Dollar and yen retreats mildly as investors calm down from the fear of sovereign rating downgrades. Greek Finance minister Papaconstantinou said today that there is absolutely no risk of default on Greece's debt or seek a EU bailout. Fitch cut Greece's rating to BBB+ while S&P also put its A- rating on watch for downgrade. Euro is slightly higher against dollar and yen after initial selloff but remains pressured.

UK Chancellor of Exchequer Darling admitted that UK's recession was worse than expected by remained optimistic that UK economy will recover from recession next year as stimulus measures take hold. He expects growth to be between 1% and 1.5% in 2010, no change from March forecast. Nevertheless, contraction in 2009 is expected to be deeper at -4.75%.

Regarding borrowing, Darling lifted forecasts net borrow by just GBP 4b to GBP 707b by the 2013 financial year. The net borrowing will be GBP 178b, GBP 176b, GBP 140b, GBP 117b and GBP 96b in 2009, 2010, 2011, 2012, 2013 respectively. As a share of GBP, net borrowing will be 12.6%, 12.0%, 9.1%, 7.1%, 5.5% respectively. Darling remained optimistic that this will reduce the deficit by half over the next four years in an orderly way. He emphasized that it's a sensible timetable and to consolidate too soon, too quickly or too indiscriminately, as some have proposed, risks delaying the recovery and threatening a longer recession.

Elsewhere, US Treasury Secretary Geithner is believed to be proposing TARP extent ion, which expires on Dec 31, till next October. Geithner might notify the Congress by writing a letter as early as today.

On the data front, UK trade deficit widened from GBP -6.9b to GBP -7.1b in October. Consumer confidence improved slightly to 73 in November. BRC shop price index rose 0.2% in November. German trade surplus widened to EUR 12.8b in October. CPI was revised up to -0.1% mom in November. Swiss unemployment rate was unchanged at 4.1% in November. Japan Q3 GDP was revised down to 0.3% qoq, 1.3% annualized. Machine tools orders dropped -8.6% yoy in November. Australia consumer confidence dropped -3.8% in Dec. Trade deficit widened to AUD -2.38b.

Focus in the coming Asian session will be on RBNZ rate decision. As it is widely anticipated that the RBNZ will keep its OCR unchanged at 2.5%, the focus has been shifted to the December MPS at which modest upgrades in economic growth and inflation will be seen.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.4632; (P) 1.4749; (R1) 1.4819; More

EUR/USD's break of 1.4776 minor resistance suggests that an intraday low is in place at 1.4668 and some sideway trading might be seen. But after all, upside of the consolidation should be limited by 1.4902 resistance and bring fall resumption. Below 1.4668 will target 1.4626 support next. Also, note that break of 1.4668 will further affirm the bearish case that EUR/USD has already topped out in medium term at 1.5143 already. In such case, deeper decline should be seen to 1.4483 support next.

In the bigger picture, we're still preferring the case that EUR/USD has topped out in medium term at 1.5143. Focus now turns to 1.4626 support and break there will confirm that case rise from 1.2456 has finished at 1.5143 already, on bearish divergence conditions in daily MACD and RSI. This will also mark the completion of the whole three wave consolidation pattern from 1.2329 and the whole down trend from 1.6039 is possibly resuming for another low below 1.2329 in such case.

On the upside, another high above 1.5143 cannot be ruled out for the moment. But after all, even in case of another rise, we'd expect strong resistance at 123.6% projection of 1.2329 to 1.4719 from 1.2456 at 1.5410 to conclude the medium term rise from 1.2456 eventually.

EUR/USD

Economic Indicators Update

GMTCcyEventsActualConsensusPreviousRevised
23:30AUDWestpac Consumer Confidence Dec-3.80%---2.50%-2.60%
23:50JPYGDP Q/Q Q3 F0.30%0.70%1.20% 
23:50JPYGDP Annualized Q3 F1.30%2.80%4.80% 
23:50JPYGDP Deflator Y/Y Q3 F-0.50%0.20%0.20% 
00:01GBPNationwide Consumer Confidence Nov73707273
00:01GBPBRC Shop Price Index Nov0.20%--0.00% 
00:30AUDTrade Balance (AUD) Oct-2.38B-1.75B-1.85B 
06:00JPYMachine Tool Orders Y/Y Nov P-8.60%---42.60%-42.50%
06:45CHFUnemployment Rate Nov4.10%4.20%4.10% 
07:00EURGerman Trade Balance (EUR) Oct12.9B10.4B9.9B 
07:00EURGerman CPI M/M Nov F-0.10%-0.20%-0.20% 
07:00EURGerman CPI Y/Y Nov F0.40%0.30%0.30% 
09:30GBPVisible Trade Balance (GBP) Oct-7.1B-6.9B-7.2B-6.9B
12:30GBPU.K. Pre-Budget Report ---- 
15:00USDWholesale Inventories Oct -0.60%-0.90% 
15:30USDCrude Oil Inventories 0.7M2.1M 
20:00NZDRBNZ Interest Rate Decision 2.50%2.50%