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.

GBPUSD - Bearish below 1.5478

Cable setbacks, in line with Wednesday's bullish call for sentiment, attracted fresh investor demand. But it was unable to recover more than half of Monday’s net decline and this has returned the focus to the downside. The scope of the Asian decline is a concern but we look for any bounce to find fresh selling interest.

In view of this our call is to be Bearish on Rallies while prices are below 1.5478. The immediate objective is 1.5394, yesterday's low point, with a move below that point targeting 1.5341, this week's bottom, or even towards 1.5288.

The risk to this call is that selling pressure is weaker than currently assessed although a fresh outright Buy signal would only be generated by a move through 1.5478, the overnight high. Prices and sentiment should then improve to 1.5493, yesterday's top, then towards this week's open of 1.5550.

Daily Report: Risk Lifted by Bank Recapitalization Talk, Hit by Italy Downgrade. Markets Turn into Consolidation

Risk sentiments was given a strong boost overnight on talk of bank recapitalization plan in Europe. And that sent back above 1.33 level while giving DOW a strong rebound from intraday low of 10404 to close at 10808, up 153 pts. However, risk rebounds halted after Moody's cut Italy's credit rating by three notches after US markets closed. EUR/USD then hovers around 1.33 while Asian equities are generally soft. It looks like market has turned into consolidation and traders would wait for tomorrow's ECB press conference and Friday's US NFP before placing another bet.

EU Commissioner for Economic Affairs urged that "capital positions of European banks must be reinforced to provide additional safety margins and thus reduce uncertainty". And, he noted that "there is an increasingly shared view that we need a concerted, coordinated approach in Europe" and there's "a sense of urgency among ministers and we need to move on". The message was taken by the markets a a sign that EU finance ministers are looking into ways to coordinate recapitalization of banks and other financial institutions.

Moody's downgraded Italy's credit rating for the first time in nearly two decades after US markets closed. The rating was cut three notches from Aa2 to A2, and assigned a negative outlook. Moody's noted that the "fragile market sentiment that continues to surround euro area sovereigns with high levels of debt implies materially increased financing costs and funding risks for Italy". In addition, Moody's noted that "all but the strongest euro-area sovereigns are likely to face sustained negative pressure on their ratings".

On the data front, UK BRC shop prices rose 2.7% yoy in September. Australian retail sales beat expectation by rising 0.6% mom in August. Eurozone PMI services and retail sales will be released later today, along with UK PMI services and Q2 GDP final in European session. ADP job report and ISM services will be the main focus in US session.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.0464; (P) 1.0561; (R1) 1.0610; 

With 4 hours MACD crossed below signal line, a temporary top is in place at 1.0656 in USD/CAD and intraday bias is turned neutral. Also, note mild bearish divergence condition in 4 hours MACD, 1.0656 might be a near term top too, ahead of 161.8% projection of 0.9406 to 1.0009 from 0.9725 at 1.0701. Below 1.0431 will bring deeper pull back to 4 hours 55 EMA (now at 1.0356) and below. Though, in that case, we'd expect strong support from 1.0142 to contain downside and bring another rise. Above 1.0656 will resume recent rise from 0.9406 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. 

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.3211; (P) 1.3289 (R1) 1.3434; 

EUR/USD recovers after dipping to 1.3145 and the break of 1.3311 minor resistance suggests that a temporary low is in place. Intraday bias is turned neutral for some consolidations. But 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.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.5387; (P) 1.5441; (R1) 1.5542; 

GBP/USD managed to hold above 1.5327 and the break of 1.5483 minor resistance suggests that consolidation from 1.5372 is possibly still in progress. Intraday bias is turned neutral for the moment. Stronger recovery might be seen to 1.5715 and above. 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. 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.

