Daily Report: Risk Appetite Continues on European Optimism, But Losing Momentum

Risk appetite continued on optimism on European bank recapitalization plan. European Commission president Jose Manuel Barroso presented a "comprehensive package" yesterday and urged immediate actions from European policymakers to resolve the current crisis. The recommendations include "decisive action" on Greece including the next tranche of bailout fund and a second "adjustment program" with private sector involvement. Banks should be strengthened "urgently" as sovereign contagion and banks are now "linked". Barroso also called for another assessment of the banking system and "fast track" policies of enhancing stability and recovery in Europe. Finally, Barroso said European Union should complete the "monetary union with a real economic union". Also, markets are also hopeful that Slovakia will finally become the last country in Eurozone to approve the EFSF expansion today or tomorrow. The opposition party made an agreement with parties in departing the Slovak coalition that they'll vote to pass through the EFSF expansion in exchange for early elections in March.

Some new information was delivered in the September FOMC minutes published overnight. First, most policymakers lowered their forecasts for the rest of 2011 and 2012. Yet, recession is not their concerns. Second, most members saw advantages in improving communication regarding the goals for inflation and unemployment. However, there were concerns about a proper mechanism to avoid misunderstanding. Moreover, 3 policy options for managing the size and composition of the System Open Market Account (SOMA) were discussed during the meeting: a reinvestment maturity extension program, a SOMA portfolio maturity extension program, and a large-scale asset purchase program. While the second option, known as operation twist, has been chosen, 2 members favored stronger action while 3 members dissented to take additional accommodation'.

On the data front, New Zealand business manufacturing index dropped to 50.8 in September. Japan Tertiary industry index dropped -0.2% mom in August. China trade surplus narrowed to USD 14.5b in September. Australian job market expanded more than expected by 20.4k in September while unemployment rate dropped to 5.2%. Swiss PPI, UK trade balance, Canada trade balance, US trade balance and jobless claims will be released later today.

While risk appetite extends further this week, note that DOW is starting to lose some momentum ahead of 11716/11862 resistance zone. We'd be cautious on reversal signal with focus on 11261 minor support. Break of which will at least trigger a pull back, with prospect of near term reversal for a test on recent low at 10400. Dollar index 

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.9945; (P) 1.0076; (R1) 1.0286; 

AUD/USD rises further to as high as 1.0232 so far today and intraday bias remains on the upside for near term channel resistance (now at 1.0412). Sustained break there will pave the way for 1.0764 resistance and above in near term. On the downside, below 1.0104 minor support will turn bias neutral and bring consolidations. But another rise will remain in favor as long as 0.9865 support holds. However, break of 0.9865 will suggest that rebound from 0.9387 has completed and will bring retest of this support.

In the bigger picture, focus remains on 0.9404 key support level. As long as this support holds, price actions from 1.1079 is treated as a correction, or part of a consolidation pattern to the up trend from 0.6008 only. And, in such case, AUD/USD should still made another high above 1.1079 before forming an important top. However, sustained break of 0.9404 will indicate that rise from 0.6008 is already finished and would possibly bring deeper fall towards 61.8% retracement of 0.6006 to 1.1079 at 0.7945.

Daily Report & Outlook : Forex Currency Pairs

USD/CHF Daily Outlook

Daily Pivots: (S1) 0.9171; (P) 0.9210; (R1) 0.9270; 

USD/CHF's break of 0.9261 resistance suggests that recent rally has resumed and intraday bias is back on the upside for 161.8% projection of 0.7065 to 0.8246 from 0.7710 at 0.9621 next. On the downside, below 0.9146 minor support will turn bias neutral and bring consolidations. But after all, break of 0.8917 is needed to confirm short term topping. Otherwise, outlook will remain bullish in near term.

In the bigger picture, medium term down trend from 1.1730 is already completed at 1.7065. But there is no indication of long term reversal yet. Rebound from 0.7065 is treated as part of a medium term consolidation pattern. Such rebound would possibly extend to 0.9916/1.1730 resistance zone. But strong resistance should be seen there and bring reversal. On the downside, break of 0.7710 is needed to indicate completion of the rebound from 0.7065. Otherwise, we'll stay near term bullish in the pair for the moment.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.3276; (P) 1.3329 (R1) 1.3399; 

EUR/USD's recovery from 1.3145 is still in progress and might extend further to 4 hours 55EMA (now at 1.3434) and above. But still, note that break of 1.3689 resistance is needed to signal short term bottoming. Otherwise, outlook will remain bearish. Below 1.3145 will target 161.8% projection of 1.4939 to 1.3969 from 1.4548 at 1.2979, which is close to 1.3 psychological level.

