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
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.
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