Mid-Day Report: Dollar Regains Ground after Initial Volatility, Yen Remains Pressured

Market Overview | Written by ActionForex.com | Sep 08 08 13:16 GMT |

Dollar recovers earlier losses against Euro and Swiss and surges into US session, breaking last week's high. Recovery in Euro, Sterling and Aussie against the greenback after Treasury's plan to bailout Fannie Mae and Freddie Mac is believed to be carry trade driven as yen is hit hard across the board on strong global equity markets. The news is indeed positive to the dollar too and the greenback quickly regains ground as the day goes. The Japanese yen recovers mildly but will likely remains pressured as US stock markets are set to open sharply higher. Data released in the European session were not supportive to the European majors neither. Eurozone Sentix Investor Confidence deteriorated more than expected to -20.2 in Sep. UK PPI was weaker than expected. Input PPI dropped from 29.3% yoy to 26.0%, output dropped from 10.3% to 9.7%. Core PPI dropped from 6.8% yoy to 6.4% yoy. Swiss Jobless rate climbed from 2.3% to 2.4% in Aug. US Treasury announced a four-part plan to rescue Fannie Mae and Freddie Mac over the weekend to save the US housing markets. Both GSEs will be put into conservatorship. Portfolios of both GSEs are allowed to increase modestly through to end of 2009, followed by annual 10% reduction starting in 2010. Treasury could buy as much as $1b of senior-preferred stock in each company to maintain positive net worth. Unlimited lending facility will continue to be provided to both GSEs. The short-term funding will be lent at a rate of Libor plus 50 basis points. Fed Bernanke said in a statement that he supported the Treasury plan as these are "necessary steps" to strengthen the U.S. housing market and promote stability in the financial markets. In the opening statement to House Economics Committee, RBA Governor Stevens said that growth outlook for he Australian economy is subdued in the near term. House hold spending and demand has slowed. Housing markets has softened. Credit growth slowed markedly. Inflation will remain uncomfortably high in near term and may peak at 5% but should moderate gradually back to the bank's target of 2-3% next year. USD/CHF Mid-Day Outlook Daily Pivots: (S1) 1.1106; (P) 1.1148; (R1) 1.1227; More USD/CHF's rally extends further to as high as 1.1294 today and is now pressing long term support turned resistance at 1.1288 (04 low). At this point, intraday bias remains on the upside and further rally is still expected to next upside target of 1.1596 medium term cluster resistance (161.8% projection of 0.9634 to 1.0623 from 1.0010 at 1.1610.). On the downside, below 1.1123 minor support will turn intraday outlook neutral and bring retreat. Nevertheless, consolidation should be relatively brief as long as 1.0882 support holds and bring rally resumption. Though, below 1.0882 will indicate that a short term top is finally formed and will bring deeper decline to 1.0632 resistance turned support or lower. In the bigger picture, the break of cluster resistance at 1.0999/1028 (100% projection of 0.9634 to 1.0623 from 1.0010 at 1.0999, 38.2% retracement of 1.3283 to 0.9634 at 1.1028) affirms the medium term bullish outlook, indicating that whole rise from 0.9634 is possibly impulsive in nature. Weekly MACD and RSI broke its down trend with weekly MACD turned positive also support this. Further rally should be seen to test next two cluster resistance, 1.1596 (161.8% projection of 0.9634 to 1.0623 from 1.0010 at 1.1610) and 1.1878 (61.8% retracement of 1.3283 to 0.9634 at 1.1889). On the downside, sustained trading below 1.0632 support will raise the odds that whole medium term rebound from 0.9634 has completed and will put focus back to trend line support at 1.0166.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
23:00	AUD	RBA governor testimony
05:00	JPY	Japan Economic watch DI Aug	28.3	29.7	29.3
05:45	CHF	Swiss Jobless rate Aug	2.40%	2.40%	2.30%
08:30	GBP	U.K. PPI core M/M Aug	-0.10%	0.30%	0.30%
08:30	GBP	U.K. PPI core Y/Y Aug	6.40%	6.50%	6.60%	6.80%
08:30	GBP	U.K. PPI input M/M Aug	-2.00%	-1.20%	-0.60%	-1.40%
08:30	GBP	U.K. PPI input Y/Y Aug	26.00%	29.00%	30.10%	29.30%
08:30	GBP	U.K. PPI output M/M Aug	-0.60%	0.00%	0.40%	0.50%
08:30	GBP	U.K. PPI output Y/Y Aug	9.70%	10.20%	10.20%	10.30%
12:30	CAD	Canada Building permits Jul	1.80%	-0.50%	-5.30%