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Daily Forex Technical Report

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Mid−Day Forex Technical Report − Dollar and Yen Retreats as Stocks Recover from Yesterday's Loss

Tue, Dec 2 2008, 15:26 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Mid-Day Report

Dollar and Yen Retreats as Stocks Recover from Yesterday's Loss

Dollar and yen weakens mildly after US stock markets recovers from yesterday's sharp loss and opens mildly higher. Dollar index is back below 86.33 minor support, indicating that an intraday top is at least for at 87.31. Meanwhile, EUR/JPY and GBP/JPY are both held by last week's low and recovers. Also note that Canadian dollar and Aussie are both held by near term support against dollar too. After all, while up trend of dollar and yen are still expected to resume sooner rather than later, the current consolidation could extend further first. Elsewhere, Crude oil rebounds after hitting new low of 47.36 earlier today while Gold also recovers from 761.8.

Data released today saw Swiss CPI dropped -0.7% mom in November, worse than market expectation of -0.4% and +0.5% in October. CPI rose an annualized 1.5%, compared with consensus of 1.9%. The sharp fall in November inflation was due to decline in energy price and it increases chances for SNB to cut interest rate further after the 100 bp cut in early November. Also, markets are speculating that the SNB will looking into new tools which include buying bonds, intervening in currency markets and expanding swaps with other central banks as there isn't much room for rate cut with three months Libor now at 1.00%.

Eurozone PPI has record drop of -0.8% mom in Oct versus expectation of -0.3%. Year-on-year rate moderated from 7.9% to 6.3%. The UK's construction PMI came in at 31.8, worse than consensus of 33.5 and October's 35.1. This was the lowest level since the index began in 1997, and the ninth consecutive month that the index stayed below 50. Components such as employment, new orders and industry output dropped significantly.

After an unscheduled emergency meeting today, the Bank of Japan decided to, effective Dec 9, accept corporate debt of BBB rating or higher in order to encourage lending and activate trading of corporate bonds and commercial papers. The BoJ will also start a new lending facility for commercial banks in January.

RBA has the deepest rate cut since 1991, cut by 100bps, bringing the OCR down to six year low of 4.25%. Also released from Australia earlier today, Australian retail sales surprisingly rose 0.7% mom in November, big improvement from -1.1% in September and better than market expectation of -0.2%. In terms of components, food and other retailing rose 0.4% and 7.6% respectively while others such as clothing and household goods dropped. As most of the gain was brought by 'other retailing' which is volatile in nature, we do not treat the rise as representative. In fact, given the sluggish economic growth and restrained domestic spending, we expect retail sales to be under pressure for some time.

In addition Australia reported a seasonally adjusted current account deficit of A$ 9.736B in 3Q08, better than consensus of a deficit of A$11.1B. The figure for 2Q08 was revised to deficit of A$14.043B from A$12.77B. The current account deficit has been narrowed for the second consecutive quarter and was helped by increase in export of coal and iron ore, especially to China, as well as reduced consumer spending on imported goods such as autos. The situation is expected to persist in the coming quarter. The net income deficit narrowed to A$11.07B in seasonally adjusted terms, the smallest in 3 years while goods and services trade balance recorded a surplus of A$1.43B from a deficit of A$1.26B.

More Forex Technical Analysis Reports Here.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 92.30; (P) 93.94; (R1) 94.82; More.

USD/JPY recovers mildly after hitting 92.64 earlier today. Though, at this point, intraday bias remains on the downside as long as 94.25 minor resistance holds. Decline from 100.54 could extend further to retest 90.92 low. On the upside, above 94.25 will turn intraday outlook neutral first. Also, note that the lack of impulsive structure of the fall from 100.54 so far is still arguing that it might be part of the consolidation that started at 90.92. Above 95.74 will indicate that fall from 100.54 has possibly completed. The corrective structure in turn suggests that rebound from 90.92 is still in progress and stronger rally should be seen to 100.54 or above before completion.

In the bigger picture, as long as 103.06 cluster resistance (61.8% retracement of 110.66 to 90.92 at 103.12) holds, medium term outlook remains bearish. Prior break of 95.77 low confirms that whole down trend from 124.13 has resumed and should target 100% projection of 124.13 to 95.77 from 110.66 at 82.3 next. Also, note that the current development clears out the long term picture too. Price actions that started from 79.75 (95 low) has completed in form of a triangle that ended with five waves to 124.13. In other words fall from 124.13 is just part of an even larger scale down trend which could extend further to retest 79.75 low.

On the upside, sustained break of 103.06 cluster resistance will firstly argue that fall from 110.66 has completed. Secondly, it will also argue that a medium term low is in place at 90.92 and outlook will be turned neutral with focus back to 110.66 high.

For Crude Oil and Gold analysis, click here

Published on  Tue, Dec 2 2008, 15:36 GMT