In the bigger picture, current development indicates that medium term rise from 1.1875 has completed with three waves up to 1.4939 already. That also suggests that it's merely part of the consolidation pattern that started back in 2008 at 1.6039. Further decline would now be seen to 1.2873 support first and break will target 1.1875 and below. On the upside, above 1.4548, resistance is needed to confirm completion of the fall from 1.4939 or we'll stay bearish in EUR/USD.

EUR/GBP Daily Outlook

Daily Pivots: (S1) 0.8595; (P) 0.8622; (R1) 0.8656; 

EUR/GBP's recovery from 0.8529 might extend further as long as 0.8584 minor support holds. But upside should be limited below 0.8795 resistance and bring an eventual downside breakout. Below 0.8584 will turn bias back to the downside. Further break of 0.8529 support will confirm resumption of recent fall from 0.9083 and target 100% projection of 0.8884 to 0.8529 from 0.8795 at 0.8440 next.

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.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.9542; (P) 0.9603; (R1) 0.9719;

AUD/USD's rebound from 0.9387 extends further to as high as 0.9726 so far today The break of 0.9672 minor resistance affirms the case that a short term bottom is at least formed after drawing support from 0.9404 key medium term level, on bullish convergence condition in 4 hours MACD. Intraday bias remains on the upside and further rise should be seen to 0.9984 resistance next. Break will target upper channel resistance (now at 1.0478). On the downside, below 0.9621 minor support will turn bias neutral. But break of 0.9387 support is needed to confirm fall resumption. Otherwise, we'll now favor more rebound ahead in near term.

In the bigger picture, focus remains on 0.9404 key support level. As long as this support holds, price actions from 1.1079 is treated as a correction, or part of a consolidation pattern to the up trend from 0.6008 only. And, in such case, AUD/USD should still made another high above 1.1079 before forming an important top. However, sustained break of 0.9404 will indicate that rise from 0.6008 is already finished and would possibly bring deeper fall towards 61.8% retracement of 0.6006 to 1.1079 at 0.7945.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.0344; (P) 1.0458; (R1) 1.0519;  

USD/CAD's fall from 1.0656 extends further to as low as 1.0394 so far. The break of 1.0431 minor resistance indicates that a short term top is formed on bearish divergence condition in 4 hours MACD after missing 161.8% projection of 0.9406 to 1.0009 from 0.9725 at 1.0701. Intraday bias is mildly on the downside and deeper decline would be seen to 38.2% retracement of 0.9725 to 1.0656 at 1.0300 and possibly below. But we'd expect strong support from 50% retracement at 1.0191 to contain downside and bring rebound. More consolidations would be seen below 1.0656 would be seen before rally from 0.9406 resumes towards 1.0803 medium term fibonacci level.

In the bigger picture, sustained trading above 55 weeks EMA affirms the case that whole down trend from 2009 high of 1.3063 has finished at 0.9406 on bullish convergence condition in weekly. Current rally from 0.9406 should now target 1.0851 resistance (38.2% retracement of 1.3063 to 0.9406 at 1.0803). Break there will extend the rebound to 61.8% retracement 1.1666 and above. On the downside, break of 1.0009 support is needed indicate completion of the rally from 0.9406. Otherwise, we'll stay bullish in USD/CAD. 

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.5406; (P) 1.5449; (R1) 1.5505;  

GBP/USD is staying in tight range above 1.5340 temporary low and intraday bias remains neutral. Consolidation from 1.5327 might still be in progress and stronger recovery cannot be ruled out. But even in that case, upside should be limited by 38.2% retracement of 1.6618 to 1.5327 at 1.5820 and bring fall resumption eventually. On the downside,, decisive break of 1.5327 will confirm resumption of recent fall from 1.6746 and should target 161.8% projection of 1.6746 to 1.5780 from 1.6618 at 1.5055 next

In the bigger picture, rise from 1.4229, which is treated as the third leg of consolidation from 1.3503 (2008 low) should be finished at 1.6746 after GBP/USD completed a head and shoulder top reversal pattern (ls: 1.6298, h: 1.6746, rs: 1.6618). Fall from 1.6746 could be the fourth leg of the consolidation pattern from 1.3503 (2008 low) or resuming long term down trend from 2.1161 (2007 high). In either case, retest of 1.4229 resistance should be seen. Break of 1.4229 will bolster the down trend resumption case and would possibly push GBP/USD through 1.3503 low. On the upside, break of 1.6618 resistance is needed to invalidate this view. Or we'll now stay cautiously bearish in GBP/USD.

