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Daily Forex Technical Report

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Mid−Day Forex Technical Report − Euro Extends Losses, Dollar Rebounds Further

Fri, Nov 28 2008, 13:42 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Mid-Day Report

Euro Extends Losses, Dollar Rebounds Further

Euro extends earlier losses after the release of record drop in inflation and rise in unemployment that spurs speculations that ECB could cut deeper than 50bps next week. EU/USD breaches 1.27 level briefly while EUR/GBP extends the correction that started at 0.8660, heading to 0.824 level. EUR/JPY is pressing 121 level. Dollar, on the hand, strengthens generally against most currencies except the yen. Dollar index's break of 86.43 resistance argues that correction from 88.46 has completed and more upside could be seen to retest this high. Data released in US session saw Canadian trade surplus narrowed to 5.64b in Q3. Oct PPI was flat mom.

Eurozone inflation posted a record drop in November with HICP flash estimate sank further to 2.1% from 3.2% in October. After being above ECB's target of 2% since Sep 07, inflation is now very close to such target. Unemployment rate came in at 7.7% for October, the highest level in 2 years (consensus: 7.6%). The number of jobless people jumped by 225K to 12 million. Among the 15 nations, Spain got hit the most, with unemployment rate rose to 12.8% in October (Sep: 12.1%, October 07: 8.5%), while Germany recorded a 7.1% rate in October, which is the same as September' data and declined from 8.1% a year ago and unchanged from. September' unemployment rate was also revised upward to 7.6% from 7.5%. While a 50bp cut is fully expected from ECB on Dec 4, there're increasing speculations of a larger cut considering faster than expected deterioration of the economic outlook and moderation of inflation.

Earlier today, Japan released a number of economic data which indicated the nation is in deepening recession. Manufacturing PMI for November fell to 36.7 (Oct: 42.2), the ninth consecutive fall and a record low since the survey started in 2001. Concerning the components, output index fell to 30.9 from 39.7 a month ago, its sharpest fall ever. New orders plunged to 27.3 from 34.5 while new export orders also fell to 31.1.

Household spending fell -3.8% in October on annual basis worse than -3.4% as market expected. Though better than expectation, Japan retail sales still dropped 0.6% in October from a year ago and marked the decline for the second month. Accounting for more than 50% of Japan's GDP slowdown in consumer spending signaled the nation will take longer to recover from recession. Unemployment rate fell to 3.7% in October, much lower than economists' forecast of 4.2% and set a one-year low.

Japan's national CPI fell to annualized 1.9% in October, inline with consensus and lower than 2.3% in September, while inflation for Tokyo area slowed to 1.1% in November, below market expectation of 1.3%. Constrained economic activities due to recession as well as decline in oil price were the main reasons for lower inflation as Japan basically import all of its oil demand. Excluding foods and energy, price was almost flat. The current CPI levels unveils risk of deflation in the world's second largest economy and gives room for further rate cuts by BoJ.

Industrial production declined sharply 3.1% in October. The gauge has been falling rapidly, compared with consensus of -2.5% and growth of 1.1% growth a month ago, as companies trimming operation very quickly because of slowing exports. The auto sector suffered the most and the situation has started spreading to other sectors. Outlook for industrial production remains weak and it's likely for Japan to post the worst fall in 4Q08. Housing starts rose 19.8% yoy in Oct, below consensus of 29.3%.

United Kingdom's consumer confidence index by Gfk came in at -35, slightly higher than consensus of -38 and October's -36. However, it's still close to record low of -39 in August.

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EUR/JPY Mid-Day Outlook

Daily Pivots: (S1) 122.35; (P) 123.00; (R1) 123.56; More.

EUR/JPY dips to as low as 121.16 in early US session, following broad based weakness in euro. Rebound from 116.47 could have completed at 126.24 already. Intraday bias is mildly on the downside as long as 123.46 minor resistance holds and further downside could be seen to 116.47. Break will bring retest of 113.63 low. On the upside, though, above 126.24 will indicate that further rise is in progress to 131.02 or above to complete the correction that started at 113.63.

In the bigger picture, as discussed before, whole down trend from 169.96 is still expected to continue after completing consolidation from 113.63. Break of this low will confirm that such fall has resumed and should target 76.4% retracement of 88.97 to 169.96 at 108.08. However, note that as long as 113.63 low holds, consolidation from there might still continue. However, upside is still expected to be limited below 141.73 cluster resistance (50% retracement of 169.96 to 113.63 at 141.79) to complete the correction.

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Published on  Fri, Nov 28 2008, 13:52 GMT