Mid-Day Report: Dollar and Yen Weakens as Sentiments Flip Again

Market Overview | Written by ActionForex.com | Nov 04 08 14:27 GMT |

Market sentiments flip once again on European stock market rally as well as anticipation of higher open in the US markets. Dollar index fails to sustain above 86 level and weakens again today. Aussie, on the other hand, reverses earlier loss after RBA's larger than expected cut and resumes recent rebound against the greenback. Euro and Sterling also rebound while the Canadian dollar extends recent rally. USD/CHF's break of 1.1746 is indeed a false signal of dollar's rally resumption. As discussed before, we believe that a short term top is formed in the dollar and the development so far is still consistent with this view. The rebound in EUR/USD left the fall from 1.3290 in three wave corrective structure which indicates it's merely correcting the rise from 1.2329. Similar situation can be found in GBP/USD too. Main focus will shift to the result of US presidential election now. Economic data released today saw UK PMI construction dropped more than expected to 35.1 in Oct. Eurozone PPI moderated sharper than expected to 7.9% yoy in Sep. Swiss CPI moderated less than expected to 2.6% yoy in Oct. RBA cut overnight cash rate by 75bps to 5.25%, larger than expectation of 50bps cut to 5.50%. In the accompanying statement, Governor Stevens acknowledged turbulence in world financial markets and weakness in major industrial economies around the world. Such "deteriorating international conditions and falling commodity prices" will have a negative dampening influence to the prior rate cuts and stimulus package to boost the economy. Spending and activity in Australia will be "weaker than earlier expected". USD/CAD Mid-Day Outlook Daily Pivots: (S1) 1.1693; (P) 1.1905; (R1) 1.2017; More. USD/CAD's correction from 1.3015 resumes by taking out 1.1900 low and reaches as low as 1.1630 in early US session. At this point, intraday bias remains on the downside a long as 1.1892 minor resistance holds. Further decline is still expected. Nevertheless, downside of this correction is expected to be contained by 1.1260/1419 support zone (50% retracement of 0.9823 to 1.3015 at 1.1419 and 100% projection of 1.3015 to 1.1900 from 1.2375 at 1.1260 as well as 1.1304 support) and bring up trend resumption. On the upside, above 1.1892 will turn intraday outlook neutral first. Further break of 1.2375 will indicate that fall from 1.3015 has completed and will then bring retest of this high. 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 should have completed at 1.3015 already. Hence, some medium scale consolidation might be seen now. However, note that firstly, downside of such consolidation should be contained by mentioned 1.1260/1419 support zone, with bottom of the fourth wave in a lower degree at 1.1304. Secondly, sustained break of 1.3015 will confirm that the medium term up trend has resumed, with the fifth wave started and should then target 61.8% retracement of 1.6196 to 0.9056 at 1.1783 at 1.3469. Forex News Digest Overnight News Recap: RBA Cuts 75 Bps to 5.25%; More Recessionary Talk from EU Euro Zone Recession "Lurks Just Around the Corner," Says EU's Juncker Euro Zone PPI Growth Slows to 7.9% Year-Over-Year in September UK PMI Construction Reaches Series Low of 35.1 in October EU Finance Ministers Approve €6.5 Billion Loan to Hungary Swiss Inflation Slows to 2.6% Annually in October Euro Rises Against Yen, Dollar as Stocks Gain, Bank Borrowing Costs Fall Australian Dollar Falls as RBA Slashes Interest Rates; N.Z. Currency Drops Bet on Euro to Drop 7% Against Yen as Risk Aversion Will Return, UBS Says U.K. Pound Falls Versus Dollar, Euro on Recession Concern, Rate-Cut Bets New Zealand's Dollar May Decline 8% by April on Rate Cuts, CBA Europe Says More Forex News Economic Indicators Update GMT Ccy Events Actual Consensus Previous Revised 3:30 AUD RBA rate decision Nov 5.25% 5.50% 6.00% 6:45 CHF Swiss CPI M/M Oct 0.50% 0.40% 0.10% 6:45 CHF Swiss CPI Y/Y Oct 2.60% 2.50% 2.90% 9:30 GBP U.K. PMI construction Oct 35.1 37.8 38.8 10:00 EUR Eurozone PPI M/M Sep -0.20% -0.10% -0.50% 10:00 EUR Eurozone PPI Y/Y Sep 7.90% 8.00% 8.50% 15:00 USD U.S. Factory orders Sep -0.80% -4.00% USD U.S. Presidential Election