Dollar and yen surge sharply today as global stocks are weighed down by renewed concern on the banking sector. UK's Royal Bank of Scotland said it's taking additional GBP 25b from the government and will join the Asset Protection Scheme. Lloyds said it's looking to raise at least GBP 21b through a share issue and debt swap instead. Swiss UBS reported its fourth straight quarterly loss of CHF 564b. European stocks are broadly lower with major indices down by more than 1.5%. US stocks open lower and is set to take on the near term lows made earlier this week.
Dollar break through last week's high against Euro, Swissy and Aussie earlier today and remains firm in early US session. Dollar index resumes recent rise by breaking 76.57 resistance and reaches as high as 76.82 so far. Further rally should be seen to 77.47 resistance to confirm that dollar index has bottomed out in medium term. On the downside, break of 75.91 is needed to invalidate this bullish view.
RBA became the first central bank to raise rates twice this year and hiked 25bps to 3.50% today. The bank noted in the accompany statement that the adjustments at the October and November meetings will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead, which is taken a a signal that it will pause for some time. Also, the bank noted that strength in Australian dollar might constrain output in the tradeables sector and dampen price pressures.
The European Commission raised forecast of economy growth in 2010 from -0.1% to 0.7%. Nevertheless, the region's average deficit is expected to widen to 6.9% of the economy in 2019 while unemployment is expected climb to 10.9% in 2011. Data released today saw UK PMI construction missed expectations and dropped to 46.2 in October. New Zealand labor cost index rose 0.4% qoq in Q3.
USD/CHF Mid-Day Outlook
Daily Pivots: (S1) 1.0162; (P) 1.0220; (R1) 1.0275; More
USD/CHF's rally resumes by taking out 1.0285 and reaches as high as 1.0337 so far. Intraday bias remains on the upside and further rise should be seen to 100% projection 1.0032 to 1.0285 from 1.0156 at 1.0409 next. Break will have a test of 1.0452 structural resistance. On the downside, while some retreat might be seen, break of 1.0156 support is needed to indicate that rise from 1.0032 has completed. Otherwise, short term outlook will remain bullish.
In the bigger picture, whole set of price actions from 1.2296 are treated as correction to the medium term rally from 2008 low of 0.9634. Fall from 1.1963 is the third wave of such correction and has possibly completed it's own five wave sequence already (1.1158, 1.1740, 1.0590, 1.0883, 1.0032). Break of 1.0452 resistance will affirm this case and turn focus to 1.0883 resistance for confirmation. Also, note that break of 1.0883 will be an important signal that whole consolidation from 1.2296 has completed too and stronger medium term rise should then be seen to retest 1.1963/2296 resistance zone next. On the downside, however, below 1.0032 low will indicate that the medium term down trend is still in progress and will pave the way to retest 2008 low of 0.9634.