Mid-Day Report: Dollar and Yen Take a Breathe after Strong Rally

Market Overview | Written by ActionForex.com | Oct 23 08 14:12 GMT |

Markets stabilize a bit in early US session, digesting strong gains in dollar and yen. The greenbacks surged to 5 year high against Sterling and 4 year high against Canadian dollar. Yen, on the other hand, reached a 6 year high against Euro. Economic data released in the US session are disappointing, with jobless climbing to 478k. House price index dropped -0.6% mom in Aug. Crude oil breaches $65 level briefly while gold also breached 700 level briefly. US stocks are mixed, back and froth between positive and negative region in early trading. After all, there is no sign of a top in both the greenback and the yen yet. UK retail sales contracted -0.4% mom in Sep. More importantly, the annual growth rate slowed sharply from a 3.3% rise in Aug to 1.8%. Sterling is sent lower against dollar and in crosses as the data affirms the view that the outlook for the UK economy has deteriorated sharply in recent months and further contraction would likely be seen in second half of 2008. Having said that, the Q3 GDP data from UK will catch all attention tomorrow. Other data saw Eurozone industrial orders dropped sharply by -1.2% mom, -6.6% yoy in Aug. RBNZ cut overnight cash rate by 100bps to 6.5% as widely expected. In the accompanying statement, RBNZ said that the "ongoing financial market turmoil and a deteriorating outlook for global growth have played a large role in shaping today's decision." The bank also expressed concern on "lower demand for exports" and "less readily available credit". On the other hand inflation concern eased with "weaker short-term growth" and "sharply lower oil prices". Markets generally expect further rate cut from RBNZ in Dec by another 50bps. EUR/USD Mid-Day Outlook Daily Pivots: (S1) 1.2701; (P) 1.2890; (R1) 1.3042; More EUR/USD stays in tight range above mentioned 100% projection of 1.6038 to 1.3381 from 1.4867 at 1.2710 . But intraday bias remains on the downside as long as 1.2984 minor resistance holds. Further decline is still expected. Sustained trading below 1.2710 will target 100% projection of 1.4867 to 1.3258 from 1.3768 at 1.2159 next. On the upside, above 1.2984 will turn intraday outlook neutral and bring recovery. But upside should be limited below 1.3285 resistance and bring fall resumption. In the bigger picture, EUR/USD is now trading well below 55 months EMA (now at 1.3331) and has taken out 38.2% retracement of 0.8223 (00 low) to 1.6038 at 1.3053 decisively. Further break of 100% projection of 1.6038 to 1.3381 from 1.4867 at 1.2710 will add more credence to the case that whole down trend from 1.6038 is developing into a five wave impulsive decline. In other words, EUR/USD is probably just in the middle of such fall which could extend beyond 1.1639 low before forming a medium term bottom. On the upside, while some rebound might be seen, break of 1.3768 resistance is needed to be the first signal 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
20:00	NZD	RBNZ rate decision	6.50%	6.50%	7.50%
23:50	JPY	Japan Trade balance (jpy) Sep	95.1B	600.0B	-324.0B	-327.6B
23:50	JPY	Japan Export Y/Y Sep	-10.90%	5.20%	0.30%
23:50	JPY	Japan mport Y/Y Sep	28.80%	24.00%	17.30%
08:00	EUR	Eurozone Current account (euro) Aug	-7.9B	N/A	-1.1B
08:30	GBP	U.K. Retail sales M/M Sep	-0.40%	-0.90%	1.20%	1.10%
08:30	GBP	U.K. Retail sales Y/Y Sep	1.80%	2.00%	3.30%
09:00	EUR	Eurozone Industrial orders M/M Aug	-1.20%	0.30%	1.00%	2.00%
09:00	EUR	Eurozone Industrial orders Y/Y Aug	-6.60%	-0.40%	1.60%	2.90%
12:30	USD	U.S. Jobless claims	478K	470.0K	461.0K	463K
14:00	USD	U.S. House price index M/M Aug	-0.60%	-0.40%	-0.60%
14:30	CAD	BOC Monetary Policy Report
14:35	USD	Natural Gas Storage		N/A	79B