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Daily Forex Technical Report − Yen Tumbles as Investors Relieved by Bank Stake Purchase Plan

Tue, Oct 14 2008, 07:39 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Daily Report

Yen Tumbles as Investors Relieved by Bank Stake Purchase Plan

Sentiments of investors greatly improved after world leaders announced details of respective rescue plans. Dow had an impressive rally of 936 pts, or 11%, biggest rally since 1930s. Nikkei also surged 1,171 pts or 14%, biggest gain on record. European stocks are also generally high in the open today. MSCI World Index jumped 9.5% while MSCI Asia Pacific Index rose 9.5% too. Abandoning the original plan targeted at troubled mortgage-related assets the US government follows similar moves in European and said it will inject around $125b in nine of the biggest US banks, including Citigroup, Goldman Sachs, Wells Fargo, JPMorgan Chase, Bank of America, Merrill Lynch, Morgan Stanley, State Street Corp and Bank of New York Mellon group. Another $125b will be used to recapitalize probably thousands of other financial institutions in the country. Treasury Paulson, Fed Bernanke and FDIC Chairman Sheila Bair scheduled a press conference at 8:30 a.m. today in Washington to announce the details.

While the rebounds in the equity markets are impressive, there are some points to note in the forex markets. Firstly, dollar index's fall from 83.18 looks corrective and is still supported by 81 level. Secondly, Euro is so far lagging behind other majors in the rebound against dollar. EUR/USD is still limited well below key near term level of 1.3785. Thirdly AUD/USD's rebound from 0.6330 seems to be losing some momentum as it approaches 0.7135 resistance. Though, fourthly, most yen crosses should have confirmed that short term bottoms are formed. Fifthly, rebound in crude oil looks corrective too. Having said that, the trend in dollar and yen could diverge in the near term. That is, the retreat in dollar might finish earlier than the yen and the greenback is possibly going to strengthen mildly today while yen crosses will continue to rebound.

On the data front, focus today will be on UK CPI which is expected to accelerate further to 5% yoy in Sep. German ZEW Economic sentiment and Eurozone ZEW are both expected to deteriorate further in Oct. Eurozone industrial production is expected to show 1.1% mom, -1.6% yoy growth. Released earlier today, UK RICS house price dropped -84% in Oct, down from -82%. UK BRC retail sales dropped -1.5% in Sep. Japanese domestic CGPI dropped -0.4% mom in Se with yoy rate down from 7.2% to 6.8%. Japanese consumer confidence unexpectedly improved to 31.8 in Sep.

Nevertheless, main drivers of the market will be the bank shares purchase announcement from US as well as on whether European and US stock markets could extend yesterday's rebound.

More Forex Technical Analysis Reports Here.

USD/JPY Daily Outlook

Daily Pivots: (S1) 100.32; (P) 101.24; (R1) 102.92; More.

USD/JPY's rebound from 97.91 extended further to as high as 103.06 today. Break of 101.48 resistance confirms that a short term bottom is in place. At this point, intraday bias remains on the upside as long as 100.93 minor support holds. Further rise should be seen to test 103.49/54 resistance. Note that as long as this resistance zone holds, the fall from 110.66 should still be in progress. Below 100.93 will flip intraday bias back to the downside to retest 97.91 low first and then 95.77 key medium term low. However, sustained break of 103.54 will argue that fall from 110.66 has completed and focus will turn to 106.14 resistance for confirmation.

In the bigger picture, medium term rise from 95.77 has completed at 110.66 with bearish divergence condition in daily MACD. Also, the three wave structure of such rise argues that it's just correction, or part of the consolidation to the down trend from 124.13. Hence, deeper fall is now expected to retest 95.77 low. Break will confirm that whole down trend from 124.13 has resumed and should target 61.8% projection of 124.13 to 95.77 from 110.66 at 93.13 first. On the upside, above 106.14 resistance will indicate that fall from 110.66 has completed. This will suggest that medium term consolidation from 95.77 is still in progress. In such case, another test of 110.66 could be seen before resuming the down trend from 124.13.

For Crude Oil and Gold analysis, click here

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Published on  Tue, Oct 14 2008, 08:03 GMT