World Bank's cut of global economic forecasts remain the major theme in financial markets today. US stocks open lower with DOW down around 50 pts in initial trading following general weakness in European stocks. Crude oil dives through 68 level while gold breaches 920 level. Better than expected Germany Ifo reading did little to help support market sentiments. AUD/JPY and NZD/JPY remain the biggest losers today on risk aversion. In addition, the Kiwi is pressured by comments from Prime Minister John Key that recent rapid gains in New Zealand dollar might derail rebound of the economy.
Following up on previous analysis on AUD/JPY, the case for reversal continues to build as the cross dropped sharply after hitting 80.43 earlier this month. 161.8% projection of 55.11 to 70.50 from 55.53 at 80.43 was already met. And considering bearish divergence condition in daily MACD, rise from 55.53, as well as the three wave correction from 55.11 might have completed already. The recovery from 75.17 was limited below mentioned 78.40 resistance last week and AUD/JPY should set to resume fall from 80.43 towards channel support at 73.90 next. Break there will add much credence to the case of massive yen come back.
Another angle to look at the possibly of further yen strength is US treasury yield, which used to have some good correlation with yen. Yield on 10 year note gapped lower again today and reinforces the case that it has already topped out at 4.014 earlier this month. The gap up last thursday and the gap down today left an island reversal pattern in the chart and suggests further downside in 10 year yield. We remain bearish there as long as key resistance of 3.804 (upper side) of the gap holds and will continue to monitor it and yen crosses in general for solidifying the case of further yen rally.
USD/CAD's rise might not be the largest today but the technical implication is important as last week's high was taken out. Sharp pull back in oil prices is a major factor. And as we're expecting more weakness in oil prices in near term, the USD/CAD will likely continue to trend higher. We'd expect break out in EUR/USD, AUD/USD and USD/CHF soon too. But GBP/USD, based on its recent resilience and strength against Euro, will continue to be a tricky one.
The World Bank revised down global growth forecast in 2009 from -1.7% to -2.9%. US economy is expected to contract deeper by -3.0%, down from -2.4%. Eurozone is expected to contract by -4.5%, down from -2.7% while Japan is expected to contract by -6.8%, down from -5.3%. Outlook for emerging markets are mixed with Russia expected to drop -7.5%, down from -4.5% and Brazil to contract -1.1%, down from +0.5%. However, China's economy is expected to expand +7.2%, up from +6.5% while India's economy is expected to expand +5.1%, up from +4.0%.
On the data front, UK Rightmove House Prices dropped -0.4% mom in Jun. Japanese BSI Large manufacturing index dropped -13.2 Q/Q in Q2. Tertiary Industry Index rose 2.2% mom in April. Germany Ifo business climate rose more than expected to 85.9 in Jun, with expectations rising strongly to 89.5. But current assessment component unexpectedly dropped to 82.4. Canadian international securities transactions rose to 9.05b in April.
USD/CAD Mid-Day Outlook
USD/CAD's break of 1.1447 resistance confirms that recent rise from 1.0784 has resumed. At this point, intraday bias remains on the upside as long as 1.1392 minor support holds and further rise should be seen towards 1.1814 resistance next. On the downside, below 1.1392 will turn intraday outlook neutral first. But break of 1.1230 support is needed to indicate that USD/CAD's rebound has completed. Otherwise, short term outlook will remain bullish.
In the bigger picture, fall from 1.3063 is treated as correction to impulsive rally from 0.9056 to 1.3063 and has met target support zone of 1.0297/0819 already. We're slightly favoring the case that such correction has completed at 1.0754 already. Break of mentioned 1.1475/1.1814 resistance zone will confirm this case and should at least bring strong rally to key cluster resistance at 1.2191 (61.8% retracement of 1.3063 to 1.7084 at 1.2192). Nevertheless, a break below 1.0784 will indicate that fall from 1.3063 is still in progress, probably to 61.8% retracement of 0.9056 to 1.3063 at 1.0587 before completion.
Economic Indicators Update
|23:01||GBP||Rightmove House Prices M/M Jun||-0.40%||--||2.40%|
|23:50||JPY||BSI Large Manufacturing Q/Q Q2||-13.2||--||-66|
|23:50||JPY||Tertiary Industry Index M/M Apr||2.20%||2.30%||-4.00%||-2.80%|
|08:00||EUR||German IFO Business Climate Jun||85.9||85||84.2||84.3|
|08:00||EUR||German IFO Expectations Jun||89.5||86.9||85.9||86|
|08:00||EUR||German IFO Current Assessment Jun||82.4||83||82.5|
|12:30||CAD||International Securities Transactions (CAD) Apr||9.05B||4.27B||6.849B|