 

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
23:01	GBP	BRC Shop Price Index Y/Y Sep	2.70%		2.70%
0:30	AUD	Retail Sales M/M Aug	0.60%	0.20%	0.50%	0.60%
8:00	EUR	Eurozone PMI Services Sep F		49.1	49.1
8:30	GBP	PMI Services Sep		50.5	51.1
8:30	GBP	GDP Q/Q Q2 F		0.20%	0.20%
8:30	GBP	GDP Y/Y Q2 F		0.70%	0.70%
8:30	GBP	Current Account (GBP) Q2		-11.0B	-9.4B
9:00	EUR	Eurozone Retail Sales M/M Aug		-0.30%	0.20%
9:00	EUR	Eurozone Retail Sales Y/Y Aug		-0.70%	-0.20%
11:30	USD	Challenger Job Cuts Y/Y Sep			47.00%
12:15	USD	ADP Employment Change Sep		70K	91K
14:00	USD	ISM Non-Manufacutring Composite Sep		53	53.3
14:30	USD	Crude Oil Inventories		1.0M	1.9M

CABLE - Bullish above 1.5400

Initial powerful losses in Cable Tuesday extended the two preceding day’s decline but these losses were entirely reversed by the close. But the bounce was able to only reverse half of Monday’s net downside and some selling has returned in Asia. It is the downside rejection, however, that is assessed as the key feature. Therefore our call is Bullish above 1.5400.

The immediate objective is 1.5474 with a move beyond that point targeting 1.5497, yesterday's peak, or even towards this week's open of 1.5550.

Selling through 1.5400 is the risk to this call as it signals that selling pressure is greater than currently assessed. The market should then decline to 1.5372, then yesterday's base of 1.5341.

Daily Report: NZD Lower after Downgrade, Dollar Building Up Momentum

New Zealand dollar is noticeably lower in another quiet Asian session after rating downgrade. Meanwhile, exporters buying send Japanese yen generally higher. Sentiments are still weak in the markets but was somewhat steady as the HSBC China Manufacturing PMI was revised higher to 49.9 in September. Technically speaking, major currencies' recovery against dollar has been losing momentum and there are signs of selloff resumption. USD/CAD takes the lead by breaking 1.0390 resistance. We'll see if dollar regains momentum against as the quarter closes.

Fitch's and S&P's downgraded New Zealand's credit rating amid concerns over the country's fiscal deficits. Fitch trimmed New Zealand's rating to AA from AA+, citing the country's high level of net external debt is an outlier among rated peers - a key vulnerability that is likely to persist as the current account deficit is projected to widen again'. S&P also lowered the country's rating by 1 notch after the 'assessment of the likelihood that New Zealand's external position will deteriorate further'. The downgrades are expected to increase borrowing costs of New Zealand. They will also make it more difficult for the RBNZ to remove the emergency cut implemented after the earthquake.

Sterling is relatively resilient against Euro as an SNB official said the bank will increase Sterling holdings in reserves "in a year's time". Current, the bank is holding 3% of its reserves in the pound which is significantly lower than the 10% between 2004 and 2005. On the other hand, it's holding 55% reserves in Euro, which markets are expecting SNB to reallocate after setting the floor on EUR/CHF. Meanwhile, there are also some support to sterling as Gfk consumer confidence unexpectedly improved to -30 in September.

Yen is broadly higher today as Japanese exports sold both euro and dollar at the end of the fiscal half-year and buy back the yen. But gain is so far limited after Finance Minister Jun Azumi said a further JPY 15T would be authorized or market intervention, bringing the amount up to a record JPY 46T. Azumi also noted that "the recent 75- to 80-yen range could pour cold water on the Japanese economy's recovery,: suggesting the government is deeper concerned with USD/JPY a the current level.

On the data front, New Zealand building building permits rose 12.5% mom in August while NBNZ business confidence dropped to 30.3 in September. UK Gfk consumer sentiments improved to -30 in September. Japan manufacturing PMI dropped to 49.3 in September. Household spending dropped -4.1% yoy in August while jobless rate dropped to 4.3%, industrial production rose 0.8% mom, housing starts rose 14% in August. National CPI core rose 0.2% yoy in August. Look gin ahead, Eurozone CPI flash and Swiss KOF will be the main focus in European session while Canada GDP and US personal income and spending will be the main focus in US session. 

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.0276; (P) 1.0338; (R1) 1.0421; 

USD/CAD rises to as high as 1.0407 so far today and the break of 1.0385 indicates that recent rebound from 0.9406 has resumed. Intraday bias is back on the upside and further rally should be seen towards 161.8% projection of 0.9406 to 1.0009 from 0.9725 at 1.0701 next. On the downside, below 1.0256 minor support will turn bias neutral. Further break of 1.0142 support will suggest short term topping, possibly with bearish divergence condition in 4 hours MACD, and bring deeper pull back.