Euro Weak in the Knees Again as Week/Month/Quarter Ends

The Euro ground lower today after a German minister said further EFSF expansion was not likely and despite a very high CPI estimate for September. Bonds rebounded from key support and risk remains on the defensive.

The US and German 10-year benchmarks continued to flirt with the 2 percent yield level, but both have failed to take out that support level and the strong rebound in bonds today suggested a renewed bout of safe haven seeking, particularly after a very high Euro Zone September CPI estimate failed to generate sustainable selling interest. Ahead of today’s trading session, Germany’s economy minister Roesler said in a television interview that German lawmakers were unlikely to approve another raising of the EFSF ceiling or an effective increase in the fund through leveraging. Among our usual indicator suspects: Euro 3-month basis swaps also eased another couple of bps lower (more pressure on Euro) and Italian/German yield spreads widened out again by the early US hours after attempting to tighten earlier in the day.

The action in bond markets is spilling over to JPY crosses as today marks the end of the first half of the year in Japan and the end of the quarter for the rest of the financial world. EURJPY topped  out again well above 104 but was pushed sharply back lower on the enthusiastic rally in Bunds today. It is interesting that USDJPY remained joined at the hip despite considerable volatility in rate spreads between the US and the Japan this week – apparently the market is content to express the volatility in rate spreads in non-USD terms, but USDJPY can’t remain in a vice grip forever. The Bank of Japan will see considerable pressure if we get another wave of risk off soon and global government bond yields probe their recent cycle lows.

Looking ahead
Some of the moves yesterday across markets certainly looked a bit like they might have been driven by end of month/quarter flows and that kind of activity could continue for the rest of the day today. This week has mostly been one vicious churn for those looking for a directional move – though a swoon in risk in the US session today could put an exclamation point on weekly candlesticks. Next week offers plenty in the way of even risks, certainly worth mentioning here, though we are likely to refresh this list on Monday:

• Central Bank Meetings: RBA (Wednesday) and ECB, BoE (Thursday), BoJ (Friday)
• Euro Zone: EcoFin meetings on Monday and Tuesday
• US Data: ISM Manufacturing (Monday), ISM Non-Manufacturing (Wednesday), US Employment Report (Friday)
• Other Highlights: Japan Q3 Tankan (Monday) Fed’s Bernanke to Testify (Tuesday) Canada Employment Report (Friday)

The Bernanke appearance on Tuesday will be an interesting appearance before the Joint Economic Committee, which includes Ron Paul, who will likely take the opportunity once again to bash the Fed and demand it be audited. Let’s not forget he’s a presidential candidate with a campaign in need of a boost as well.

Chart: AUDUSD Weekly 
AUDUSD challenging key levels last week and this week, confirming the huge trendline break from the 2009 lows. From here, there is a gap down to the sub-94 area and then not much to hold the pair until 0.8250. 

We asked this Monday whether the market might be treacherous for the balance of the week. (“Could heavy positioning and heavy batch of event risks mean more of this kind of churn in markets for the rest of the week?”) Next week is unlikely to yield the same result – either the risk bears give up here for a short while and the range expands upward a bit (though without changing secular trend) or the action heats up again to the downside and we start to see a full capitulation unfolding. Regardless, it behooves all of us to be careful out there, particularly since, given the backdrop, the odds of the latter remain elevated.


