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Mid−Day Forex Technical Report − Markets Lifted by US Bank Recapitalization Plan, BoJ & BoC Announced New Initiatives

Tue, Oct 14 2008, 14:45 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Mid-Day Report

Markets Lifted by US Bank Recapitalization Plan, BoJ & BoC Announced New Initiatives

Dollar and yen continue to pullback against major currencies in early US session as US stock markets open higher following announcement of further actions to stabilize the financial markets. As generally expected, Treasury Paulson confirmed that US will spend $250b into financial institutions, including using about half to buy preferred shares of nine of the largest banks. FDIC will begin guaranteeing most new debts and offer insurance on non-interest bearing accounts used by small business for payrolls. Fed also announced to buy commercial paper on Oct 27.

BoJ held an unscheduled meeting today and decided to leave benchmark interest rate unchanged at 0.5%. Several initiatives are announced to stabilize the Japanese financial markets. The first measure aims at improving liquidity in JGB Repo market as the bank announced it will add floating-rate JGBs, inflation-indexed JGBs and 30yr government bonds to the repo operation. Also, BoJ will lower minimum fee rates applied to the Security Lending Facility from 1% to 0.5% and extend the period of relaxation. Thirdly, the bank will increase the frequency and size of Commercial Paper Repo operations which was previously done on a quarterly basis.

Bank of Canada also announced move to increase liquidity in the financial system. Firstly BoC will increase term PRA to be auctioned on Wednesday from $4b to $10b. A new Term PRA facility for primary dealers is announced. For a temporary period, BoC will accept an assignment of non-mortgage loan portfolios as eligible collateral for Large Value Transfer System.

Economic data released today saw UK CPI accelerated faster than expected to 5.2% yoy in Sep, will core CPI climbed to 2.2% yoy. DCLG house prices dropped more than expected by -3.4% yoy. RICS house prices balance dropped from -82% to -84%. BRC retail sales showed -1.5% fall in Sep. Germany ZEW economic sentiment deteriorated to -63 in Oct. Eurozone ZEW economic sentiment also deteriorated to -62.7.

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EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3461; (P) 1.3571; (R1) 1.3687; More

EUR/USD's recovery extends further to 1.3768 but still lacks decisive momentum to take out 1.3785 resistance. There is still no confirmation of a short term bottom yet. Further decline is still in favor as long as 1.3785 resistance holds. Below 1.3484 minor support will flip intraday bias back to the downside for 1.3258 low first. Break will confirm recent down trend has resumed for long term fibonacci level at 1.3053. On the upside, though, above 1.3785 will indicate that a short term bottom at least formed and bring stronger rebound.

In the bigger picture, note that EUR/USD is now sitting in an important long term support zone with a) 38.2% retracement of 0.8223 (00 low) to 1.6038 at 1.3053, 55 Months EMA at 1.3361 and the development in the new few weeks will be important to the long term outlook. Firstly, fall from 1.4687 as well as that from 1.6038 is still in progress as long as 1.3785 resistance holds. Sustained trading below mentioned 1.3053 fibo resistance and 55 months EMA will affirm that medium downside momentum is still strong in EUR/USD. Further break of 100% projection of 1.6038 to 1.3381 from 1.4867 at 1.2710 will add more credence to the case that whole down trend from 1.6038 is developing into a five wave impulsive decline. In other words, EUR/USD is probably just in the middle of such fall which should extend beyond 1.1639 low before forming a medium term bottom.

On the upside, however, above 1.3785 will firstly indicate that a short term bottom is in place. Secondly, this will argue that EUR/USD is drawing some support from mentioned support zone to form a medium term bottom. Stronger rebound should be seen in this case with focus turned back to 1.4867 resistance Break will confirm that a medium term bottom is in place. Also, this will leave the decline from 1.6038 in three wave structure which suggests that the price actions from 1.6038 are developing into something that's corrective in nature. In other words, fall from 1.6038 is probably just a correction from the long term angle and will likely be contained above 1.1639 low even if decline resumes.

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Published on  Tue, Oct 14 2008, 14:46 GMT