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Daily Forex Technical Report

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Mid−Day Forex Technical Report − Yen Dominates after Wall Street Meltdown

Mon, Sep 15 2008, 14:00 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Mid-Day Report

Yen Dominates after Wall Street Meltdown

The Japanese yen is the biggest winner in the panic markets today on risk aversion. Lehman Brothers filed for bankruptcy overnight after failing to seek capital. Bank of America, which walked out of the discussion with Lehman Brothers, agreed a by Merrill Lynch for 450b instead. AIG is reported to be seeking additional $40b in emergency funds, possibly from the Fed to help avoid credit rating down grade. Fed announced additional initiatives to "enhancements to its existing liquidity facilities" considering the vulnerabilities "in the wake of an unwinding of a major financial institution. " Ten banks agreed to provided $7b each to" help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets." ECB and BoE also took measures to add liquidity to the markets. BoE will offer GBP 5.0B in 3-day repo. ECB said that it "stands ready to contribute to orderly conditions in the euro-money market". Nevertheless, markets still panic on worry of further meltdown in wall street. European stock markets responded by falling 4-5% and the DOW opens around 300pts lower.

Dollar gapped sharply lower as markets opened today and recovered much as the day goes. There has been increased speculation of that Fed will cut rates this week. Indeed, fed fund futures are pricing over 80% chance that Fed will cut by 25bps tomorrow. Nevertheless the weakness in dollar is so far limited. The greenback is indeed in positive territory against Euro, Aussie, Sterling and Canadian dollar as these currencies are dragged down sharply in respective yen crosses. Though, the short term outlook in the greenback remains unchanged. That is, a short term top is in place and further pull back should be seen.

Economic data took a back seat today. Empire state manufacturing index dropped sharply to -7.4 in Sep. US industrial production dropped more than expected by -1.1% mom in Aug. Eurozone Q2 labor costs rose 2.7%, below consensus of 2.5%. Swiss combined PPI moderated from 4.9% to 4.0% yoy in Aug. Swiss retail sales jumped 6.2% though.

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EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.4046; (P) 1.4139; (R1) 1.4305; More

EUR/USD surged sharply to as high as 1.4481 earlier today and retreated sharply as the day goes, reaching as low as 1.4084 in early US session. While much volatility is seen in the markets today, the short term outlook in EUR/USD remains unchanged. That is, a short term bottom is in place after being supported by key medium term support at 1.3851 (50% retracement of 1.1639 to 1.6038 at 1.3839). Further rebound is still expected to be seen to 1.4629/4908 resistance zone. Though, upside is expected to be limited there and bring fall resumption. On the downside, though, break of 1.3851 will dampen this view and indicate that recent decline has resumed.

In the bigger picture, medium term up trend from 1.1639 has completed at 1.6038, after a double top reversal pattern (1.6019, 1.6038) and subsequent decisive break of medium term rising trend line support. While a short term bottom is likely in place and corrective rebound should be seen, the whole decline from 1.6038 is still expected to extend further after completing the correction. Sustained trading below 1.3851 will indicate that fall from 1.6038 has resumed to next target of 61.8% retracement of 1.1639 to 1.6038 at 1.3319 first. On the upside, sustained break of double top neckline resistance at 1.5284 is needed before considering that decline from 1.6038 has completely finished.

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Published on  Mon, Sep 15 2008, 14:47 GMT