Markets sentiment reversed earlier today following strong rebound in China stocks. Optimism further increased after the release of stronger than expected data from US. ISM Manufacturing index rose much more than expected to 55.7 in October, highest reading since April 2006. The data suggests recovery in the manufacturing sector is gathering strong momentum. Employment component also improved remarkably to 53.1, the first expansionary reading since August 2008, arguing that job market is expanding in the sector too. Stocks reacted positively with DOW rebounding over 100pts so far while dollar and yen weakens sharply. Also released from US, pending home sales rose 6.1% mom and construction spending rose 0.8% mom in September.

Sterling dives broadly today on news that Royal Bank of Scotland may need to sell more assets than originally planned because the agreement with EU will include some divestments not initially contemplated. The news triggered some renewed concern on the health of the financial sector in UK. Sterling was also pressured by speculations that BoE would expand the asset purchase program by another GBP 50b to GBP 225b on Thursday. Manufacturing PMI came in better than expected at 53.7 in October, suggesting stronger pace of recovery, but provided little support to the pound so far.

Other data released today saw Eurozone PMI manufacturing unchanged at 50.7 in October. Swiss SVME PMI unexpectedly dropped to 54 in October. Australia House Price index rose more than expected by 4.2% yoy in Q3.

Main focus in the upcoming Asian session will be on RBA rate decision. After taking the lead in rate hike in developed economies, the RBA will raise its policy rate, by 25 bps again, to 3.5% in November. Although current interest rate remains well-below RBA's normal level of around 5%, we believe the central bank will be patient and only tighten gradually. More in RBA Preview: Another 25 bps Rate Hike Amid Robust Recovery

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.4664; (P) 1.4761; (R1) 1.4819; More

EUR/USD's recovery extends further today but after all it's still limited below 1.4858 resistance. Intraday bias remains neutral for the moment and some more consolidations could be seen. But still, note that outlook remains bearish with 1.4858 intact. Fall from 1.5061 is still in favor to continue and break of 1.4682 will target 1.4483 support next. However, though, a break of 1.4858 minor resistance will argue that fall from 1.5061 has completed and will turn focus back to this high.

In the bigger picture, rise from 1.2456 has possibly completed at 1.5061 with bearish divergence conditions in 4 hours MACD and RSI. Focus now turns to 1.4483 resistance and break there will confirm this case and target 61.8% retracement of 1.2456 to 1.5061 at 1.3451 and beyond. Also, note that price actions from 1.2329 are treated as part of the wide range consolidation that started at 1.6039 and hence, completion of rise from 1.2456 will signal completion of such consolidations too. On the upside, nevertheless, a break above 1.5061 will indicate that rise from 1.2456 is still in progress for 1.6039 high.


Economic Indicators Update

00:30AUDHouse Price Index Y/Y Q34.20%3.10%4.20% 
08:30CHFSVME PMI Oct5455.154.3 
08:55EURGerman PMI Manufacturing Oct F5151.151.1 
09:00EUREurozone PMI Manufacturing Oct F50.750.950.7 
09:30GBPPMI Manufacturing Oct53.750.149.549.9
15:00USDISM Manufacturing Oct55.75352.6 
15:00USDISM Prices Paid Oct656463.5 
15:00USDPending Home Sales M/M Sep6.10%0.40%6.40% 
15:00USDConstruction Spending M/M Sep0.80%-0.40%0.80%-0.10%