Mid-Day Report: Markets Shrug off Coordinated Rate Cuts

Market Overview | Written by ActionForex.com | Oct 08 08 14:41 GMT |

Federal Reserve, European Central Bank, Bank of England, Bank of Canada, Swiss National Bank and Sweden's Riksbank join forces today in a historical, emergency, coordinated global rate cuts by 50bps ease save the world's economies from the worst crisis since the Great Depression. Fed, ECB, BoE, BoC and Riksbank will cut by 50bps. SNB cut by 25bps. PBoC of China also joins to cut by 27bps. BoJ didn't participate but said it supports the move.

The resulting interest rates are:

* Fed - 1.50%
* ECB - 3.75%
* BoE - 4.50%
* BoC - 2.50%
* SNB - 2.50%
* Riksbank - 4.25%

Equity markets response positively to the announcement initially with FTSE 100 turned positive. However, European stock markets lacked follow through strength and turned south again. US stock indices are mixed in tight range.

In the forex markets, yen gives back earlier gains against most major currencies but in general, it's still holding in established tight range. Dollar also continues to consolidate against most major currencies. Aussie recovers after diving to as low as 0.6445 earlier today. However, note that key near term levels still holds. Dollar index retreats mildly but is still holding above 80 level. There is no change in the yen and dollar bullish outlook.

Earlier today, UK government announced a plan to invest about 50b pounds to prevent collapse of the UK banking system. The government will buy preference shares and BoE will make 200b or above available for banks to borrow under the special liquidity plan. UK government will also provide a guarantee of 250b pounds to help refinance debts. Tomorrow's BoE meeting is cancelled after today's rate cut.

On the data front, US pending home sales beat expectations by rising 7.4% mom in Aug. Canadian housing starts rose slightly from revised 217k to 218k in Aug. Germany industrial production rose 3.4% mom, 1.7% yoy in Aug. Eurozone Q2 GDP was finalized at -0.2% qoq, 1.4% yoy.

Suggested Readings:

* Global: Coordinated Central Bank Action
* Everyone Seems To Have Gotten The Message
* Coordinated Interest Rate Cuts - Too Little, Too Late?
* FOMC, ECB, BoE, SNB and BoC Cut Rates in Coordinated Effort
* There It Is: A Coordinated Rate Cut by Seven Monetary Authorities
* Fed, ECB, BoE, SNB, BOC and even PBOC Coordinate a Rate Cut - What Does it All Mean?
* Global Coordinated Rate Cut
* Coordinated Rate Cut From the Major Central Banks

GBP/JPY Mid-Day Outlook

Daily Pivots: (S1) 174.68; (P) 178.32; (R1) 180.71; More

GBP/JPY's break of 174.03 indicates fall from 197.42 has resumed. Further decline is now expected to next short term target of 100% projection of 215.87 to 184.47 from 197.42 at 166.02 first. On the upside, above 182.19 will indicate that a short term bottom might be in place and bring lengthier consolidation before resuming the medium term down trend.

In the bigger picture, 180 psychological support is taken out decisively. GBP/JPY is now pressing long term rising trend line support (129.32, 148.19). Sustained trading below will encourage fall to next medium term target of 100% projection of 251.09 to 192.60 from 215.87 at 157.38 and probably further to 148.19 low. On the upside, above 197.42 is needed to confirm that a medium term bottom is formed. Otherwise, outlook remains bearish.