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. On the downside, break of 0.9725 support is needed to confirm completion of the rise from 0.9406. Or, we'll stay bullish in the pair.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.3516; (P) 1.3598 (R1) 1.3676; 

With 1.3477 minor support intact, EUR/USD's recovery form 1.3362 might extend further. But after all, the current rise is treated as a correction in the larger decline only. Hence, we'd expect upside to be limited by 1.3936 resistance and bring fall resumption. Below 1.3477 minor support will flip bias back to the downside. Further break of 1.3362 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/JPY Daily Outlook

Daily Pivots: (S1) 103.53; (P) 104.23; (R1) 105.15; 

With 103.00 minor support intact, EUR/JPY's recovery from 101.93 might extend further. But after all, it's treated as a correction in the larger decline only. Hence, we'd expect upside to be limited by 106.98 resistance and bring fall resumption. Below 103.00 minor support will flip bias back to the downside for 101.93 and then 100 psychological level.

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 123.31 resistance is needed to confirm trend reversal or we'll stay bearish.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.5540; (P) 1.5627; (R1) 1.5713; 

With 1.5542 minor support intact, recovery from 1.5327 might still extend higher. But after all, such recovery is treated as a correction only and hence, we'd expect upside to be limited by 38.2% retracement of 1.6618 to 1.5327 at 1.5820 and bring fall resumption. Below 1.5542 minor support will flip bias back to the downside. Further break of 1.5327 will resume recent decline and 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 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.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
21:45	NZD	Building Permits M/M Aug	12.50%		13.00%	14.30%
23:01	GBP	GfK Consumer Sentiments Sep	-30	-33	-31
23:15	JPY	Nomura/JMMA Manufacturing PMI Sep	49.3		51.9
23:30	JPY	Household Spending Y/Y Aug	-4.10%	-2.80%	-2.10%
23:30	JPY	Jobless Rate Aug	4.30%	4.70%	4.70%
23:30	JPY	Tokyo CPI Core Y/Y Sep	-0.10%	-0.10%	-0.20%
23:30	JPY	National CPI Core Y/Y Aug	0.20%	0.10%	0.10%
23:50	JPY	Industrial Production M/M Aug P	0.80%	1.50%	0.40%
1:00	NZD	NBNZ Business Confidence Sep	30.3		34.4
5:00	JPY	Housing Starts Y/Y Aug	14.00%	4.50%	21.20%
9:00	EUR	Eurozone CPI Estimate Y/Y Sep P		2.50%	2.50%
9:00	EUR	Eurozone Unemployment Rate Aug		10.00%	10.00%
9:30	CHF	KOF Swiss Leading Indicator Sep		1.33	1.61
12:30	CAD	GDP M/M Jul		0.30%	0.20%
12:30	USD	Personal Income Aug		0.10%	0.30%
12:30	USD	Personal Spending Aug		0.20%	0.80%
12:30	USD	PCE Deflator Y/Y Aug		3.00%	2.80%
12:30	USD	PCE Core M/M Aug		0.20%	0.20%
12:30	USD	PCE Core Y/Y Aug		1.70%	1.60%
13:45	USD	Chicago PMI Sep		56.5	56.5
13:55	USD	U. of Michigan Confidence Sep F		57.8	57.8

GBPUSD - Cautiously Bullish above 1.5575

Trading was subdued in Cable Wednesday. This confirmed our indecisive call with all trading confined tightly within Tuesday’s price range. This ‘Inside Day’ highlights continuing uncertainty and in fact the weakness of the net decline has been emphasised by a return of investor demand in Asia.

The upside has not been strong enough to break out of Tuesday’s parameters but intraday signals for sentiment are now mildly bullish. Current volatility adds an extra note of caution and so our call is Cautiously Bullish and on setbacks above 1.5575. The immediate objective is 1.5656 with a move beyond that point targeting 1.5706, Tuesday’s peak, or even 1.5748, the high from Sep 21st.

Selling through 1.5575, today’s Asian open, is the risk to this call as it signals that buying pressure is weaker than currently assessed. The market should then decline to 1.5543, the overnight low, then 1.5482, this week's open.

