Daily Report: Yen Retreats Following Surprised RBA 100bps Cut

Market Overview | Written by ActionForex.com | Oct 07 08 06:35 GMT |

Yen gives back much of yesterday's gain in Asian session today following surprised 100bps rate cut from RBA. Dow's strong late recovery towards the end of the US session also limited some yen buying. Major currencies are lifted by yen crosses and recover against dollar too. The situation is, with deepening global financial market crisis, markets are intensely expecting some coordinated central bank actions. RBA took the lead today by cutting 100bps. It won't be a surprise for BoE to surprise the markets later this week by cutting more than 25bps. Interest rates futures are pricing in full probability for Fed to cut by 50bps on Oct 29 with 40% odds for a 75bps cut. The implied yield on the March 2009 Euribor futures contract dropped to 3.70 percent, the lowest since March 19, from 3.815% yesterday, suggesting ECB is closer to policy easing too. Note that Dow was once down over 800 pts during yesterday's session but recovered to close 370 pts lower only. Even though it is still the first close below 10000 in four years, the strong late recovery argues that investors are probably cautious on selling further because of the increased chance of coordinated central bank actions. Thus, the world's financial markets could stabilize a bit after yesterday's spike low and another round of panic selling would probably be delayed after the rumors of rate cuts became news. Having said that, from short term angle, any dive in yen crosses could be taken at profiting opportunity in short positions while recoveries are treated as selling opportunities. The same applies to dollar majors. RBA surprised the markets by cutting one full percent point, the most since 1992, to bring Overnight Cash Rate down to 6.00%, doubling expectation of 50bps cut. Governor Stevens said that "conditions in international financial markets took a significant turn for the worse in September." "Demand and output could be significantly weaker than earlier expected" due to deterioration in global growth prospects and difficult credit market conditions. Hence, "an unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers." BoJ left rates unchanged at 0.50% as widely expected. Japanese leading indicators dropped more than expected by -2.1% in Aug. Looking ahead, UK industrial and manufacturing production and Germany factory orders will be released in European session. ECB Trichet and Fed Bernanke are both scheduled to speak today. FOMC minutes of Sep meeting will also be released. AUD/USD Daily Outlook Daily Pivots: (S1) 0.6893; (P) 0.7314; (R1) 0.7640; More AUD/USD recovers mildly after fall from 0.8519 extended sharply lower to 0.6988. Though, consolidation should be relatively brief as long as 0.7418 minor resistance holds. Recent fall is expected to resume sooner rather than later to next medium term target of 61.8% retracement of 0.4773 to 0.9849 at 0.6712. On the upside, above 0.7418 will indicate that an short term bottom is in place and bring stronger recovery. But upside is still expected to be limited by 0.7816 resistance and bring fall resumption. In the bigger picture, a long term top is in place at 0.9849 with bearish divergence condition in monthly MACD and RSI. Considering the corrective three wave structure of the multi year up trend from 0.4773 to 0.9849, it could represents a correction to multi decade down trend or part of consolidation. Thus, the current fall should at least extend to 61.8% retracement of 0.4773 to 0.9849 at 0.6712. On the upside, medium term outlook will remain bearish as long as 0.8519 resistance holds even in case of stronger than expected rebound.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
3:30	AUD	RBA rate decision Oct	6.00%	6.50%	7.00%
3:58	JPY	BOJ rate decision Oct	0.50%	0.50%	0.50%
5:00	JPY	Japan Leading indicators Aug	-2.10%	-2.30%	0.90%
8:30	GBP	U.K. Industrial prod'n M/M Aug		-0.20%	-0.40%
8:30	GBP	U.K. Industrial prod'n Y/Y Aug		-2.00%	-1.90%
8:30	GBP	U.K. Manufacturing prod'n M/M Aug		-0.20%	-0.20%
8:30	GBP	U.K. Manufacturing prod'n Y/Y Aug		-1.60%	-1.40%
10:00	EUR	Germany Factory orders M/M Aug		-0.10%	-1.70%
10:00	EUR	Germany Factory orders Y/Y Aug		-4.70%	-0.70%
13:30	EUR	ECB Trichet speaks
17:15	USD	Fed Bernanke speaks
18:00	USD	FOMC mintues Sep