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 »

FOMC cut the federal funds rate by 50bps to 1.00% as widely expected. Discount rate was also cut by 50bps to 1.25%. The vote was unanimous. The wordings in the statement showed additional concern on downside risks to growth. Fed acknowledged that “the pace of economic activity appears to have slowed markedly” owing to weakened consumer spending, business spending, industrial production and foreign economies, with extra restraints from “intensifications of financial market turmoil.” Fed continue to adopt an easing bias as it pledged to “act as needed to promote sustainable economic growth and price stability”. Inflation is not much of a concern for the moment since recent decline in energy and commodity prices and weaker economy will moderate inflation in the coming quarters. In addition, Fed set $120b swap lines in emerging markets including the creation of temporary swap with central banks of of Brazil, Mexico, Korea and Singapore. RBNZ and Fed also entered into a $15b swap line.
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Action Insight Mid-Day Report
Euro dives further in early US session after ECB Trichet left rates unchanged at 4.25% but delivered a much softer message in the following press conference. A few points to note. Firstly, the governing council did discussed two options, on hold and cut rates, even though the rate to hold rates was unanimous. Secondly, Trichet noted weakening of Eurozone economic activity has been “very visible” and recent data suggests there are “increased downside risks” to growth. Thirdly, Trichet acknowledged that upside inflation risks have diminished even though they didn’t disappear yet. All in all, Trichet stressed that ECB is aware of the high level of uncertainty that has developed due to intensification of the financial market turmoil. After all, the markets generally believe that Trichet is paving the way for a rate cut, probably by year end and another cut early next year.

Technically speaking, note that EUR/USD and EUR/JPY both took out this year low’s today which confirm that recent medium term down trend has resumed. USD/CHF is pressing 1.1416 high and should set to take this out to confirm resumption of medium term rise. Another pair to watch is USD/CAD, which surges sharply with support of falling oil prices and is now back pressing key medium term resistance at 1.8 level. Dollar index takes out 80 level today, confirming that rise from 71.31 has resumed. And after all, more upside is expected from the greenback.

Economic data released today saw US jobless claims remains elevated at 497k. Eurozone PPI dropped -0.5% mom in Aug, with yoy rated moderated to 8.5% as expected. UK nationwide house price dropped further by -12.4% yoy in Sep. Australia trade surplus came in wider than expected at 1364m in Aug.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3922; (P) 1.4178; (R1) 1.4346

EUR/USD’s break of 1.3851 key medium term support indicates that whole decline from 1.6038 should have resumed. At this point, intraday bias remains on the downside as long as 1.3936 minor resistance holds. Further decline is expected to 61.8% projection of 1.6038 to 1.3881 from 1.4867 at 1.3543 next. On the upside, above 1.3936 will indicate that a short term bottom might be formed and bring consolidation. But recovery should be limited well below 1.4574 resistance and bring fall resumption.

In the bigger picture, sustained trading below 1.3851 medium term support will confirm that whole decline from 1.6038 has resumed. Next medium term target will be 61.8% retracement of 1.1639 to 1.6038 at 1.3319. On the upside, above 1.4867 resistance is needed to indicate that a medium term bottom is formed. Otherwise, medium term outlook remains bearish even in case of strong rebound.

Action Insight Mid-Day Report
Euro dives further in early US session after ECB Trichet left rates unchanged at 4.25% but delivered a much softer message in the following press conference. A few points to note. Firstly, the governing council did discussed two options, on hold and cut rates, even though the rate to hold rates was unanimous. Secondly, Trichet noted weakening of Eurozone economic activity has been “very visible” and recent data suggests there are “increased downside risks” to growth. Thirdly, Trichet acknowledged that upside inflation risks have diminished even though they didn’t disappear yet. All in all, Trichet stressed that ECB is aware of the high level of uncertainty that has developed due to intensification of the financial market turmoil. After all, the markets generally believe that Trichet is paving the way for a rate cut, probably by year end and another cut early next year.

Technically speaking, note that EUR/USD and EUR/JPY both took out this year low’s today which confirm that recent medium term down trend has resumed. USD/CHF is pressing 1.1416 high and should set to take this out to confirm resumption of medium term rise. Another pair to watch is USD/CAD, which surges sharply with support of falling oil prices and is now back pressing key medium term resistance at 1.8 level. Dollar index takes out 80 level today, confirming that rise from 71.31 has resumed. And after all, more upside is expected from the greenback.

Economic data released today saw US jobless claims remains elevated at 497k. Eurozone PPI dropped -0.5% mom in Aug, with yoy rated moderated to 8.5% as expected. UK nationwide house price dropped further by -12.4% yoy in Sep. Australia trade surplus came in wider than expected at 1364m in Aug.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3922; (P) 1.4178; (R1) 1.4346

EUR/USD’s break of 1.3851 key medium term support indicates that whole decline from 1.6038 should have resumed. At this point, intraday bias remains on the downside as long as 1.3936 minor resistance holds. Further decline is expected to 61.8% projection of 1.6038 to 1.3881 from 1.4867 at 1.3543 next. On the upside, above 1.3936 will indicate that a short term bottom might be formed and bring consolidation. But recovery should be limited well below 1.4574 resistance and bring fall resumption.

