Daily Report: Dollar Firm, Yen Catching Up

Market Overview | Written by ActionForex.com | Oct 21 08 08:02 GMT |

Dollar continues to ride on hope of a second stimulus package from the US government. Dollar index remains firm above 83 level and is set to extend recent rally. USD/CHF took the lead yesterday by breaking 1.1486 high and extends strength to 1.1544 today so far. EUR/USD edged down to new 19 months low. More importantly, note that the Japanese yen is catching up with the strength in dollar and rises against all major currencies. Markets are generaly cautious over Lehman CDS settlement today and the relatted impact on the credit markets. Such concern will likely provide further short term support to the dollar and yen. RBA Governor Stevens said earlier today that the aggressive rate cut and fiscal stimulus will "lessen the extent of the likely slowdown in Australian's economy". Measures by central banks to improve liquity seemed to be working well and there risk of a "global catastrophe" has improved. New Zealand CPI rose 1.15% qoq in Q3, pushing yoy rate to 18 year high of 5.1% as expected. Looking ahead, the economic calendar is rather light today and main focus is on BoC which is expected to cut rates by 50bps to 2.00%. EUR/JPY Daily Outlook Daily Pivots: (S1) 134.27; (P) 136.41; (R1) 138.03; More. EUR/JPY weakens further to 133.78 today and at this point, more downside is expected as long as 138.65 minor resistance holds. Retest of 132.19 low is in favor. Break will confirm that recent down trend has resumed for next long term fibonacci level at 129.46 (50% retracement of 88.97 to 169.96). On the upside, though, above 138.65 will suggest that consolidation from 132.19 is still in progress for another test of 141.73 before completion. But still, upside should be limited below 147.03 resistance and bring down trend resumption. In the bigger picture, the sharp fall from 169.96 is still in progress and has taken out long term fibonacci level of 38.2% retracement of 88.97 to 169.96 at 139.02 without hesitation. The development so far suggests that fall from 169.96 is developing into a five wave decline and EUR/JPY is probably in the middle of it only. Medium term outlook will remain bearish as long as 147.03 support turned resistance holds and another fall is still expected even in case of correction, targeting 61.8% retracement of 88.97 to 169.96 from at 119.90.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
21:45	NZD	New Zealand CPI Q/Q Q3	1.50%	1.60%	1.60%
21:45	NZD	New Zealand CPI Y/Y Q3	5.10%	5.10%	4.00%
6:15	CHF	Swiss Trade balance (chf) Sep	1.44B	1.20B	1.44B
10:00	GBP	U.K. CBI industrial trend Oct		-30	-26
13:00	CAD	BOC rate decision		2.00%	2.50%