Daily Report: Dollar Extends Rally as Crash in Metals and Stocks Continue

Dollar extends recent rally and rises broadly as the week starts as risk aversion continues to dominate the markets. Investors' sentiments received no boost from the week's IMF/World Bank annual meeting as policymakers are divided on what to do on tackling the current crisis. PBoC Governor Zhou's comment over the weekend reflected that China is still deeper concerned with inflation and sends China stocks to lowest level since July 2010. Aussie and Kiwi are hardest hit today, by the crash in precious metal markets as well as wider than expected trade deficit from New Zealand.

At the meeting over the weekend, IMF called for world policymakers to 'act now and act together' to resume global economic recovery. The world lender said that 'the global economy has entered a dangerous phase, calling for exceptional vigilance, coordination and readiness to take bold action from members and the IMF alike'. World Bank President Robert Zoellick stated that 'the world is in a danger zone' while UK Chancellor George Osborne European leaders had 6 weeks to end the crisis as credible solutions are required to be ready by the next G20 summit in Cannes on November 4. News reports said that German and French leaders have come to some news plans of resolving the sovereign crisis in the 17-nation region. The measures include recapitalization of European banks, expansion of the EFSF to as much as 2 trillion euro and a partial default of Greek debts. Yet, the measures were not verified.

PBoC Governor Zhou Xiaochuan said that "high inflation remains the top concern in China" and there is no "immediate" way to control inflation. China is facing challenges from "relatively fast rises in consumer prices and relatively large amount of capital inflows in the short term". Zhou noted that is "no need for a fundamental change in the monetary or fiscal policies", suggesting China will continue to tighten to curb inflation. Regarding European debt crisis, Zhou noted that he's see if " euro-zone countries can implement their July 21 decision" before determining how China can further help.

The crash in commodity markets since last week is having much pressure on commodity currencies, in particular Aussie. Gold is diving another -5% today and is now trading at around 1550 level, way off the historical high made just weeks ago above 1900. Silver is even weaker as it's losing over -11% today so far. There is no help to Kiwi after reporting wider than expected trade deficit of NZD -641m in August. RBNZ will definitely refrain from further removing policy accommodation in near term while there are already some speculations that RBA would even cut rates within the next six months.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 102.47; (P) 103.09; (R1) 103.95; 

EUR/JPY's fall resumes after brief consolidations and dips to as low as 101.93 so far. Intraday bias is back on the downside for 100 psychological level first and then next near term target at 100% projection of 111.93 to 103.88 from 106.98 at 98.93. On the upside, above 103.75 minor resistance will turn bias neutral again and bring consolidations. But recovery should be limited by 106.98 resistance and bring fall resumption.

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 123.31 resistance is needed to confirm trend reversal or we'll stay bearish.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.3422; (P) 1.3494 (R1) 1.3570; 

EUR/USD's fall resumes after brief consolidations and dips to 1.3362 so far today. Intraday bias is back on the downside for 61.8% projection of 1.4548 to 1.3498 from 1.3936 at 1.3287 and then 161.8% projection of 1.4939 to 1.3969 from 1.4548 at 1.2979, which is close to 1.3 psychological level. On the upside, above 1.3566 minor resistance will turn bias neutral and bring consolidations. But recovery should be limited below 1.3936 resistance and bring fall resumption.

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.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.5349; (P) 1.5420; (R1) 1.5513;

Intraday bias in GBP/USD remains neutral for the moment and some more consolidations would be seen above 1.5327 temporary low. Nevertheless recovery is expected to be limited below 1.5868 resistance and bring fall resumption. Break of 1.5327 will 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 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.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
21:45	NZD	Trade Balance (NZD) Aug	-641M	-321M	129M	111M
8:00	EUR	German IFO - Business Climate Sep		106.5	108.7
8:00	EUR	German IFO - Current Assessment Sep		115.5	118.1
8:00	EUR	German IFO - Expectations Sep		97.4	100.1
14:00	USD	New Home Sales Aug		295K	298K

Dollar Firm ahead of FOMC, Sterling Down after BoE Minutes

Dollar strengths mildly today as global stocks are mildly softer ahead of the highly anticipated FOMC announcement. It's widely expected policymakers will announce something called 'operation twist' -increasing the average maturity of securities holdings by swapping holdings of lower maturities Treasuries with longer ones, after the 2-day meeting. Compared with outright bond purchases (QE3), one advantage of operation twist is that the size of the Fed's balance sheet would remain unchanged and is less unlikely to invoke inflation. 

