Dollar extends recent down trend as markets are still dominated by risk appetite for the moment. Asian equities are broadly higher following strong close of DOW after breaching 11000 mark briefly. Crude oil takes out 80 level earlier today and remains firm while Gold also rebounds to above 1060. Dollar made new lows against Euro, Swissy and Aussie and is soft across the board in general. There has been increasing concern fro European financial chiefs on dollar's weakness but markets paid little attention.
ECB President Trichet said yesterday's that excessive volatility and disorganized developments in the exchange market was bad for economic development. French Finance Minister Lagard said we want a strong dollar; we need a strong dollar. Juncker expressed it's a problem that worries EU finance ministers.
In the RBA minutes of October meeting, the bank said inflation could start rising by 2011 as growth returns to above-trend rates and the rising concern of inflation triggered the decision for the 25bps hike to 3.25%. Also, the bank judged the risk to economic outlook ''had diminished significantly over recent months and that the balance of risks was now such that the current very expansionary setting of policy was no longer necessary and possibly imprudent.
Japan Finance Minister Fujii said that the recent strength in yen was caused by weakness in dollar which was then due to US monetary easing. Fujii also said that the government may have to sell more bonds to make up for a shortfall in tax revenue that could drop below 46T JPY to 40T JPY. The government might increase bond sales to a record 50T JPY.
Looking ahead, BoC rate decision will be a key focus today. Rate is widely expected to be unchanged at 0.25%. Canadian dollar strengthened sharply recent on the back of surprisingly strong employment report and rally in oil prices. Nevertheless, development elsewhere are not strong enough to trigger a chance in BoC's conditional stance to keep interest rates unchanged till Q2 of 2010 yet. However, the Canadian could rally strongly if the accompanying statement sounds more comfortable with global recovery or make any reference to the above stance. On the other hand, the bank may also express some concerns on recent appreciation in Canadian dollar. More in BoC Preview and Canadian Dollar Outlook.
Other key data include US PPI, housing starts and building permits, Canadian wholesale sales and leading indicators.
Looking at the dollar index, the drop below 75.21 indicates recent fall has resumed. First downside target will be lower trend line support at 74.97. Strong break there will indicate that downside momentum is still strong and should target 74.31 medium term support next. However, note that rebound from the trend line support and break of 75.90 resistance will suggest that fall from 77.47 has completed a five wave sequence and the index should have made a short term bottom.
EUR/USD Daily Outlook
Daily Pivots: (S1) 1.4872; (P) 1.4919; (R1) 1.5009; More
EUR/USD's break of 1.4965 indicates that recent rally has resumed and should now take on 1.5 psychological level first. Break there will target 100% projection of 1.4177 to 1.4842 from 1.4483 at 1.5148 next. Note that upside momentum is diminishing mildly with bearish divergence condition. A break below 1.4826 minor support will be the first sign of topping in EUR/USD and will flip intraday bias back to the downside for 1.4483 support for confirmation.
In the bigger picture, the strong break of 1.4867 resistance argues that whole fall from 1.6039 has completed at 1.2329 already and rise from there is still in progress. At this point, there is no sign of topping yet and the current rally could extend further for retesting 1.6039 high. Nevertheless, as we're not seeing a clear impulsive structure in the current rally, we'd expect upside to be limited there and bring another medium term fall to continue the wide range consolidation from from 1.6039. On the downside, break of 1.4483 support will be the first sign that rise from 1.2456 has completed. Further break of 1.3747 support will confirm and turn focus back to 1.2329/2456 support zone.
Economic Indicators Update
|0:30||AUD||RBA October Minutes||--||--|
|6:00||EUR||German PPI M/M Sep||-0.50%||-0.10%||0.50%|
|6:00||EUR||German PPI Y/Y Sep||-7.60%||-7.10%||-6.90%|
|8:30||GBP||Public Sector Net Borrowing (GBP) Sep||15.5B||16.1B|
|8:30||GBP||M4 Money Supply M/M Sep P||0.50%||0.10%|
|8:30||GBP||M4 Money Supply Y/Y Sep P||11.40%||12.50%|
|12:30||CAD||Wholesale Sales M/M Aug||0.50%||2.80%|
|12:30||CAD||Leading Indicators M/M Sep||0.70%||1.10%|
|12:30||USD||PPI M/M Sep||0.10%||1.70%|
|12:30||USD||PPI Y/Y Sep||-4.20%||-4.30%|
|12:30||USD||PPI Core M/M Sep||0.10%||0.20%|
|12:30||USD||PPI Core Y/Y Sep||2.00%||2.30%|
|12:30||USD||Housing Starts Sep||610K||598K|
|12:30||USD||Building Permits Sep||590K||579K|
|13:00||CAD||BoC Interest Rate Decision||0.25%||0.25%|
|15:00||USD||Fed's Warsh Moderates Sessions at S.F. Fed Conference||--||--|