remain restricted for some time”. Risks to inflation is believed to have “shifted decisively to the downside,” and now with “substantial risk of undershooting the inflation target”. Hence, it’s believed that the policy easing cycle is not over yet.

UK PMI manufacturing beat expectation and climbed to 41.5 in Oct. PMI construction dropped more than expected to 35.1 in Oct. Services PMI plunged more than expected to record low of 42.4 in Oct. Industrial production fell less than expected by -2.3% yoy in Sep but manufacturing production fell faster than expected by -2.3% yoy. Nationwide consumer confidence unexpectedly improved to 55 in Oct. Halifax house prices dropped more than expected by -2.2% mom in Oct.

In a surprised move, SNB lowed the LIBOR target rate by 50bps to 1.5-2.5%, with point target of 2.0%, in an unscheduled meeting. SNB said in the statement that the global economic outlook has “deteriorated more severely than anticipated”. Much impact is expected to growth which, as SNB said, might even be “negative” in 2009.

Swiss SVEM PMI dropped to 47 but was better than expectation of 45.3. CPI moderated less than expected to 2.6% yoy in Oct. Unemployment rate rose from 2.4% to 2.5% in Oct.

Japan leading indicator rose 0.2% to 89.2% in Sep.

Canadian building permits surprised on the upside, rising 13.4% in Sep. Germany factory orders dropped sharply by -8.0% mom, -2.7% yoy in Sep.

RBA cut overnight cash rate by 75bps to 5.25%, larger than expectation of 50bps cut to 5.50%. In the accompanying statement, Governor Stevens acknowledged turbulence in world financial markets and weakness in major industrial economies around the world. Such “deteriorating international conditions and falling commodity prices” will have a negative dampening influence to the prior rate cuts and stimulus package to boost the economy. Spending and activity in Australia will be “weaker than earlier expected”.

Australian retail sales rose a mere 0.2% mom in Sep. Seasonally adjusted sales resulted in a -1.1% mom contraction, worst in three years. House price index dropped much more than expected by -1.8% qoq in Q3, the biggest quarterly decline since 1978. Annual growth rate closed sharply from 8.2% to 2.8%. TD Securities inflation estimation fell for the first time since Feb 2006, by -0.2% mom. Unemployment rate was unchanged at 4.3% in Oct, better than expected 4.4%.

New Zealand unemployment rate rose less than expected from 3.9% to 4.2% in Q3.
BY ActionForex

Mid-Day Report: Little Reaction to Bad Non Farm Payroll Report

Markets showed little reaction to a bad non-farm payroll report today. Dollar is mildly lower but remains in range against majors. Stocks even open higher. Non Farm Payroll report released today showed -240k contract in Oct, much worse than expectation of -200K. Sep’s figure was even worse after downward revision from -159k to -284k. Sep and Oct together recorded the worse two month slide since 2001. Unemployment rate surged much more than expected to 6.5%, highest level since 1994.

Canadian dollar, on the other hand, is lifted by unexpected expansion in the employment market. Canada added 9.5K jobs in Oct versus consensus of -10K. Unemployment climbed to 6.2% though.

Other data released earlier saw Swiss unemployment rate rose from 2.4% to 2.5% in Oct. Germany Trade surplus cam in at 13.7b. Germany industrial production dropped sharply by -2.1% mom, -3.6% yoy in Sep.

By ForexAction

Mid-Day Report: Dollar and Yen Weakens as Sentiments Flip Again

Market sentiments flip once again on European stock market rally as well as anticipation of higher open in the US markets. Dollar index fails to sustain above 86 level and weakens again today. Aussie, on the other hand, reverses earlier loss after RBA’s larger than expected cut and resumes recent rebound against the greenback. Euro and Sterling also rebound while the Canadian dollar extends recent rally. USD/CHF’s break of 1.1746 is indeed a false signal of dollar’s rally resumption. As discussed before, we believe that a short term top is formed in the dollar and the development so far is still consistent with this view. The rebound in EUR/USD left the fall from 1.3290 in three wave corrective structure which indicates it’s merely correcting the rise from 1.2329. Similar situation can be found in GBP/USD too. Main focus will shift to the result of US presidential election now.

Economic data released today saw UK PMI construction dropped more than expected to 35.1 in Oct. Eurozone PPI moderated sharper than expected to 7.9% yoy in Sep. Swiss CPI moderated less than expected to 2.6% yoy in Oct.

RBA cut overnight cash rate by 75bps to 5.25%, larger than expectation of 50bps cut to 5.50%. In the accompanying statement, Governor Stevens acknowledged turbulence in world financial markets and weakness in major industrial economies around the world. Such “deteriorating international conditions and falling commodity prices” will have a negative dampening influence to the prior rate cuts and stimulus package to boost the economy. Spending and activity in Australia will be “weaker than earlier expected”.

BY ActionForex