Daily Report: Yen Crosses Dive Further, Euro Weak

Market Overview | Written by ActionForex.com | Jan 13 09 07:22 GMT |

Yen crosses continue to be edge lower on risk aversion with Nikkei falling over 4% in Asia. In particular, New Zealand dollar is additionally pressured after Standard & Poor's revised the nation's AA+ foreign-currency credit rating outlook to negative from stable. Aussie is dragged down by Kiwi as well as gold prices. Canadian dollar is also catching up on weakness with crude oil falling to as low as $36.58 today. The greenback, on the other hand, continues to benefit from risk aversion traders and climbs across the board except versus yen. On the data front, Japan's trade balance came in at a deficit of -93.4B yen in November, compared with consensus of -76.2B yen and a surplus of 145.8B yen in October. Current account surplus in November narrowed for a 9th month to 581.2B yen, -66% from the same period last year. The reading is worse than market expectation of 600B yen and 960.5B in October as export declined by 26.5% while import dropped by 13.7%. Economic watch DI dropped further to 17.6 in Dec. In the UK, December BRC retail sales contracted -3.3%, the7th consecutive fall, after dropping -2.6% in the previous month. This is the biggest December in 14 years despite the shopping season because recession in the UK is deepening. The RICS house price balance eased slightly to -73% in December (consensus:-74%, November: -76%). In Germany, Wholesale price index dropped -3.0% mom, -3.3% yoy in Dec. To be released later, the DCLG house price in November should have plunged further from -7.4% in October. UK's November trade balance is forecast to show a deficit of -7.5B pounds, following October's deficit of -7.75B pounds. The US trade deficit is expected to have narrowed to USD -54.5B from USD -57.2B. Both exports and imports should have fallen given poor economies both domestically and in overseas as well as sharp falls in commodity prices. The Fed's budget is expected to show a deficit of USD -36.5B in December as pushed higher by TARP and the Treasury's purchase of MBS, following a surplus of USD 48.26B in December 2007. Canada's trade surplus in November is anticipated to have narrowed to CAD 3.2B from CAD 3.78B in October, with imports and exports contracting to CAD 39.4B and CAD 42.7B, respectively. Markets will also pay attention to Fedspeaks including Bernanke, Kohn and Lacker. Technically speaking, Dollar index's rally from 81.19 extends further to as high as 83.78 today and intraday bias remains on the upside as long as 82.70 minor support holds. We're still holding on to the bullish case, i.e. correction from 88.46 has completed with three waves down to 77.69. Break of 84.01 will bring stronger rise to retest 88.46 high. On the downside,below 82.70 will flip intraday bias back to the downside but a break of 81.19 is needed to indicate rebound from 77.69 has completed. Otherwise, short term outlook will remain bullish. On the other hand, Euro remains broadly weak on anticipation of ECB rate cut on Thursday. On the one hand, EUR/GBP's short term outlook will remain bearish as long as 0.9174 minor resistance holds. Break of trend line support at 0.8801 will confirm that whole rise from 0.7693 has completed and will open up the case for further decline towards 0.8234 support next. On the other hand, as mentioned before, EUR/CHF's recovery should have completed at 1.5143 after failing to sustain above 4 hours 55 EMA. Further fall is expected to retest 1.4754 and break will confirm that whole decline from 1.5880 has resumed for 1.4315 long term support. EUR/JPY Daily Outlook Daily Pivots: (S1) 118.08; (P) 119.76; (R1) 120.87; More. EUR/JPY's fall from 131.03 is still in progress and extends further to as low as 118..05 and at this point, intraday bias remains on the downside as long as 120.90 minor resistance holds. As discussed before, consolidation from 113.63 could have completed at 131.03 already. Further fall is now expected to 115.88 support and break will add much credence to this case and bring retest of 113.63 low. On the upside, above 120.90 will turn intraday outlook neutral first but recovery should be limited below 125.19 resistance and bring another fall. In the bigger picture, whole decline from 169.96 is expected to develop into a five wave sequence, with first wave completed at 147.03, second at 156.84, third at 113.63. Price actions from 113.63 is treated as the fourth wave consolidation and might have completed at 131.03 already. Break of 115.88 support will add much credence to the case that down trend from 169.96 is resuming for 76.4% retracement of 88.97 to 169.96 at 108.08. On the upside, while another rise cannot be ruled out for the moment. Upside is expected to be limited below 141.73 cluster resistance (50% retracement of 169.96 to 113.63 at 141.79) and bring down trend resumption.