Selloff in risk asset continues in early US session as concern on
Greek default remains the focus of the markets. DOW opens sharply lower
and is down over -200pts at the time of writing while major European
indices are deep in red, with FTSE down -2.4%, DAX down -3.6% and CAC
down -2.9%. US 10 year yield dives below 2% again. Dollar benefits from
risk aversion with dollar index jumping sharply to 77.51 so far and is
set to take on recent high of 77.78.
Main focus will now turn to the result of a conference call between
troika and Greek officials last today to review Greece's progress in
meeting the requirements for the next tranche of bailout fund of EUR 8b
and the second bailout that worth EUR 109b. IMF and EU experts paused
their review on Greece's progress earlier this month after discovering
an unexpected hold in the budget. If Greece could not commit to speed up
the deficit reduction measures, it might be left with not change but a
default as the government wouldn't have enough cash to make it past
mid-October. And markets are deeply concerned with the possibility of a
disorderly default of Greece.
US President Obama will announce a $1.5T tax proposal today including
around $800b realized over 10 years from repealing Bush-era tax cuts
for couples making more than $250k. In addition, there will be $580b in
cuts in mandatory benefits program including Medicare, Medicaid and farm
subsidies. Also, there will be $430b in savings from lower interest
payments on national debt. And, there will be around $1T savings from
the withdrawal of troops from Iraq and Afghanistan.
On the data front, US NAHB home builder sentiment index dipped to 1
point to 14 from 15 in September, below expectation of 15. The gauge of
sales expectations in the next six months slipped to 17 from 19. UK
rightmove house prices rose 0.7% mom in September. New Zealand consumer
confidence was unchanged 112 in Q3.
Dollar index's sharp rise today suggests that retreat from 77.784 is
already finished at 76.06 and recent rise from 73.42 is resuming. Bias
is back on the upside and break of 77.784 will confirm this bullish case
and should send the index towards 38.2% retracement of 88.70 to 72.69
at 78.80. As mentioned before, the whole fall from 88.70 might have
completed at 72.69 already and a break above mentioned 78.78 fibo level
will pave the way for a test on 80 psychological level a weeks ahead.
EUR/GBP Daily Outlook
Daily Pivots: (S1) 0.8702; (P) 0.8745; (R1) 0.8779;
The break of 0.8686 minor support suggests that EUR/GBP's recovery
from 0.8529 is already completed at 0.8790. While such rebound was a bit
stronger than expected, there is no change in the bearish outlook with
0.8884 resistance intact. Intraday bias is flipped back to the downside
for retesting 0.8529 first. Break will resume the whole decline from
0.9083. On the upside, above 0.8790 will flip bias back to the upside
and turn focus to 0.8884 again.
In the bigger picture, price actions from 0.9799 (2008) should be
unfolding as a consolidation pattern in the long term up trend. The
first leg is completed with three waves down to 0.8067. Second leg
should also be finished at 0.9083. Fall from 0.9083 is treated as the
third leg and should now target 0.8067 first and possibly further to
61.8% projection of 0.9799 to 0.8067 from 0.9083 at 0.8013 (which is
closes to 0.8 psychological level). Nevertheless, we'd expect strong
support from 0.7693/8186 support zone to contain downside to finish off
the consolidation. On the upside, break of 0.8884 resistance is needed
to invalidate this view or we'll stay bearish now.
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