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 »

1. We, the Leaders of the Group of Twenty, held an initial meeting in Washington on November 15, 2008, amid serious challenges to the world economy and financial markets. We are determined to enhance our cooperation and work together to restore global growth and achieve needed reforms in the world’s financial systems.
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Daily Report: Markets Indecisive after Dramatic Reversal

The US stock markets had a dramatic reversal in late trading yesterday. S&P 500 was down to a 5 year low and then staged a strong rebound to close 7% higher. Dow also rebounded from an intraday low of 7956 to close at 8835, up 6.6%. The reversal in stock markets triggered sharp reversal in Euro, Aussie as well as the yen. Dollar index also reversed sharply after making a new high at 87.98 briefly. Meanwhile, Sterling remained the biggest loser, lacking any decisive strength in rebound and even fell to new record low of 0.8660 against Euro. However, the momentum in the markets diminished as Asian stocks has mild reactions to the overnight happenings only. Dollar and yen recovers mildly across the board and remains in tight range entering into European session.
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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

The dollar and yen strengthens mildly across the board today after RBA cut rates more than expected by 75bps. Particular weakness is seen in European majors. Another two central banks, ECB and BoE, will announce rate decisions later this week. In particular, there has been increased speculations that BoE will cut by as much as 100bps on Thursday, doubling original forecast of 50bps. Such speculations increased further after RBA’s larger than expected cut. While Aussie tops the top movers chart today, Sterling is leading the decline from a weekly point of view.

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”.

On the economic data front, Swiss CPI moderated less than expected to 2.6% yoy in Oct. UK PMI construction and Eurozone PPI as well as US factory orders will be released later today.

Technically speaking dollar index remains strong today, climbing further to as high as 86.89 so far. Further upside is still expected as long as 84.92 minor support holds. More downside is still expected in both EUR/USD and GBP/USD in near term. USD/CHF’s break of 1.1746 high may be taken as an early indication of resumption of dollar’s up trend. However, we’re still skeptical as outlook in other pairs argues that dollar is in sideway consolidation. Dollar index’s break of 87.87 high is needed to be the confirmation.

BY ActionForex

Weekly Review : Markets Calmed Down but the Worst is Not Over Yet
The forex markets stabilized last week after world leaders’ pledges were followed by solid action plans. The fear of breakdown of the financial markets receded. However, such fear was replaced by the worry of deepening recession in the world economy, in particular after a string of poor economic data were released from the US. Rebound in the stock markets was strong but brief. Dollar and yen retreated but were both supported above key near term levels. The forex markets turned into a consolidation phase and will probably stay there for a while but there is no change in the medium term bullish outlook in dollar and yen yet.

As pointed out during the week, the forex markets is closely correlated to the stock markets recently and will continue to remain so. DOW’s rebound might be strong but the scale of the prior fall should be taken into perspective when considering the strength of the rebound. Last week’s high in DOW was 9,794 and it was still limited below 50% retracement of the near term sharp decline from of 11,867 to 7,884 at 9,876. The current volatile price actions indicate that DOW merely developing into some sideway consolidation pattern, probably a triangle and thus, the down trend is not finished. Similar development will likely be seen in the forex markets too with dollar and yen pairs continuing to consolidate in near term. The rally in dollar and yen will likely resume as DOW breaks out.

Looking ahead, two central banks, BoC and RBNZ are expected to cut rates again this week. Bernanke’s testimony and BoE minutes will be closely watched as usual. Inflation data from Australia, New Zealand and Canada will be released but will probably have little impact to the markets. Focus will likely be on growth data including PMIs from Eurozone as well as retail sales and Q3 GDP in UK which would probably further solidify the case that the downturn in the global economy is accelerating. But again, the development in the stock markets will have the largest impact in the forex markets as the correlation continues.
By ActionForex

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

Dollar continues to stay in tight range in early US session as poor economic data from US fails to trigger much price action in the financial markets. New residential construction data showed housing market is still in deep recession. Housing starts dropped by -6.3% to 26 years low of 0.82m annualized rate in Sep. Building permits dropped by -8.3% to 27 years low of 0.786m annualized rate. Preliminary reading of U of Michigan consumer sentiments tumbled sharply to 57.5 in Sep. But after all, dollar index remains in tight range above 82 level while most forex pairs are bounded in sideway consolidation. DOW opens lower of lack follow though selling. Crude continues to struggle around above 70 as consolidation continues too even though gold dropped below 800 level again and reached as low as 779.
By : ActionForex

Mid-Day Report: Markets Consolidate in Tight Range
The forex markets are basically staying in tight range in early US session. Rally in dollar and yen lost some steam after European stock markets recover some of the earlier losses. US stocks are mixed at open as market digests yesterday’s losses. Some more consolidation is expected generally in financial markets. US CPI was unexpectedly flat in Sep with yoy rate moderated more than expected to 4.9%. Core CPI was unchanged at 2.5% yoy as expected. Industrial production dropped sharply by -2.8% mom in Sep, largest fall since 1974, while capacity utilization dropped more than expected to 76.4%. TIC capital flow dropped to 14b. Jobless claims dropped to 461k. Philly Fed index dropped sharply to -37.5 in Oct.

