Mid-Day Report: Markets Steady ahead of FOMC, NZD and CAD Rebound

Market Overview | Written by ActionForex.com | Oct 29 08 13:28 GMT |

Markets remain pretty steady today as traders are awaiting FOMC rate decision. Durable goods orders came in much better than expected, rising 0.8% in Sep versus expectation of -1.2% fall. Ex-transport orders dropped -1.1% versus consensus of -1.5%. Nevertheless, the report has little impact to the markets. Note that while dollar and yen continues to retreat, New Zealand dollar is the biggest gainer today so far after RBNZ and Fed entered into a $15b swap line. USD/CAD is among the biggest losers today as the Canadian dollar is lifted by rebound in oil prices. FOMC rate decision will take center stage later today. Futures markets are pricing in full probability of a 50bps cut to 1.00%, with around 40% chance of 75bps cut. Note that since 1960s, the federal fund rate has been at 1% only once before, from late June 2003 to late June 2004. One of the focus is definitely on whether the Fed will affirm markets' expectation of another rate cut in Dec. Also, note that markets have been very sensitive to dovish comments from Bernanke on the economy recently. Hence, the paragraphs on economic outlook will be heavily scrutinized. However, note that the moves in the markets could be brief today as another big even risk, US Q3 GDP is scheduled for tomorrow. On the economic data front, New Zealand trade deficit came in wider than expected at -1183m. Japanese industrial production unexpectedly rose 1.2% mom, 0.4% yoy in Sep. Germany HICP moderated more than expected to 2.5% yoy in Oct. More on FOMC FOMC Preview: Fed Widely Expected to Cut Rates 50 Basis Points to 1.00% FOMC Preview: Will the Fed Cut 25, 50 or 75bp? Fed Rate Decision on Tap - How Will the Greenback React? FOMC: Preview of Policy Meeting FOMC Lower. Dollar To Follow? (FED) Ben S. Bernanke - Economic Outlook and Financial Markets FOMC: Economic Recovery Will Take Time (FED) Joint Statement by Treasury, Federal Reserve, and FDIC (FED) Federal Reserve and Other Central Banks Announce Reductions in Policy Interest Rates USD/CAD Mid-Day Outlook Daily Pivots: (S1) 1.2627; (P) 1.2821; (R1) 1.2922; More. USD/CHF's retreat from 1.3015 continues today and recent development argues that a short term top might be formed after USD/CAD met double projection target of 1.2905/44, with bearish divergence condition in 4 hours MACD and RSI. Break of 1.2430 support will confirm this case and bring deeper correction to 1.1958/77 cluster support (61.8% retracement of 1.1304 to 1.3015 at 1.1958 and 38.2% retracement of 1.0297 to 1.3015 at 1.1977). Though, downside should be contained there and bring up trend resumption. On the upside, Sustained trading above 1.2905/44 will pave the way for further rally to next long term fibonacci level at 1.3469. In the bigger picture, preferred interpretation of the up trend from 0.9056 is that first wave rally is completed at 1.0248. Subsequent second wave consolidation was in form of triangle and finished at 0.9823. Rise from 0.9823 is treated as third wave rally and is still in the acceleration phase while rise from 1.0297 is treated as the third wave rally inside this rise from 0.9823. In other words, USD/CAD is still far from making a medium term top and any interim consolidation should be contained above 1.1304 support and bring up trend resumption. Sustained break of the mentioned 1.2905/44 projection levels (261.8% projection of 0.9056 to 1.0248 from 0.9823 at 1.2944 ) will pave the wave to next long term retracement level of 61.8% retracement of 1.6196 to 0.9056 at 1.1783 at 1.3469.