Daily Report: Dollar and Yen Retreats Overnight Rally, UK in Focus

Market Overview | Written by ActionForex.com | Nov 12 08 07:41 GMT |

Dollar and yen were sharply higher overnight on concern of recession in the global economy. DOW was once down to as low as 8560 while crude oil also dropped to 19 month low of 58.32. Though, strength in dollar and yen was limited by late rebound in stocks and both retreat in Asian session. Technically speaking, as discussed before, the triangle consolidation in dollar index and EUR/USD might have already completed earlier this week and the current rise in the greenback could represent resumption of recent up trend. However, note that the strength of the current rise in dollar is not too convincing yet. Also, the development in DOW argues that another recovery might be seen before it breaks out of recent range. More importantly, triangle consolidations are usually more complicated than expected and the current rise might be just one leg inside the pattern. Hence, we'd still be cautiously bullish on the dollar as long as 85.69 support holds and are still expecting retest of recent high at 87.87. However, a break of this support will indicate that the consolidation is still in progress for another brief fall before completion. Sterling also remains pressured ahead of an important day which features the BoE Quarterly Inflation Report as well as employment data. BoE just had an unprecedented 150bps rate cut last week to bring interest rate down to 3.00%. Markets are expecting more from the bank with some speculations that BoE will eventually adopt a Zero Interest Rate Policy to help the economy survive in difficult times. Hence, the Quarterly Inflation Report will be heavily scrutinized for hints to verify such speculations. In particular, markets will look at whether BoE will project inflation to undershoot its 2% target over a two year horizon at current interest rate levels. Employment report is expected to show unemployment rate climbing to 9 year high of 5.8% in Sep. Other data to watch include Eurozone industrial production. Released overnight Australian westpac consumer confidence unexpectedly improved 4.3% in Nov. Japan consumer confidence hit a 26 years low of 29.8 in Oct but was slightly better than expectation of 29.5. In the semi-annual financial stability review. RBNZ Governor Bollard said the current adjustment process in the financial market is "proving extremely disruptive" and is affecting the New Zealand's banking system which is reliant on offshore funding. World Bank cut 2009 global growth forecast from 3.0% to 1.0%, with growth in emerging economies down from 6.4% to 4.5% and developed economies down from 2.0% to 0.1%. GBP/USD Daily Outlook Daily Pivots: (S1) 1.5261; (P) 1.5482; (R1) 1.5601; More GBP/USD's fall from 1.6671 extends further to as low as 1.5347 before recovering mildly. At this point, it's still uncertain on whether such decline represents resumption of the prior down trend or it's merely part of the consolidation that started at 1.5269. Nevertheless, intraday bias remains on the downside as long as 1.5884 minor resistance holds and retest of 1.5269 low should be seen. Sustained break will confirm that recent down trend has resumed for 161.8% projection of 2.0158 to 1.7445 from 1.8668 at 1.4278 next. On the upside, though, above 1.5884 will suggest that fall from 1.6671 has completed and consolidation from 1.5269 is still in progress for another rise to 1.6771 before completion. In the bigger picture, there are some different interpretations of the structure of the whole down trend from 2.1161, with different projection targets. The most bearish case is that fall from 2.0158 is the third wave in whole fall from 2.1161 while fall from 1.8668 is the third wave of the fall from 2.0158. In other words, GBP/USD is just in the middle of the whole down trend from 2.1161. The least bearish case is that the fall from 1.8668 is the fifth wave of the whole five wave decline from 2.1161 and is nearing an end. Nevertheless, in any case, the fall from 1.8668 needs to complete a five wave structure before considering that a medium term bottom is formed. Having said that, medium term outlook will remain bearish as long as 1.6786 support turned resistance holds and a new low should be made before making a medium term bottom. However, above 1.6786 will indicate that fall from 1.8668 has possibly completed. It will also be the first alert that a medium term bottom is in place and break of 1.7630 will confirm. In such case, some large scale consolidations will follow.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
0:30	AUD	Australia W'pac consumer confi. Nov	4.30%	N/A	-11.00%
5:00	JPY	Japan Consumer confidence Oct	29.8	29.5	31.8
9:30	GBP	U.K. Avg. earnings 3m Y/Y Sep		3.40%	3.40%
9:30	GBP	U.K. Claimant count Oct		38.0K	31.8K
9:30	GBP	U.K. ILO unemployment rate Sep		5.80%	5.70%
10:30	GBP	BoE Inflation Report
10:00	EUR	Eurozone Industrial prod'n M/M Sep		-1.60%	1.10%
10:00	EUR	Eurozone Industrial prod'n Y/Y Sep		-1.20%	-0.70%