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