Daily Report: Risk Aversion Recedes on EU Hopes, Dollar Retreats

Dollar retreats mildly today as risk aversion recedes on hope that European central bankers and officials are putting up a plan to resolve the region's debt problems. Asian equities recover broadly following the 272 pts rebound in DOW overnight. While there is no details yet, it's thought that Eurozone leaders are seriously considering to expand the EFSF fund by borrowing from ECB and leverage while ECB could also announce to restart covered-bond buying next week. Such anticipation will provided support to deeply oversold financial markets in near term but sentiments will remain vulnerable to more negative news out of Europe.

Also, note that the recovery in risk is more technical than fundamental, in particular in precious metals. Gold just few strong support from a key support level of 1577 while silver also rebounded strongly from 26.3 key support. It's totally normal and reasonable for traders to take profits on short positions after the steep dive, and after gold and silver hit the mentioned support levels. Current rebound doesn't warrant a change in overall bearish trend. As mentioned in our weekly report, major stock indices are still holding above August low. We don't take that as sign of resilience, but rather as a sign that the down trend isn't finished but stocks are just still carrying on the consolidations. More risk selloff is still anticipated at a latter stage.

Spain's bond auction will be a focus today which the country is planning to EUR 2.5b and EUR 3.5b of three- and six-months bills today. Meanwhile, Italy will sell as much as EUR 14.5b of government debts later in the week. On the data front, Japan corporate service price index dropped -0.4% yoy in August. Swiss UBS consumption indicator dropped to 0.79 in August. German GFK consumer sentiment was unchanged at 5.2 in October. Eurozone M3, UK CBI reported sales US S&P case shiller house price and consumer confidence will be released later today.

Dollar index faced some resistance from 38.2% retracement of 88.70 to 72.69 at 78.80 and retreats. Some consolidations would be seen below 78.86 temporary top is near term. But we'd expect downside to be contained above 76.06 support and bring another rise. There is no change in the view that whole decline from 88.70 has finished at 72.69 already. And current rise from 72.69 is expected to continue further through 80 psychological level to 61.8% retracement at 82.58 and above in medium term. 

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.9690; (P) 0.9763; (R1) 0.9905; 

AUD/USD's recovery and break of 0.9866 minor resistance suggests that a temporary bottom is in place at 0.9621, just ahead of 100% projection of 1.1079 to 0.9926 from 1.0764 at 0.9611. Intraday bias is turned neutral and some consolidations would be seen. But upside should be limited below 1.0177 support turned resistance and bring another fall. Below 0.9621 will target 0.9404 key support level next. Nevertheless, break of 1.0177 will be the first signal that whole correction fro 1.1079 has completed and will turn focus to 1.0764 resistance for confirmation.

In the bigger picture, the break of long term channel from 2008 low of 0.6008 was relatively brief so far. And AUD/USD manages to recover ahead of mentioned 0.9611 projection level. Thus, the steep fall from 1.1079 could possibly be a correction only, or part of a medium term consolidation. In any case, we'll still prefer to see firm break of 0.9404 key support level to confirm trend reversal, or we'll stay long term bullish in AUD/USD.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
23:50	JPY	Corporate Service Price Y/Y Aug	-0.40%	-0.40%	-0.50%	-0.30%
6:00	CHF	UBS Consumption Indicator Aug	0.79		1.29
6:00	EUR	German GfK Consumer Sentiment Oct	5.2	5.1	5.2
8:00	EUR	Eurozone M3 Y/Y Aug		1.90%	2.00%
10:00	GBP	CBI Reported Sales Sep		-14	-14
13:00	USD	S&P/Case-Shiller Composite-20 Y/Y Jul		-4.40%	-4.50%
14:00	USD	Consumer Confidence Sep		46.5	44.5