Sterling is notably lower broadly after BoE minutes revealed that most MPC members thought "stresses of the past month had significantly strengthened the case for an immediate resumption of asset purchases". And "for some members, a continuation of the conditions seen over the past month would probably be sufficient to justify an expansion of the asset purchase program at a subsequent meeting." Markets interpreted that as a signal BoE is opening the door wide for more quantitative easing sooner rather than later. And there are speculation that BoE would start in October with another GBP 50b of asset purchases even though November would probably the more likely timing. In additional Sterling is pressured by data showing larger than expected public sector net borrowing, excluding the temporary effects of financial interventions, of GBP 15.9b in August. That was the highest in record for the month.

The Swiss France remains soft today on speculation that SNB would raise the floor of EUR/CHF to 1.5. Ernst Baltensperger, an adviser to SNB said he considers it's possible and said in an interview that all fundamental data are pointing toward a range of between 1.30 and 1.40. SNB spokesman declined to comment on the speculation yesterday and there is no announcement from SNB so far today.

European Commission President Barroso said that the Eurobond should remain an option to be discussed and should not be excluded. This is seen by markets as a signal that he's softening his stance after facing strong opposition from Germany and France on the idea of Eurobonds. Meanwhile, it's reported that Eurozone debt crisis will be the main subject of discussion in the next G20 meeting, which holds alongside IMF's annual meeting in Washington later this week.

Data from Canada saw CPI jumped more than expected to 3.1% yoy in August while core CPI rose to 1.9% yoy. But the data provides little support to the Canadian dollar. Other data saw Japan all industry activity index rose 0.4% mom in July, trade deficit at JPY -0.29T in August. China leading indicator rose 0.6% in July. Australian Westpac leading index rose 0.5% in July.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.5678; (P) 1.5713; (R1) 1.5770;

GBP/USD's fall resumes after brief consolidations and drops to as low as 1.5591 so far today. Intraday bias is back on the downside and further decline should be seen to next key medium term support at 1.5344. On the upside, above 1.5747 minor resistance will argue that a short term bottom is formed with bullish convergence condition in 4 hours MACD. In such case, lengthier consolidation would be seen before GBP/USD stages another decline.

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, a test on 1.3503/4229 support zone should be seen. On the upside, break of 1.6618 resistance is needed to invalidate this view. Or we'll now stay cautiously bearish in GBP/USD.

USD/JPY Daily Outlook

Daily Pivots: (S1) 76.27; (P) 76.52; (R1) 76.68; 

Intraday bias in USD/JPY remains on the downside and current fall is still in progress for 75.94 support. As noted before, consolidation from 75.94 should have completed at 77.85 already. Break of 75.94 will confirm resumption of whole fall from 85.51. On the upside, above 76.97 minor resistance will delay the bearish case again and turn bias neutral to extend the consolidation from 75.94.

In the bigger picture, USD/JPY is still staying well inside the falling channel that started back in 2007 at 124.13. There is no indication of trend reversal yet even though medium term downside momentum is diminishing with bullish convergence condition in weekly MACD. Such down trend is still in favor to continue to 70 psychological level. In any case, break of 80.23 resistance is first needed to indicate completion of fall from 85.51. Secondly, break of 85.51 is needed to be the first signal of medium term reversal. Otherwise, we'll stay cautiously bearish in the pair.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
22:45	NZD	Current Account Balance Q2	-0.92B	-0.69B	-0.10B	-0.09B
23:50	JPY	Trade Balance Aug	-0.29T	-0.01T	-0.13T	-0.16T
0:30	AUD	Westpac Leading Index M/M Jul	0.50T		0.10%
2:00	CNY	Leading Indicator Jul	0.60%		1.00%	0.90%
4:30	JPY	All Industry Activity Index M/M Jul	0.40%	0.50%	2.30%
8:30	GBP	BoE Minutes	0--0--9	0--0--9	0--0--9
8:30	GBP	Public Sector Net Borrowing (GBP) Aug	13.2B	11.4B	-2.0B	-5.2B
11:00	CAD	CPI M/M Aug	0.30%	0.10%	0.20%
11:00	CAD	CPI Y/Y Aug	3.10%	2.90%	2.70%
11:00	CAD	BoC CPI Core M/M Aug	0.40%	0.20%	0.20%
11:00	CAD	BoC CPI Core Y/Y Aug	1.90%	1.60%	1.60%
14:00	USD	Existing Home Sales Aug		4.75M	4.67M
14:30	USD	Crude Oil Inventories		-1.6M	-6.7M
18:15	USD	FOMC Rate Decision		0.25%	0.25%

