Daily Report: Greenback Weakens as Vote on a Republican Proposal to Raise U.S. Debt Limit Postponed

Despite trading narrowly earlier today and in overnight session, the greenback slipped again after the news that the voting by the U.S. House of Representatives will be postponed, the obvious reason behind the delay is the Republican do not have enough vote to pass the measure so they wanted to squeeze more time to convince other party members. Nevertheless, Democrats in Senate are still strongly against the measures which they considered only a short-term solution. The greenback fell to another 4-month low against the Japanese yen to 77.45, verbal intervention by Japanese officials seemed not working with Chief Cabinet Secretary Yukio Edano saying the government will closely watch moves on the FX market and Finance Minister Noda said intervention has some positive effect and decisive action will be taken to deal with excessive volatility but not to keep the yen in specific level. Option barrier at 77.50 was finally cleared and stops below 77.40 are in focus with more barriers seen at 77.25, 77.00 and further out at 76.00 (large). On the upside, offers are lined up from 77.80 up to 78.00 with stops only emerging above 78.20 and 78.55/60.

Although the single currency also rebounded this morning after the delay of voting in U.S. House due to lack of support, eurozone still have problem of its own on spreading debt crisis, concerns over the second Greek bailout package may not be enough to stop the contagion of debt crisis were reflected on surging Italian bond yields. Another euro negative news is that rating agency Moody's placed Spain's AA2 ratings under credit watch for a potential downgrade due to increasing vulnerability of its government finances and the risk of a sustained rise in funding costs on the back of rising bond yields. U.S. names were seen buying euro earlier below 1.4300 and stops at 1.4350 were triggered, offers from Asian names are reported at 1.4365/70 and further out at 1.4390-00 with next batch of stops located at 1.4410. On the downside, bids from Asian CBs and sovereign names are still seen at 1.4280 and 1.4250-60 with stops placed below 1.4250 and 1.4220. German retail sales came in better-than-expected at 6.3% versus forecast of 1.7% and previous figure was revised up from -2.8 to -2.5%, little reaction so far as focus remains on debt crisis spreading problem.

Cable also retreated quite sharply from overnight high of 1.6383 to an intra-day low of 1.6323, although sterling bounced briefly as Rep Kevin McCarthy announced that vote will be postponed, the pound slipped again even with the release of slightly better-than-expected UK Nationwide house price data (0.2% vs forecast of -0.1%). More UK data are scheduled including June mortgage approval and money supply at 08:30GMT. At the moment, offers are reported at 1.6360-70 with some stops placed above 1.6385/90 but bigger offers (option-related) are tipped at 1.6400-10. On the downside, mixture of bids and stops remains at 1.6290-00 and further out at 1.6250-60.

Elsewhere, the Australian dollar extended yesterday's retreat after faltering below this week's record high of 1.1081 in part due to weekend profit-taking, however, demand from real money accounts should emerge around 1.0950 and more at 1.0900/10. On the upside, offers are lowered and lined up from 1.1000 up to 1.1050 and 1.1090-00.

AUD/USD Daily Outlook

Daily Pivots: (S1) 1.0960; (P) 1.1018; (R1) 1.1059; 

The break of 1.0968 minor support suggests that a temporary top is formed at 1.1079. Intraday bias is turned neutral and some consolidations could be seen first. But downside is expected to be contained 4 hours 55 EMA (now at 1.0879) and bring another rise. Above 1.1079 will target 61.8% projection of 0.9703 to 1.1011 at 1.0390 at 1.1198 next. In any case, we'll stay bullish as long as 1.0789 resistance turned support holds.

In the bigger picture, rise from 0.8066 is part of the up trend from 2008 low of 0.6008 and is still in healthy status. Such up trend should now target 100% projection of 0.6008 to 0.9404 from 0.8066 at 1.1462. On the downside, Break of 1.0390 support is needed to be the first signal of medium term reversal. Or we'll stay bullish in AUD/USD.