Dubai debt fear continued to drive investors away from risks, sending Asian stocks sharply lower today while Yen soars, taking dollar higher with it. Investors are clearly worried about the risk of contagion effect from Dubai which could trigger second wave in the credit crisis. Yen accelerates further today, making another 14 year high against dollar and rallies sharply against other major currencies. Sharp fall in yen crosses are helping dollar to rebound against major currencies with dollar index back above 75 level.

Japanese yen retreats mildly after Japanese Finance Minister Fujii said he may contact US and European officials after this week's sharp rise in yen. But after all, yen crosses remain generally weak. USD/JPY should still be on course to take on 1995 low of 79.75. EUR/JPY's strong break of 129.02 indicates that medium term rebound from 112.10 has topped out already and open up the prospect for retesting this low. GBP/JPY has already taken out 139.69 low to resume the down trend from 163.05. AUD/JPY is also set to take on 76.32 key support to confirm medium term reversal.

Dollar index drew strong support and rebounded strongly after hitting 74.31 key support earlier this week. At this moment, there is no confirmation of reversal yet as the greenback is still staying inside the near term falling channel and is kept below 75.88 resistance. Nevertheless, firstly, developments in GBP/USD and AUD/USD, which failed to take out prior high of 1.6875 and 0.9404 on last rebound, argue that both has already topped out. Secondly, crude oil's break of 75 level is setting the stage for deeper decline towards 70. Thirdly, Gold's break below 1170 today also argues that a short term top is formed right ahead of 1200 psychological resistance and should provide some support to the greenback. While gold's strength will be a key factor in limiting dollar's rebound, near term support of 1.4801 in EUR/USD will also be closely watched to align with the bearish outlook in GBP/USD and AUD/USD.

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EUR/JPY Daily Outlook

Daily Pivots: (S1) 128.92; (P) 130.61; (R1) 131.70; More.

EUR/JPY dived sharply to as low as 126.88 today so far and broke mentioned target of 129.02 support as well as 100% projection of 138.47 to 131.56 from 135.68 at 128.77 decisively. At this point, intraday bias remains on the downside as long as 129.38 minor resistance holds and further decline should be seen to 161.8% projection at 124.50 next. On the upside, above 129.38 minor resistance will turn intraday bias neutral and bring consolidations. But recovery should be limited by 131.56 support turned resistance and bring fall resumption.

In the bigger picture, the strong break of 129.02 support serves as an important indication that whole medium term rebound from 112.10 has completed at 139.21 already. Focus now turns to 124.35 support (which is close to the above mentioned 161.8% projection at 124.50) for confirmation. Break will also confirm that current fall is developing into a strong impulsive decline. As noted before, price actions from 112.10 are merely treated as consolidations to whole fall from 2008 high of 169.96 only. Firm break of 124.35 will pave the way to retest 112.10 low first. On the upside, break of 135.68 resistance is needed to invalidate this view. Otherwise, outlook will remain bearish.

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Economic Indicators Update

GMTCcyEventsActualConsensusPreviousRevised
21:45NZDTrade Balance (NZD) Oct-487M-480M-424M-563M
23:30JPYUnemployment Rate Oct5.10%5.40%5.30% 
23:30JPYHousehold Spending Y/Y Oct1.60%0.60%1.00% 
23:30JPYNational CPI Y/Y Oct-2.50%-2.40%-2.20% 
23:30JPYNational CPI Core Y/Y Oct-2.20%-2.20%-2.30% 
23:30JPYTokyo CPI Core Y/Y Nov-1.90%-2.00%-2.20% 
23:50JPYRetail Trade Y/Y Oct-0.90%-1.50%-1.40%-1.30%
7:00EURGerman Import Price Index M/M Oct 0.40%-0.90% 
10:00EUREurozone Economic Confidence Nov 8886.2 
10:00EUREurozone Consumer Confidence Nov -17-18 
10:00EUREurozone Industrial Confidence Nov -19-21 
10:00EUREurozone Services Confidence Nov -6-7 
10:30CHFKOF Leading Indicator Nov 1.781.45 
13:30CADCurrent Account (CAD) Q3 -12.9B-$11.2B