Economic Data Highlights

• Germany Aug. Retail Sales out at -2.9% MoM vs. -0.5% expected
• Norway Sep. Unemployment Rate out at 2.5% vs. 2.6% expected and 2.7% in Aug.
• Norway Aug. Credit Growth Indicator out at +6.5% YoY vs. +6.3% expected and +6.3% in Jul.
• Euro Zone Sep. CPI Estimate out at +3.0% YoY vs. +2.5% expected and +2.5% in Aug.
• Switzerland Sep. KOF Swiss Leading Indicator out at 1.21 vs. 1.30 expected and 1.61 in Aug.
• US Personal Income out at -0.1% MoM vs. +0.1% expected
• US Personal Spending out at +0.2% MoM as expected 
• US PCE Core out at +0.1% MoM and +1.6% YoY vs. +0.2%/+1.7% expected, respectively and vs. +1.6% in Jul.
• Canada Jul. GDP rose +0.3% MoM and +2.3% YoY as expected and vs. +2.1% in Jun.

Upcoming Economic Calendar Highlights (all times GMT)

• Chicago Sep. Chicago PMI (1345)
• US Sep. Final University of Michigan Confidence (1355)
• US Sep. NAPM – Milwaukee (140)
• US Fed’s Bullard to Speak (1500)
• China Sep. PMI Manufacturing (Sat 0100)
• Australia Sep. AiG Performance of Manufacturing Index (Sun 2230)
• Japan Q3 Tankan survey (Sunday 2350)
• China Sep. Non-manufacturing PMI (Mon 0100)

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

 

AUDUSD Weekly - Bullish above 1.0250

Last week’s signals were bearish for the AUDUSD, but they also pointed to losses being just temporary. This is exactly what occurred, as a near 2 Big Fig profit was taken 5 pips off the 1.0178 low, before sentiment recovered to close little changed on the week overall.

Signals have subsequently improved and this week’s outlook is for the rally to continue while above a stop loss at 1.0250. But with a sequence of lower weekly highs intact, the call is a cautious one. The initial target is 1.0472, last week’s high, a break here ending the sequence of lower weekly highs and improving sentiment to 1.0575 and then towards 1.0675, the 2 week top.

The risk however would be with selling through a stop at 1.0250, a negative signal exposing sentiment to 1.0178, last week’s low and then towards 1.0100.

Daily Report: Sentiments Stabilized Temporarily as Italy Seeks China Buying

Markets sentiments stabilized a bit over night on talks that Italy, after having a poor bill auctions yesterday, was soliciting China for buying the country's debts. It's reported that Finance Minister Giulio Tremonti met with China Investment Corp sovereign fund's chairman on the possibly of purchase by the fund. A number of Chinese officials are believed to be involved in the conversation, including those from China's ambassador and the State Administration of Foreign Exchange. It's believed that around 4% of Italy's EUR 1.9T of debt is being held by China for the moment even though the exact amount is unclear. EUR/USD turned into range trading after breaching 1.35 level briefly yesterday. Meanwhile, global equities recovered mildly, following late rebound in US stocks. Italy will be selling as much as EUR 7b of bonds today including EUR 4b of a new benchmark 5-year bond The country as completed around 70% of its debt financing this year and is looking at selling another EUR 70b of bonds for the rest of the year to cover its budget deficit and other redemptions.

But after all, sentiments remain vulnerable as all eyes and all minds are still on the Greece situation. Default risks of Greece, as implied by 5 years CDS, reached as high as 98% while yield on 2 year-notes jumped above 70%. Fear of contagion also sent CDS on some eurozone countries to record high, including Portugal, Italy and even France. In the medium term, concerns of impact of austerity measures on Eurozone economy is also weighing on sentiments. ECB Trichet tried to comfort markets by saying that "we don't see a recession, not at all, but we see a slowing down in comparison with what has been observed." Also, Trichet pleased to provide "liquidity to banks as required". But there was clearly not much reaction to his comments.

On the data front, Australia NAB business confidence dropped sharply to -8 in August. NAB said that the result reflects "heightened global uncertainty, large falls in equity markets and the fear of debt market contagion." Though, "confidence levels remain significantly above global financial crisis or recessionary lows." UK RICS house price balanced dropped to -23 in August. RICS said that the indicators suggested "demand for homes remain broadly steady, albeit at relatively low levels, despite the renewed bout of economic gloom", but "the risk is that the worsening economic picture will gradually begin to have a more material impact on sentiment and discourage potential house purchasers".

Looking ahead, UK CPI will be a main focus in European session. Headline CPI is expected to climb to 4.5% yoy in August with core CPI slightly down to 3.0%. UK Chancellor Osborne said over the weekend that he saw no barriers to a second round of quantitative easing from BoE. But the bank might still opt to see CPI really peaks first before acting. Other data to watch today include US import price index and Fed budget statement.