SNB said that it will extend a maximum of $54b in loans to take over illiquid assets fro UBS so that Switzerland will be able to “weather the economic difficulties” as a result of global economic slowdown. Swiss retail sales was flat yoy in Aug. ZEW economic expectation deteriorated sharply to record low of -91.1 in Oct.

BoE announced to implement three major reforms to improved market operations. Standing Facilities will be replaced by Operational Standing Facilities starting Oct 20 to “absorb technical problems and imbalances” in money market operations. There will be a discount window facility established that would allow banks to borrow from the government to improve liquidity to commercial banks. A permanent long-term refi open market operations against a wider range of collateral classes will be introduced.
By ActionForex

It’s a historical week where we saw wild movements in all financial markets as well as coordinated rate cut from world central banks for this first time in history. The fear of credit crisis is intensifying with Dow having a historical slide of 18% to 8451 level. MSCI world index lost 20%, the largest decline since records began in 1970. Crude oil dropped 17% to $78 for the first time in a year and commodities are generally sold off. In the currency markets, it’s obvious that the Japanese yen was the biggest winner on risk aversion while carry trade currencies like Aussie was the biggest loser. Aussie had the biggest weekly drop since it began trading freely in 1983 and fell 20% against dollar, 25% against yen. Canadian dollar had the biggest weekly decline against dollar since 1971 too. Yen, on the other hand, had the biggest weekly rally against dollar since 1998.
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Dollar remains firm in US session after mixed data are released. Risk aversion seems to be back the the market again with yen crosses diving sharply lower, following weakness in US equity markets. All eyes are focusing on Senate vote on the $700b bailout plan this evening. The so called Emergency Economic Stabilization Act of 2008 is sweetened to attract more votes from both the Republicans and the Democrats, including revision to the FDIC’s insurance limit from $100k to $250k, and additional homeowner tax breaks and unemployment legislation. The bill will be passed to House on Thursday.

As the impact of credit crisis is spreading over to European, European G8 representatives, along with ECB Trichet and Eurogroup Chairman Juncker, will mean in Paris on Oct 4 to discuss the solutions to the financial turmoil. Juncker said that the result of the weekend meeting is “difficult” to foresee, but that the nations in Europe need to “take a leading role”.

After all, there are still much uncertainties in the financial markets as a whole. Though, technically speaking, the trends in the forex markets are intact. Dollar’s rally in dollar index remains in force. Renewed selling in yen crosses are giving some support to the greenback too. In short, more upside is expected from dollar and yen in short term.

Economic data from US were mixed. On the one hand, ADP employment report showed much less than expected job cuts of -8k in Sep versus consensus of -55k, lifting some hope of a better than expected Non-Farm Payroll on Friday. On the other hand, ISM manufacturing index plunged sharply to 43.5 in Sep, worst reading since Oct 2001, suggesting that deterioration in the economy is accelerating. Employment component also dropped sharply from 49.7 to 41.8 while Price paid component dropped from 77.0 to 53.5.

Data from Europe were generally disappointing. In particular, UK manufacturing PMI plummeted to record low of 41 in Sep. Unemployment rate in Eurozone climbed from 7.3% to 7.5% in Aug. Swiss SVME PMI dropped to 47.8 in Sep. Quarterly Tankan survey showed confidence among Japanese businesses continued to deteriorate in Q3. Large manufacturing index dropped sharply from 5 to -3, hitting the first negative result in more than five years. Large manufacturing index dropped from 10 to 1. Capex growth slowed from 2.4% to 1.7%, much worse than expectation of 2.5%.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.7668; (P) 1.7893; (R1) 1.8030

GBP/USD’s fall resumes in early US session and dives to as low as 1.7634. At this point, intraday bias remains on the downside as long as 1.7873 minor resistance holds. Further fall is expected to retest 1.7445 low and long term fibonacci level of 50% retracement of 1.3680 to 2.1161 at 1.7421. On the upside, above 1.7873 will turn intraday outlook neutral first but another fall is still expected after brief recovery.

In the bigger picture, as mentioned before, the rebound from 1.7445, which is treated as correction to down trend from 2.1161 only, have completed after meeting target of 1.8512/8794 resistance zone and was limited below key near term resistance of 1.8794 (50% retracement of 2.0158 to 1.7445 at 1.8802). Medium term outlook remains unchanged. Fall from 2.1161 (07 high) is expected to developing into a five wave decline before making a medium term bottom. Sustained break of 1.7421/45 support zone will confirm that this fall has resumed for next target of 61.8% retracement of 1.3680 to 2.1161 at 1.6538 first. Break of 1.9337 support turned resistance is needed to invalidate this view.