Daily Report: Sentiments Reversed Again as Expectations for EU Summit Change

News from Eurozone continues to drive markets up and down. This time, sentiments were hurt by reports that France and Germany are clearly still having diverged stance on the role of ECB in solving the debt crisis. France is still pushing the proposal to have the EFSF turned into a bank licensed with ECB for leveraging the capacity. But Germany maintained its opposition to this idea. And European officials are playing down the expectation for this weekend's EU summit. German Chancellor Angela Merkel stated that 'it won't be the final point where we regain the confidence of others, but it will be a stepping stone, a marker on the road' and 'all of the sins of omission and commission of the past cannot be undone by waving a magic wand'. EC President Jose Barroso also said that 'even if we do arrive at a political decision on everything that's on the table, which I hope we will, that doesn't necessarily mean that there will not then have to be an implementing phase'.

The US monthly Beige Book covering the period on the before October 7 indicated that many districts described the pace of growth as 'modest' or 'slight' and there was higher uncertainty for business decision making, although economic activities continued to expand. Consumer spending improved 'slightly' in most districts as driven by auto sales and tourism. Business spending also increased due to the rise in expenditure in construction and mining equipment and auto dealer inventories. Yet, restraints in hiring and capital spending remained. While the October report may be slightly better than the previous one, economic outlook on the US remained uncertain and is highly determined by global factors. 

It's reported that Japan will set up a task force to tackle the problems caused by yen's persistent strength. The task force will involve vice cabinet ministers and a BoJ deputy governor. The fund shifted to state-run Japan Bank for International Cooperation to help exporters would be boosted by 25% from JPY 8T to JPY 10T. In addition, there was also call for BoJ to use "bold" monetary policy in close coordination with the government to manage the yen.

On the data front, UK retail sales will be a main feature in European session, together with Swiss ZEW expectations. From US, initial jobless claims are expected to remain elevated at 400k. Existing home sales is expected to drop to 4.90m in September, leading indicator rose 0.2%. Philly Fed survey is expected to improve to -9.5 in October.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 105.15; (P) 105.84; (R1) 106.36; 

At this point, we're still favoring the case that EUR/JPY's rebound from 100.74 is finished at 107.67 already. Below 104.77 will extend the fall from 107.67 to retest 100.74 low first. On the upside, though, above 107.67 will invalidate this immediate bearish view and bring another rise. But upside should be limited by 38.2% retracement of 123.31 to 100.74 at 109.36 to finish off the rebound.

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. 

Economic Indicators Update

MT	Ccy	Events	Actual	Consensus	Previous	Revised
0:30	AUD	NAB Business Confidence Q3	-4		6	5
6:00	EUR	German PPI M/M Sep	0.30%	0.20%	-0.30%
6:00	EUR	German PPI Y/Y Sep		5.50%	5.50%
6:00	CHF	Trade Balance (CHF) Sep		1.37B	0.81B
8:30	GBP	Retail Sales M/M Sep		0.20%	-0.10%
8:30	GBP	Retail Sales Y/Y Sep		0.60%	-0.10%
8:30	GBP	Retail Sales w/Auto Fuel M/M Sep		0.00%	-0.20%
8:30	GBP	Retail Sales w/Auto Fuel Y/Y Sep		0.60%	0.00%
9:00	CHF	ZEW Survey (Expectations) Oct			-75.7
12:30	USD	Initial Jobless Claims		400K	404K
12:30	CAD	Wholesale Sales M/M Aug		0.40%	0.80%
14:00	EUR	Eurozone Consumer Confidence Oct A		-20.1	-19.1
14:00	USD	Existing Home Sales Sep		4.90M	5.03M
14:00	USD	Leading Indicators Sep		0.20%	0.30%
14:00	USD	Philly Fed Survey Oct		-9.5	-17.5
14:30	USD	Natural Gas Storage		111B	112B