Post FOMC Risk Selloff Continues, Dollar Firm

Markets have clearly responded negatively to Fed's Operation Twist announcement overnight. Asian equities are broadly lower with Nikkei down -2% following the -2.5% fall in DOW. 10 Year yield dropped to record low of 1.875% while 30 year yield barely held above 3%. Crude oil broke 85 level and should be heading back to 75 .71 low set August. Dollar index jumped on risk aversions and breaches 78 level today so far. Commodity currencies are hardest hit on risk aversion as well as on respective reasons. Sterling is also pressured by expectation of more QE from BoE and hover around record low against yen. Euro, on the other hand, is relatively resilient so far and is holding above 1.35 again dollar even though it's vulnerable.

As expected, the Fed announced to extend the average maturity of its holdings of securities so as to stimulate the economic recovery and to help ensure inflation is consistent with the dual mandate over time. The operation twist that the Fed adopts is an active one. It involves selling $400B of Treasury securities with maturities of 3 years or less and simultaneous purchase of a similar amount of Treasuries in the 6-30 year remaining maturity range. The Fed funds rate was keep unchanged at 0-0.25%. 3 Fed presidents who voted against additional policy easing were Richard Fisher, Narayana Kocherlakota, and Charles Plosser.

Additional pressure is seen markets after China HSBC manufacturing PMI dropped to 49.4 in September as export and output declined. The index has been staying in contrationary territory for three consecutive months and suggests further mild contraction in near term. The news added additional weight on Aussie, where China is the country's biggest trading partner. New Zealand dollar saw some pressure after RBNZ governor Bollard said there are "significant global risks" and there is no "particular rush" to raise rates even though the bank still has expectation to tighten. Canadian dollar is pressured by anticipate that crude oil is heading back to below 80. Canadian Prime Minister Harper also warned yesterday that the BoC is "prepared to intervene if they thought there were movements in the currency that were contrary to the country's interests and not being driven by actual underlying fundamentals", that is, intervening in the markets to curb CAD strength.

Looking ahead, Eurozone PMIs will be a major focus in European session and is expected to show further deterioration in the economic outlook. Swiss ZEW and UK CBI industrial orders expectations will also be released. In US session, main focus will be on Canadian retail sales and US jobless claims.

New Zealand Dollar is one of the weakest currency this week and the break of 0.7962 support confirms resumption of the whole fall form 0.8842 high. Near term outlook will remain bearish as long as 0.8118 resistance holds and current fall should now target next key cluster support level at 100% projection of 0.8842 to 0.7962 from 0.8572 at 0.7692 and 50% retracement of 0.6560 to 0.8842 at 0.7701.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 117.68; (P) 119.14; (R1) 119.93; 

GBP/JPY drops to as low as 118.35 so far and broke key support level of 118.81. There is no sign of bottoming yet and intraday bias remains on the downside for deeper decline. Sustained trading below 118.81 will target 161.8% projection of 130.83 to 123.29 from 127.31 at 115.11 in near term. On the upside, note that break of 122.26 resistance is needed to signal short term bottoming in the cross. Otherwise, outlook will remain cautiously bearish even in case of recovery.

In the bigger picture, focus remains on 118.81 support. Sustained trading below this level will confirm resumption of the long term down trend from 2007 high of 251.09 and should pave the way to 61.8% projection of 215.87 to 118.81 from 163.05 at 103.06, which is close to 100 psychological level. Meanwhile, strong rebound from the current level, followed by break of 140.02 resistance, will revive the case that consolidation from 163.05 is merely the second leg of the consolidation pattern that started at 2009 low of 118.81. In such case, there should be one more medium term rise before the long term down trend resumes.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
22:45	NZD	GDP Q/Q Q2	0.10%	0.50%	0.80%
7:00	EUR	French PMI Manufacturing Sep P		48.5	49.1
7:00	EUR	French PMI Services Sep P		54.2	56.8
7:30	EUR	German PMI Manufacturing Sep P		50.2	50.9
7:30	EUR	German PMI Services Sep P		50.6	51.1
8:00	EUR	Eurozone PMI Manufacturing Sep P		48.6	49
8:00	EUR	Eurozone PMI Services Sep P		51.1	51.5
9:00	EUR	Eurozone Industrial New Orders M/M Jul		-1.20%	-0.70%
9:00	CHF	ZEW Survey (Expectations) Sep			-71.4
10:00	GBP	CBI Trends Total Orders Sep		-5	1
12:30	CAD	Retail Sales M/M Jul		-0.30%	0.70%
12:30	CAD	Retail Sales Less Autos M/M Jul		0.20%	-0.10%
12:30	USD	Initial Jobless Claims		420K	428K
14:00	EUR	Eurozone Consumer Confidence Sep P		-18	-16.5
14:00	USD	Leading Indicators Aug		0.10%	0.50%
14:00	USD	House Price Index M/M Jul		0.10%	0.90%
14:30	USD	Natural Gas Storage			87B