AUD/JPY is so far one of the weakest pair this week, obviously on risk aversion. The development confirmed that corrective rebound from 76.50 has finished at 82.80 already after failing to sustain above 55 days EAM on multiple attempt. Near term outlook is now cautiously bearish for a retest on 76.50. Break will resume whole fall from 90.01 towards 74.02 support and below. A break of 80.61 resistance is needed to invalidate this case or we'll stay bearish even in case of recovery. 

EUR/GBP Daily Outlook

Daily Pivots: (S1) 0.8555; (P) 0.8596; (R1) 0.8664; 

EUR/GBP recovers mildly after dipping to 0.8529. Touching of 0.8632 minor resistance, with 4 hours MACD crossed above signal line, suggests that a temporary low is formed and intraday bias is turned neutral for some consolidations. But recovery is expected to be limited below 0.8732 support turned resistance and bring fall resumption. Below 0.8652 will extend the whole decline from 0.9083 to 100% projection of 0.9083 to 0.8642 from 0.8884 at 0.8443 next.

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.

Daily Report: ECB, BoE, Obama, Bernanke Watched Today

Other than some employment data triggered weakness in Aussie, markets are generally steady in Asia today. Investors are holding their breath ahead of some key events. ECB meeting will be a main focus. It's widely expected that the bank will keep rates unchanged at 1.50%. Trichet will have his second last press conference before he steps down in November. The focus will be on whether ECB would turn more dovish on growth and would there be downward revision in staff projections on growth and inflation. In additional, Trichet's comment on bond buying, in particular Italy and Spain, would be closely watched. At the moment, like others in the markets, we're expecting ECB to be hold through through 2012. 

However, markets could start to price in rate cut from ECB, based on worsening sovereign crisis as well as deteriorating growth out look, should Trichet starts to turn dovish.

BoE meeting will likely be a non-event as the bank would keep rates unchanged at 0.50% and the asset purchase program unchanged at GBP 200b. However, it's expected that the debate on expanding the asset purchase program would continue. There is little chance that BoE would add to the quantitative easing program today. But BoE is indeed relatively unpredictable comparing to other major central banks and should the BoE announce new stimulus, the pound would be under much pressure.

Another two main focuses will be on speech from US President Obama and Fed Bernanke. Obama is expected to reveal a $300B plan stimulus the job market before the Congress. Measures are focused on tax cuts, infrastructure spending and assistance to local governments. The media said measures will include a 1-year extension of payroll tax cut for workers and an extension of expiring jobless benefits. Investors are desperately hoping that the measures will work as the job market has remained dismal in the US. Employment stagnated in August. While private sector positions increased +17K during the month, these were offset by the -17K decline in government jobs. The unemployment rate stayed unchanged at 9.1%. Meanwhile, markets will try to get further affirmation from Bernanke that Fed will expand the stimulus programs Septembers meeting. Nevertheless, we won't expect Bernanke to reveal what's the preferred option for additional stimulus before the two days FOMC meeting.

In the Beige Book compiled by the Kansas City Fed covering the period before August 26, it's stated that economic activity continued to 'expand at a modest pace, though some Districts noted mixed or weakening activity'. Consumer spending 'increased slightly in most Districts' but 'non-auto retail sales were flat or down in several Districts'. Manufacturing activities were 'mixed across the country, but the pace of activity slowed in many Districts'. The employment market was mostly described as 'stable' although there were reports of modest growth in some Districts. The tone of this Beige Book was obviously more downbeat than the previous one. However, while the report showed that growth was below trend, it did not signal signs of recession. Moreover, the employment outlook was not miserable.

On the data front, Australia unexpectedly lost -9.7k jobs in August while unemployment rate rose to 5.3%. The data gave some pressure on Aussie in Asian session. Japan eco watcher survey current dropped sharply to 47.3 in August. Current account surplus narrowed to JPY 0.75T in July while machine orders dropped -8.2% yoy. Swiss unemployment rate was unchanged at 3.0% in August. German trade surplus narrowed to EUR 10.1b in July. Canada building permits, new housing price index, trade balance, US trade balance and initial jobless claims will be released later today.

