Dollar extends today's rally against major currencies as US stocks falls sharply on concern of bankruptcy of US automakers. US President Obama said in a briefing today that GM and Chrysler must not be come wards of the state and gave the companies one last chance to fundamentally restructure. Dollar and yen was sharply higher today on news that White House said GM nor Chrysler submitted acceptable plans to receive more bailout money. The automakers are now facing possibility of bankruptcy. GM's CEO Wagoner was forced out, to be replaced by COO Henderson. DOW is down over 3% or 250 pts and is pressing 7500 level ay US noon while S&P 500 is also down more than 3% or 27 pts to 788 level. Major European stocks are sharply lower with FTSE100 down -3.49% to 3762, DAX down -5.1% to 3989, CAC 40 down -4.27% to 2719. Asia stocks led the decline today with Nikkei fell -4.5% to 8236.
DOW's break of 7550 near term support is consistent with our view that a short term top is formed at 7931 on bearish divergence conditions in hourly MACD and RSI. Whether current fall from 7931 is part of consolidation from 6470, or resuming the long term down trend, we're now anticipating further decline towards 7000 psychological level, which is close to 61.8% retracement of 6470 to 7931 at 7028. Hence, further strength in the greenback is anticipated too.
Looking at the dollar index, recent rise extends further to as high as 85.97 so far and at this point, intraday bias will remain on the upside as long as 85.08 minor support holds. As discussed before, fall from 89.62 has completed at 82.63 after drawing support from key support zone of 81/82 (61.8% retracement of 77.69 to 89.62 at 82.24 and 38.2% retracement of 70.70 to 89.62 at 82.39 as well as long term rising trend line support at 81.48. Long term up trend remains intact. Current rise should extend further to 61.8% retracement of 89.62 to 82.63 at 86.94 with prospect of retesting 89.62 high. Though, below 85.08 will dampen this view and turn intraday outlook neutral first.
Looking at the individual currencies, yen dives up some earlier gains and EUR/JPY and GBP/JPY recovers ahead of mentioned key near term support level of 126.06 and 134.94, thus giving some support to EUR/USD and GBP/USD. On the other hand, Canadian dollar is catching up with weakness of Aussie and Kiwi, pressured by falling oil prices which dropped below 50 level today.
On the data front, business and economic survey in the Eurozone showed that confidence of both consumers and business owners have reached the lowest level in 24 years. Consumer confidence in the Eurozone plunged to record low of -34 in March, worse than -33 as market expected and in February as consumers worried about economic condition and unemployment. Business climate also dropped to -3.58 from a revised -3.4 in February and signaled that industrial production in 1Q09 would have contracted sharply. Economic sentiment slid to 64.6 in March, compared with consensus of 65.5 and 65.4 a month ago. Japan's industrial production dropped -9.4 mom in February (consensus: -9.1%, January: -10.2%), the 5th consecutive monthly fall, with the biggest contraction in production of machinery and transportation equipment. However, the pace of decline has shown signs of moderation after plunging by a record -10.2% and -9.8 in January and December, respectively. The Ministry of Economy forecast that production would rise +2.9% in March and +3.1% in April. On annual basis, the reading came in at -38.4% in February, compared with market expectation of -38.1% and -31% in the previous month.
USD/CAD Mid-Day Outlook
Daily Pivots: (S1) 1.2304; (P) 1.2374; (R1) 1.2483; More .
USD/CAD's rally is still in progress and reaches as high as 1.2611 so far in early US session. At this point, intraday bias remains on the upside as long as 1.2462 minor support holds. As discussed before, the decisive break of 1.2504 resistance confirms that fall from 1.3063 has already completed. Stronger rise should now be seen to 61.8% retracement of 1.3063 to 1.2191 at 1.2730 next. Also, consider that fall from 1.3063 is viewed as the last leg of medium term consolidation from 1.3015, break of 1.2730 should bring retest of 1.3063 high. On the downside, below 1.2462 will turn intraday outlook neutral first but another should be seen after brief pull back.
In the bigger picture, fall from 1.3063 is treated as the last falling leg of triangle consolidation that started at 1.3015 and has possibly completed at 1.2191. Further rise could now be seen to retest 1.3063 high and decisive break there will confirm medium term up trend resumption for 61.8% retracement of 1.6196 to 0.9056 at 1.3469. However, note that a break below 1.2191 low will indicate that fall from 1.3063 is still in progress, as well as the consolidation from 1.3015. Deeper fall should be seen towards 1.1761 before completing the consolidation in such case.