GBPUSD - Cautiously Bullish above 1.5676

There was little net movement in GBPUSD yesterday. Minor net gains were posted but all price action was contained within Monday’s range. This ‘Inside Day’ highlights investor indecision but gradually higher lows keep the underlying tone positive and despite intraday signals for sentiment now at overbought extremes, we look for gains to extend.

In view of this our call is Cautiously Bullish above 1.5676. The immediate objective is 1.5756, this week's top, with a move beyond that point targeting 1.5788, Monday’s peak, or even 1.5843, last Friday’s high trade.

The risk to this call is that overbought extremes begin to correct earlier and lower than currently assessed. This would be signalled by a move below 1.5676, yesterday's European afternoon low, with subsequent downside targeting 1.5631, this week's base, or even towards, but not as low as, 1.5568, this year’s open.

Daily Report: Markets Remain Risk-Off after German Merkel's Defeated in Local Elections

Risk aversion dominates the markets today as Asian equities open broadly lower follow the employment data triggered sharp fall in US stocks last Friday. There are also fresh concerns over the situation in Europe after German Chancellor Angela Merkel's ruling party, losses support in a local election in Merkel's home state. The center-left Social Democrats won 35.7% of Sunday's vote while support of Merkel's conservative Christian Democratic Union slid to 23.1%. Investors are also cautious ahead of an eventful week and Europe, where German court will rule on bailout, ECB will discuss Italy bond-buying and Greece will find out bone swap interest.

Another factor that's weighing on sentiments was that China HSBC services PMI dropped sharply from 53.5 to 50.6 in August, just keeping the index mildly above sub-50 contraction region. That's a record low which suggests that the impact of credit and property tightening measures are filtering through to the services sectors which would drag down GDP growth ahead. Other services data will also be released later today which would trigger volatilities in the markets. Eurozone PMI services is expected to be finalized at 51.5 in August. UK PMI services is expected to drop slightly to 54.3 in August. Other data include Eurozone Sentix investor confidence and retail sales.

Australian dollar was the relatively stronger currency in mid-to-late August risk rebound, partly supported by speculation that RBA won't cut rates this year. The RBA will very likely be on hold tomorrow. Indeed, the central bank is now expected to leave interest rates unchanged longer than previously expected. Some market participants even bet a rate cut later in the year after the governor's testimony to the House of Representatives Standing Committee on Economics. The latest Credit Suisse swap index shows the market has priced in -114 bps rate cut by the RBA over a year. We have not yet changed our monetary forecast from tightening to easing. However, we do expect the central bank will not raise interest rate anymore at for the rest of the year.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.6171; (P) 1.6212; (R1) 1.6253;

GBP/USD's fall from 1.6618 resumes after brief consolidation an intraday bias is back of the downside for deeper fall. Break of 1.6110 support will confirm that whole rebound from 1.5780 is finished and should bring further decline to retest this key support level. On the upside, above 1.6253 minor resistance will turn bias neutral and bring consolidations first. But risk of another fall will remain as long as 1.6545 resistance holds.