AUD/USD Daily Outlook

Daily Pivots: (S1) 1.0434; (P) 1.0530; (R1) 1.0580; 

Intraday bias in AUD/USD remains neutral for the moment. At this point, we're still favoring the case that corrective rebound from 0.9926 is over with three waves up to 1.0764. Hence, we'd expect the current recovery to be limited below 1.0764 and bring another fall. Below 1.0481 will target 1.0314 support first. Break will target a test on 0.9926 low. Nevertheless, break of 1.0764 will invalidate this view and bring stronger rise towards 1.1079 high instead.

In the bigger picture, rise from 0.8066 has completed with bearish divergence in daily MACD at 1.1079. However, AUD/USD is staying well inside long term rising channel from 2008 low of 0.6008. Hence, there is no indication of trend reversal yet and the price actions from 1.1079 are viewed as a correction only. Hence while deeper decline would be seen to long term channel support and possibly below, we'd expect strong support from 0.9404 resistance turned support to contained downside. 

Daily Report: Aussie Firm after GDP, BoJ on Hold, BoC Next

Australian dollar is lifted mildly by stronger than expected GDP data and rebound in stocks in Asian session. The RBA statement yesterday basically indicates that the bank will be on hold for a while and there is no intention for rate cut yet. And the view is affirmed by today's GDP data, which showed 1.2% qoq expansion in Q2 versus consensus of 1.0% qoq. Meanwhile Q1's contraction was also revised from -1.2% qoq to -0.9% qoq. Asian equity indices are also broadly higher as DOW managed pare much earlier loss to close down -100pts only overnight.

BoJ kept monetary policies unchanged as widely expected today. Interest rates is kept at 0-0.1% while the asset purchase program was kept at JPY 50T. The vote was unanimous. In the accompanying statement, the bank said that the virtually zero interest rate policy will continue until "price stability is in sight on the basis of the understanding of medium- to long-term price stability." While the bank refrained from adding stimulus this time, it's believed that BoJ is just waiting to see how this month's FOMC meeting affects markets and after the new government settles before acting.

BoC will be a main focus today. Recent headwind in global economic outlook should deter BOC's tightening schedule. We believe the central bank will leave the policy rate unchanged at 1% in September. Indeed, Fed's decision to keep interest rates at exceptionally low levels at least until mid-2013 and the increasing downside risks to inflation signaled the BOC will leave the overnight rate unchanged at least until mid -2012. That said, it's also unlikely for the central bank to trim interest rates as headline inflation remains high and the job market is robust. 

On the data front, UK BRC shop price index rose 2.7% yoy in August. Japan leading indicator rose to 106 in July. Australia Q2 GDP expanded 1.2% qoq. UK industrial and manufacturing production are both expected to be flat mom in July. German industrial production is expected to rose 0.5% mom in July. Canada Ivey PMI is expected to rise slightly to 46.7 in August. Fed will also release the Beige Book economic report.

AUD/CAD's long term up trend is still intact and is possibly resuming. Near term focus will be on 1.0555 resistance and break will confirm up trend resumption. However, note that the cross has been losing upside momentum as seen with bearish divergence condition in weekly MACD. Thus, even in case of strong rise, we'll be cautious on reversal signal as AUD/CAD approaches 100% projection of 0.9605 to 1.0555 from 0.9913 at 1.0863. 

AUD/USD Daily Outlook

Daily Pivots: (S1) 1.0434; (P) 1.0530; (R1) 1.0580;

AUD/USD formed a temporary low at 1.0481 and recovered. Intraday bias is turned neutral for the moment. So far, we're still favoring the case that corrective rebound from 0.9926 is over with three waves up to 1.0764. Hence, we'd expect the current recovery to be limited below 1.0764 and bring another fall. Below 1.0481 will target 1.0314 support first. Break will target a test on 0.9926 low. Nevertheless, break of 1.0764 will invalidate this view and bring stronger rise towards 1.1079 high instead.

In the bigger picture, rise from 0.8066 has completed with bearish divergence in daily MACD at 1.1079. However, AUD/USD is staying well inside long term rising channel from 2008 low of 0.6008. Hence, there is no indication of trend reversal yet and the price actions from 1.1079 are viewed as a correction only. Hence while deeper decline would be seen to long term channel support and possibly below, we'd expect strong support from 0.9404 resistance turned support to contained downside.