Daily Report: Swiss Franc Remains Weak, USD/JPY Heavy

The greenback edged higher across the board except the Japanese currency as the yen rebounded versus most counterparts especially against the Swiss franc, CHF/JPY fell over 600 points yesterday. The franc tumbled everywhere yesterday after comments from SNB officials as they indicated the possibility of a temporary peg of euro and Swiss franc in order to curb the unstoppable rally in franc. EUR/CHF posted the biggest one-day decline in history and USD/CHF also rallied 400 points yesterday from 0.7237 to as high as 0.7689. 

With EUR/CHF fell to historical low of 1.0075 earlier this week followed by series of comments from SNB officials suggesting drastic measures (including EUR/CHF peg and negative interest rates), it looks like the SNB is determined to keep the franc above parity against the euro. Having said that, some investors are skeptical towards the actual implementation of pegging euro and Swiss franc as SNB chairman indicated before the peg will need a change in constitutions. Some analysts also suggested that the SNB will have to accept certain level of decrease in the independence of the SNB if they actually apply the peg and with the debt crisis in eurozone, this may not be healthy for Swiss economy.

Although USD/JPY recovered from yesterday's low of 76.30 to an intra-day high of 77.02 earlier today, the pair then retreated as Nikkei 225 fell back to negative territory (now is down 36 points), Japanese retail and margin traders were seen selling AUDJPY and NZDJPY. Some said they are still worried the Bank of Japan may intervene with some exporters on holiday due to the new power saving scheme, therefore they bought yen against aussie and kiwi in wake of recent weakness in commodity currencies. AUD/USD also slipped over a 100 points from the start of today's trading partly due to risk aversion and Asian fund, European names and real money accounts were seen selling the pair and AUD/JPY. It seemed recent soft economic data from Australia, New Zealand and Canada are still hurting the 3 currencies as traders speculate the central banks will turn to cut rates in the near future. Traders still find the area above 77.00 level quite heavy as the pair quickly retreated from there twice yesterday, some sizeable offers (option-related) are still reported in the area of 77.00-77.30. Familiar comments or warnings from Finance Minister Noda became very much ineffective to the forex market, only real action could lift the pair away from its historical low of 76.25. Meanwhile Japan's cabinet has lowered its growth forecast from 1.5% to 0.5% for the current fiscal year, not much reaction from the market yet as this revision is more or less in line with early forecast by BOJ of 0.4% for 2011/12 fiscal year. Nonetheless, the government kept a relative optimistic forecast of 2.7-2.9% for the next fiscal year which is also very close to the projection of BOJ at 2.9%.

Choppy trading in euro continued since yesterday, after falling briefly below previous support at 1.4122, the single currency found good size option-related bids (around 700 million) right above the 1.4100 (working for 1.4100-1.4700 DNT) and rebounded quite sharply on the back of yesterday's rally in EUR/CHF on speculation of a temporary EUR/CHF peg. However, with the eurozone debt crisis still the focus, traders were unwilling to push euro further higher and investors prefer to wait for the release of eurozone June industrial production data at 09:00GMT.

On the data front, more important data will come in New York time with U.S. retail sales at 12:30GMT, followed by Aug University of Michigan confidence survey at 13:55GMT and June business inventories at 14:00GMT.

AUD/USD Daily Outlook

Daily Pivots: (S1) 1.0187; (P) 1.0273; (R1) 1.0436; 

AUD/USD continues to engage in choppy consolidations above 0.9926 and more sideway trading could still be seen. Note that in case of another recovery, we'd expect upside to be limited by 1.0526 minor resistance. On the downside, break of 0.9926 will resume the fall from 1.1079 towards channel support (now at 0.9664) and below.

In the bigger picture, bearish divergence condition daily MACD suggests that rise from 0.8066 might be finished. And that's possible considering that AUD/USD has just missed a long term projection target at 1.1084. The break of 1.0390 support affirms this case and deeper decline would now be seen towards long term channel (now at 0.9664). But we will treat it as a correction only. And, as long as 0.9404 resistance turned support holds, the whole up trend from 2008 low of 0.6008 should still be in healthy status.