Daily Report: Euro Rebound Stalls on Slovakia, Weakness Limited

Euro's rebound against dollar and yen stalled after Slovakia parliament rejected the expansion of the EFSF. The country failed to pass the plan with 55 lawmakers voting for the measure, 9 against it and 60 abstaining. The expanded EFSF plan will increase the size of the facility from 440B euro to 780B euro and Slovakia will be required to contribute roughly 10B euro in debt guarantees. It's reported that the junior ruling coalition Freedom and Solidarity party, one of the four parties in the coalition, has refused to participate in the vote, making the final result hardly a majority. Slovakia is the only country in the seventeen-nation Eurozone that has not yet ratified the beefed-up plan agreed in July. Nevertheless, the negative impact on Euro and market sentiments in general is limited. That's because firstly, Slovakia is expected to pass the re-vote later this week as the government resigned. Secondly, investor's main focus remain on the bank recapitalization plan led by Germany and France that's to be finalized later this month.

Greece is set to receive the EUR 8b tranche of bailout fund as troika, the inspection team of EU, IMF and ECB, said the country has made "important progress" in fiscal consolidation after completing the review. The fund would likely be approved by EU finance ministers later this month and made available to Greece in early November. Though. troika also note that Greece will miss its 2011 deficit target and it's "essential that the authorities put more emphasis on structural reforms in the public sector and the economy more broadly". And, it stressed that "the success of the program continues to depend on mobilizing adequate financing from private sector involvement and the official sector".

In US, the Senate passed a bill to punish China for currency manipulations by 53-35 vote. While the bill doesn't specifically talk about China, it allows the Treasury to label a country's currency misaligned and thus impose tariffs on its imports to make up the currency under-valuation. China responded by claiming that the so called currency misalignment is "protectionism" and a serious violation of WTO rules. The were also criticism from US that the bill could eventually hurt US companies in China's markets, which is a rate bright spot for in the global economy. Nevertheless, note that the bill might not become law easily for the lack of support in the lower House.

On the data front, Australia Westpac consumer confidence rose 0.4% in October, home loans rose 1.2% in August. UK job data is the main focus in European session and is expected to show 24k rise in claimant counts while unemployment rate is expected to rise to 8.0%. Eurozone industrial production and Canada new housing price index will be released too. FOMC minutes from September meeting will also be released and should show the details of the discussion on Fed's operation twist move.

Dollar index tried to draw some support from 77.30 and recovered this week. But recovery is so far very weak and fall from 79.838 is in much favor to extend. 77.30 would likely be taken out later this week and the pull back from 79.838 should extend to 55 days EMA (now at 76.575) and below. But strong support should be seen at around 76.06 to bring near term rebound to extend the consolidation pattern from 79.838.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 104.06; (P) 104.48; (R1) 104.94;

EUR/JPY's rebound stalled after breaching 104.92 resistance briefly and with 4 hours MACD crossed below signal line, intraday bias is turned neutral. Nevertheless, another rise remains in favor with 102.54 minor support intact. Above 104.98 will extend the rebound from 100.74 short term bottom towards 38.2% retracement of 117.74 to 100.74 at 107.23. On the downside, below 102.54 will indicate that rebound from 100.74 is finished and would flip bias back to the downside for retesting 100.74.

In the bigger picture, whole down trend from 2008 high of 169.96 is still in progress and is building up downside momentum again. Sustained trading below 100 psychological level should pave the way to 100% projection of 139.21 to 105.42 from 123.31 at 89.52, which is close to 88.96 all time low. On the upside, break of 111.93 resistance is needed to be the first signal of medium term reversal. Otherwise, we'll stay bearish.