In the bigger picture, price actions from 1.3503 (2009 low) are treated as consolidation to 

long term down trend from 2007 high of 2.1161. Rise from 1.4229 is treated as the third leg of such consolidation. Question remains on whether such rise is finished at 1.6746 already and we don't have a clear view on it yet. In any case, break of 1.5780 support will favor the case that GBP/USD has already topped out at 1.6746, after completing a head and should top. In such case, medium term outlook will be turned bearish for 1.3503/4229 support zone. Such move would either be the fourth leg of the consolidation from 1.3503, or resuming long term down trend from 2.1161. On the upside, above 1.6746 will extend the rise from 1.42298 to 1.7043 and above. But we'd expect strong resistance at 50% retracement of 2.1161 to 1.3503 at 1.7332 to limit upside and bring reversal.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
0:30	AUD	TD Securities Inflation M/M Aug	-0.10%		0.30%
8:00	EUR	Eurozone PMI Services Aug F		51.5	51.5
8:30	EUR	Eurozone Sentix Investor Confidence Sep		-18	-13.5
8:30	GBP	PMI Services Aug		54.3	55.4
9:00	EUR	Eurozone Retail Sales M/M Jul		0.00%	0.90%

Daily Report: Sentiments Reversed on Greek Austerity Deal, Euro Rebounded

Risk sentiments staged a drastic turn overnight while Euro rebounded strongly on news that Greece agreed with a team of EU/IMF on the new five-year austerity plan for securing the bailout fund. The measures, which will complete a EUR 78b austerity package, will now faces a parliamentary vote next week on June. EU finance ministers would then approve on July 3 the next payment of the bailout. That should help Greece cover around EUR 4b of maturing debts between July 14 and 22 and another EUR 3b of coupon payments within the month. Then on August, Greece will need to redeem EUR 6.6b of bonds. Greek Prime Ministers Papandreou pledged that there will be a "strong commitment" from Greece. DOW reversed earlier losses to 11874 and closed just -59pts lower, at 12050. Asian equities followed and were broadly higher. Euro managed to rebound strongly against dollar and swissy too.

DOW's strong rebound yesterday does suggest near term stabilization in market sentiments. But outlook remains bearish considering that it's still staying well below the falling 55 days EMA. Apparently, DOW has completed a five wave sequence from 9614 to 12876 and the correction from 12876 is still in favor to extend through 38.2% retracement at 11639, and possibly through 11555 support. We'll stay bearish in stocks as long as 55 days EMA (now at 12251) holds. And in case of another fall, the greenback would be boosted higher on risk aversion.

Outlook in the dollar index remains unchanged. It's still struggling to take out medium term falling trend line from 88.70 decisively. This is no clear indication of trend reversal yet even though bullish convergence condition is clearly seen in daily MACD. We'd prefer to see decisive break of 76.36 key resistance to fully turn bullish in the index or we'll stay neutral first. 

On the data front, Japan corporate services price index dropped -0.9% yoy in May. German Ifo business climate will be a main feature in European session and is expected to drop to 113.4 in June, but it would probably disappoint by having a deeper fall. From US, durable goods orders and finalized reading of Q1 GDP will be featured.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.5936; (P) 1.6005; (R1) 1.6072;

Intraday bias in GBP/USD remains on the downside with 1.6067 minor resistance and further decline is still expected. Decisive break of 1.5935 support will have medium term bearish implication and should target 100% projection of 1.6746 to 1.6058 from 1.6546 at 1.5858 first. On the upside, above 1.6067 minor resistance will turn bias neutral and bring consolidations. But near term outlook will remain bearish as long as 1.6262 resistance holds.

In the bigger picture, price actions from 1.3503 (2009 low) are treated as consolidation to long term down trend from 2007 high of 2.1161. Rise from 1.4229 is treated as the third leg of such consolidation and with 1.5935 support intact, such rise could still continue for 1.7043 resistance. But after all, strong resistance should be seen between 1.7043 and 50% retracement of 2.1161 to 1.3503 at 1.7332 to limit upside. On the downside, below 1.5935 support will indicate that rise from 1.4229 is completed and further break of 1.5344 will confirm this case and target 1.3503/4229 support zone.

Economic Indicators Update

 

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
23:50	JPY	Corporate Service Price Y/Y May	-0.90%	-0.80%	-0.80%	-0.70%
8:00	EUR	German IFO - Business Climate Jun		113.4	114.2
8:00	EUR	German IFO - Expectations Jun		106.3	107.4
8:00	EUR	German IFO - Current Assessment Jun		120.8	121.4
12:30	USD	Durable Goods Orders May		1.60%	-3.60%
12:30	USD	Durables Ex Transportation May		1.00%	-1.50%
12:30	USD	GDP (Annualized) Q1 F		1.90%	1.80%
12:30	USD	GDP Price Index Q1 F		1.90%	1.90%