Risk aversion remains the main theme in the forex markets in early US session. Investors panic of deepening of global credit crisis. Dow opens sharp lower and falls to new three year low below 10100 level following weakness in European and Asian stock markets. MSCI Emerging Markets Index dropped most since 1997 while MSCI World Index lost 2.5%. Fed said it will double its auctions of cash to as much as $900b and is considering additional steps to "foster liquid money-market conditions." The 28-day and 84-day Term Auction Facility (TAF) operations are raised to $150b each. The two forward TAF auctions in Nov will be increased to $150b each too. Crude Oil breaches $90 level on concern of slowing global demand. But Gold rebounds strongly on safe haven buying. Dollar strengthens across the board with dollar index reaching as high as 81.44. Though, the yen is even stronger.
Euro is one of the weakest currency today as investors are dissatisfied of the lack of a Eurozone wide bailout plan from European Governments. IMF Managing Director Strauss-Kahn urged European governments to prepare to put in in place a "collective line of defense". The problems in Eurozone finance sectors prompted actions from individual governments. German government agreed a second bailout package for Hypo Real estate after German banks and insurers shocked the markets by withdrawing support for the original rescue for HRE. German Government also pledged to guarantee private deposits, covering more than 500b euros in deposits. BNP Paribas took over Belgian and Luxembourg businesses of Fortis in a spectacular cross-border rescue. Danish government agreed with banks to set up a $6.5b liquidation fund while the government will guarantee all bank deposits in Denmark. Banks agreed to pay up to $6.5b over two years to take over troubled financial institutions. Kaupthing Bank hf and Landsbanki hf, Iceland's biggest banks, may sell overseas assets and repatriate the proceeds in a bid to bolster the krona and alleviate the impact of the credit crunch. Unicredit, the largest bank in Italy is seeking $8.2b funding to strengthen the balance sheet.
On the data front, Eurozone Sentix Investor Confidence dropped further to -27.8 in Oct. Canadian building permits plunged sharply by -13.5% in Aug, but Ivey PMI unexpectedly improved to 61 in Sep.
RBA will announce rate decision in the coming Asian session and markets are expecting a 50 bps cut to bring OCR down to 6.50%.
USD/CAD Mid-Day Outlook
Daily Pivots: (S1) 1.0751; (P) 1.0796; (R1) 1.0869; More.
USD/CAD's rise from 1.0297 is still in progress and extends further to as high as 1.0977 so far. At this point, intraday bias remains on the upside as long as 1.0829 minor support holds. Sustained trading above 61.8% projection of 0.9823 to 1.0819 from 1.0297 at 1.0913 now encourage further rise to 100% projection at 1.1293. On the downside, below 1.0829 will turn intraday outlook neutral first. But further rise is still expected after brief consolidation.
In the bigger picture, sustained trading above 1.0791/98 (61.8% retracement of 1.1874 to 0.9056 at 1.0798, 61.8% projection of 0.9056 to 1.0378 from 0.9974 at 1.0791) confirm that medium term rise from 0.9056 has resumed. Next target is 100% projection of 0.9056 to 1.0378 from 0.9974 at 1.1296. On the downside, while some pull back might be seen, break of 1.0297 is now needed to indicate at top is formed. Otherwise, further rise is still in favor.
Economic Indicators Update
| GMT | Ccy | Events | Actual | Consensus | Previous | Revised |
|---|---|---|---|---|---|---|
| 08:30 | EUR | Eurozone Sentix Investor Confidence Oct | -27.8 | -26.6 | -20.2 | |
| 12:30 | CAD | Canada Building permits Aug | -13.50% | -1.00% | 1.80% | |
| 14:00 | CAD | Canada Ivey PMI Sep | 61 | 51 | 51.5 |
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