Daily Report: Yen Dominates Risk Averse Markets

Market Overview | Written by ActionForex.com | Oct 24 08 07:23 GMT |

The Japanese yen remains in total control of the forex markets as risk aversion continues to dominate. Asian stock markets tumble broadly as investors panic on the risk of global recession. Nikkei dropped nearly 10%, dragged down by news that Sony is slashing its earnings forecast for the fiscal year. South Korea halted Kosdaq trading after the index dropped more than 11% after data showed slowest economic growth in four years. The yen surges across the board and is maintaining strong momentum into European session. Technically speaking, one of the most important development is that USD/JPY has now taken out March's low of 95.77. Such development confirms that the long term down trend from 124.13 has resumed and is probably just in the middle of another sharp fall. Another development to note is that AUD/JPY has also taken out recent low of 63.04 decisively. AUD/USD is also back pressing 0.6330 low. It indicates that while Aussie may be relatively steadier among the major currencies in the early part of the week, it's weakness is finally catching up with others. Thirdly, while the greenback remains firm in general expect versus the yen, dollar index is still held by this week's high of 86.12. Upside momentum of the index is probably diminishing, suggesting that the overall forex markets will be led by yen crosses for a while. Among the European majors, Sterling is the relatively weaker one on concern of deeper recession in the UK economy. BoE Governor King said earlier this week he expects a "sharp and prolonged slowdown" in demand. The British Bankers' Association said that commercial realities" made it "inevitable that some businesses will not survive" the economic downturn even though the government has implemented a rescue plan. Indeed, the preliminary Q3 GDP data from UK to be released today is expected to show the first in a series of negative growth data. Q3 GDP is expected to contract -0.2% qoq with yoy rate dropped sharply from 1.5% to 0.5%. Euro stays in tight range against dollar but remains vulnerable. Flash manufacturing and services PMI in Eurozone is expected to deteriorate further in Oct. In the US session, Canadian CPI is expected drop slightly from 3.5% yoy to 3.4% yoy in Sep. US existing home sales is expected to recover mildly to 4.93M annualized rate in Sep. Another focus today will be markets reaction to the result of the OPEC emergency meeting. The OPEC is anticipated to cut oil production by 0.2-2.5m barrels a day. USD/JPY Daily Outlook Daily Pivots: (S1) 96.06; (P) 97.19; (R1) 98.42; More. USD/JPY's recent decline from 110.66 extends further to as low as 94.77 today and remains weak. Break of 95.77 low confirms that whole down trend from 124.13 has resumed. At this point, short term outlook will remain bearish as long as 98.09 resistance holds. The current fall is expected to target 61.8% projection of 61.8% projection of 124.13 to 95.77 from 110.66 at 93.13 next. On the upside, touching of 98.09 will indicate that a short term bottom might be in place and bring consolidation before staging another decline. In the bigger picture, as mentioned above, down trend from 124.13 is still in progress. Break of 93.13 will target next projection level of 100% at 82.30. Also, note that the current development clears out the long term picture. Price actions that started from 79.75 (95 low) has completed in form of a triangle that needed 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, break of 103.06 resistance is at least needed to indicate that a medium term bottom is formed. Otherwise, medium term outlook remains bearish even in case of strong rebound.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
6:00	EUR	Germany Import price index M/M Sep	-1.00%	-0.80%	-0.80%
6:00	EUR	Germany Import price index Y/Y Sep	7.60%	7.80%	9.30%
7:30	EUR	Germany Services PMI Flash Oct		49	50.2
7:30	EUR	Germany Manufacturing PMI Flash Oct		46	47.4
8:00	EUR	Eurozone Services PMI Flash Oct		47	48.4
8:00	EUR	Eurozone Manufacturing PMI Flash Oct		44	45
8:30	GBP	U.K. GDP Q/Q Q3 P		-0.20%	0.00%
8:30	GBP	U.K. GDP Y/Y Q3 P		0.50%	1.50%
11:00	CAD	Canada CPI core M/M Sep		0.30%	0.30%
11:00	CAD	Canada CPI core Y/Y Sep		1.70%	1.70%
11:00	CAD	Canada CPI M/M Sep		0.00%	-0.20%
11:00	CAD	Canada CPI Y/Y Sep		3.40%	3.50%
14:00	USD	U.S. Existing home sales Sep		4.93M	4.91M
14:00	USD	U.S. Existing home sales M/M Sep		0.80%	-2.20%
		OPEC Meeting