In the bigger picture, sustained trading below 1.3851 medium term support will confirm that whole decline from 1.6038 has resumed. Next medium term target will be 61.8% retracement of 1.1639 to 1.6038 at 1.3319. On the upside, above 1.4867 resistance is needed to indicate that a medium term bottom is formed. Otherwise, medium term outlook remains bearish even in case of strong rebound.

Action Insight Mid-Day Report

Markets stabilized a lot after Fed’s $85b bailout announcement for AIG overnight. Economic data across the Atlantic are generally bad but markets remain steady so far. Building permits in US dropped much more than expected by -8.9% to 0.85m in Aug, housing starts dropped -6.2% to 0.89m. Current account deficit widened to -183.1b in Q2. After all there is still not change in the outlook in major forex pairs. Dollar’s pull back is still expected to extend further. The Japanese yen may be facing some resistance for the moment, but yen crosses are still in favor to head lower with near term resistance levels remain intact.

Sterling spiked lower after BoE minutes and employment report but quickly settles back into established range. BoE minutes surprised the markets by revealing a two way split of votes, with ultradove Blanchflower voted for a 50bps cut and no one voted for a hike. In his letter to Chancellor Darling, BoE Governor King explained why the bank fails to bring down inflation and noted that “muted economic growth is necessary to dampen pressures on price and wages”. He expects CPI to “peak soon at around 5%”. In Aug, claimant count climbed further to 2.8%, jumped sharply to 32.5K versus expectation of 22.3k. Unemployment rate in Jul also rose to 5.5% versus consensus of 5.4%. CBI industrial trend survey came in much worse than expected at -26.

Other data saw Swiss ZEW improved from -79.6 to -44.4 in Sep. Eurozone trade deficit widened to -2.3b in Jul.

BoJ left rates unchanged at 0.5% as widely expected. In the accompanying statement, BoJ noted that energy prices and weak experts is keeping the economy sluggish but growth will return to a moderate path once commodity price stabilize and global economies improve. Inflation will remain high for months before moderating. In the press conference, BoJ Governor Shirakwa noted both upside risks on inflation and downside risks to growth but he stressed that downside risks had not worsened.

By ActionForex

Daily Pivots: (S1) 151.82; (P) 154.79; (R1) 156.32

EUR/JPY’s decline extends further as expected as accelerated to as low as 150.59 so far. Some support is seen as EUR/JPY entered into key medium term support zone of 149.27/151.71 as the cross turns sideway. Nevertheless, intraday bias remains on the downside for 149.27. Above 1.5437 will turn intraday outlook neutral first but recovery should be limited below 157.83 resistance and bring another fall. Above 157.83 is needed to signal a short term bottom is formed.

In the bigger picture, EUR/JPY is now sitting in key medium term support zone of 149.27/151.71. As discussed before, recent developments argues that a long term top is already in place at 169.96 after EUR/JPY failed 170 psychological level. Bearish divergence conditions in weekly MACD and RSI and with monthly MACD remains below signal line support this. This week’s sharp break of long term rising channel support adds much more credence to this case. Decisive break of 149.27 support will confirm and bring deeper medium term decline to next support zone at 124.15/140.92. Note that some rebound might be seen with 55 months EMA (now at 149.79) in proximity but, above 170 psychological resistance is now needed to confirm underlying momentum. Otherwise, downside risks will continue to grow.

(CEP News) Frankfurt - With upside risks to inflation and prevailing downside risks to growth, the European Central Bank will continue to monitor data, ECB Executive Board member José Manuel González-Páramo said in a speech given in San Sebastian, Spain on Friday.
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(CEP News) Frankfurt - With upside risks to inflation and prevailing downside risks to growth, the European Central Bank will continue to monitor data, ECB Executive Board member José Manuel González-Páramo said in a speech given in San Sebastian, Spain on Friday.
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Daily Pivots: (S1) 156.15; (P) 157.09; (R1) 157.93;

EUR/JPY remains bounded in tight range above 156.25 in early US session but nevertheless, intraday bias remains on the downside as long as 158.48 minor resistance holds. Further decline is still expected to 149.27/151.71 key medium term support zone. Though, above 158.48 will indicate that an intraday low is in place. Considering mild bullish convergence condition in 4 hours MACD, a short term bottom might be in this case and stronger rebound could be seen towards 162.00 resistance.

In the bigger picture, rise from 151.71 has completed at 169.69 after failing 170 psychological resistance. The case of a long term top continues to build up with bearish divergence conditions in weekly MACD and RSI and with monthly MACD remains below signal line. Focus is now on long term rising channel support (now at 158.87). Sustained break of the channel will indicate that whole long term up trend from 88.97 (00 low) has completed too and bring deeper decline to 149.27 key medium term support for confirmation. On the upside, above 170 psychological resistance is now needed to confirm underlying momentum. Otherwise, downside risks will continue to grow.

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(CEP News) Frankfurt - Following the European Central Bank’s decision to keep its main refinancing rate unchanged at 4.25% on Thursday, ECB President Jean-Claude Trichet said upside risks to price stability had been confirmed by recent data releases.
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