Dollar was back under pressure as European equities pare losses on strong German Ifo reading. But the greenback takes a breath in early US session after GDP disappointment that sends stocks mildly lower. Q3 GDP was revised down from 3.5% annualized to 2.8% versus expectation of 2.9%. S&P Case-Shiller 20 city price index improved to -9.4% yoy but missed expectation of -9.2%. Conference Board consumer conference, though, rose more than expected to 49.5 in November.
Focus now turns to FOMC minutes. Dollar remains under pressure after last meeting in early November while gold price continued to surge as Fed pledged to maintain rates at the exceptionally low level for an extended period of time. Nevertheless, Fed did revealed that they had reduced the planned purchases of agency debt to $175b and expect that to complete by the end of Q1 of 2010. While rates will be low for some time, focus will be on policy members' thoughts on the timing of exit of stimulus strategies.
Markets sentiments was lifted earlier by strong German Ifo readings which rose from 91.0 to 93.9 in November versus expectation of 92.6, hitting a 15 month high. Current assessment and expectations also rose to 89.1 and 98.9 respectively. It's another encouraging sign that the Eurozone economy will continue to expand in Q4.
Nevertheless, investor confidence remain fragile on concern banks around the world are required to raise more capital. The China Banking Regulatory Commission warned banks with low capital adequacy ratios that no practical remedies for the problem will prevent them from expanding their businesses. China's five biggest, Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Bank of China Ltd., Agricultural Bank of China and Bank of Communications Ltd. Banks are submitting their play to the CBRC on how they can how they can bolster capital ratios.
Fed had asked nine of the biggest US banks to submit plans for repaying government's capital injection through TARP. Banks are believed to have options to repay the TARP funds soon if they could raise capital through common equity.
Outlook in the dollar index is similar to that in EUR/USD due to Euro's heavy weighting. Intraday bias is neutral for the moment. But still, corrective structure of the rise from 74.68 to 75.88 favors the case that more downside is to be seen and a break of 74.68 will target 74.31 key support next. But after all, strong support is expected from 74.31 to finally conclude the medium term decline from 89.63 to bring strong rebound. On the upside, a break above 75.88 will flip intraday bias back to the upside for a test on 76.82 resistance first.
USD/JPY Mid-Day Outlook
Daily Pivots: (S1) 88.62; (P) 88.91; (R1) 89.25; More.
USD/JPY's fall extends again and reaches as low as 88.34 in early US session. At this point, intraday bias remains on the downside and the fall from 92.31 is expected to continue to 88.00 support first. Break there will bring medium term down trend resumption to 87.12 low next. On the upside, above 89.18 minor resistance will turn intraday bias neutral again.
In the bigger picture, the bearish outlook remains unchanged. Fall from 101.43 is treated as resumption of the whole down trend from 124.13. Break of 87.12 low will confirm resumption of this down trend and should target next key level of 1995 low at 79.75. However, note that break of 92.31 resistance will firstly suggest that fall from 97.77 has completed. Additionally, this will raise the possibility that whole decline from 101.43 has finished with three waves down to 88.00 after meeting 100% projection of 101.43 to 91.73 from 97.77 at 88.07. The three wave structure will in turn indicate that rise from 87.12 is going to resume. Further break of 97.77 will target a retest of 101.43 instead.