The clear winner of yesterday's Fed 50bps rate cut was the Swissy which reached new record high against the greenback at 1.0794 and strengthened across the board in general. Euro also surged against dollar and sterling and remains firm today. However, high volatility in commodity currencies were seen following sharp reversal in stocks and pullbacks in gold and oil prices. Yen rebounded following DOW's reverse by upside gives back all against following generally positive Asian stock markets. Meanwhile, sterling remains the weaker one in crosses. The clearer trend is in USD/CHF and it's weakness serves as an early alert on the possibility of EUR/USD's making of a new record high above 1.4966. Strength in Canadian dollar is also relatively apparent but its fate will very much depends on today's GDP release from Canada. But after all, markets could turn into consolidation today as traders prepare for tomorrow's NFP.
Fed's 50bps cut in federal funds rate and discount rate was generally as market expected. The accompany statement was basically similar to the prior one last week with acknowledgement that financial markets remain under considerable stress and credit has tightened further. The significance of this release include firstly, it shred some lights on the view of the new committee as they expect inflation to moderate, but downside risks to growth remain. Secondly, markets labeled the accumulative 125bps cut from Fed as a sign of farewell to gradualism and Fed is now is the Bernanke era. Thirdly, further easing is still expected down the road as the Fed indicated it will act in a timely manner as needed to address those risks and it's believed that the decision will still be very much dependent on developments in the financial markets.
Released overnight, New Zealand trade balance unexpected turned to 33M surplus in DEc. Japan manufacturing PMI was unchanged at 52.3 in Jan. Housing starts dropped -19.2% in Dec but construction orders rebounded by rising 4.7% in Dec. Just released in European session. Germany retail sales fell for another month by -0.1% mom in Dec, pushing yoy rate further from -3.4% to -6.9%. UK nationwide house prices dropped for the third consecutive months by -0.2% mom and dragged the yoy rate further lower from 4.8% to 4.2%.
Looking ahead, a number of economic data are scheduled to release across the Atlantic. Germany unemployment rate is expected to drop further lower from 8.4% to 8.3%. Eurozone unemployment rate is also expected to drop further from 7.2% to 7.1% too. Eurozone HICP flash is expected to remain unchanged at 3.1% yoy in Jan. Business climate and economic sentiment indicators are expected to show further deterioration in Jan. UK Gfk consumer confidence is expected to drop further from -14 to -15.
In the US session, Dec PCE will be released but interest will be limited as the data was already covered in Q4 GDP released yesterday. Chicago PMI is expected to drop further from 56.4 to 52.0. The major focus in the US session could indeed be the Nov GDP in Canada which is expected to slow from 0.2% mom to 0.1%.
USD/CHF Daily Outlook
Daily Pivots: (S1) 1.0781; (P) 1.0865; (R1) 1.0916; More
USD/CHF dives further lower to 1.0794 today recovering mildly. Break of 1.0836/46 support zone indicates fall from 1.1596 has resumed for next downside target of 61.8% projection of 1.1596 to 1.0836 from 1.1120 at 1.0650. At this point, intraday bias remains on the downside as long as 1.0873 minor resistance holds. Above 1.0873 will turn intraday outlook consolidative first but recovery should be limited below 1.0959 resistance and bring fall resumption to the mentioned target.
In the bigger picture, whole down trend from 1.3283 (05 high) is still in force. The preferred interpretation is that fall from 1.3282 was initially contained at 1.1919 and turned into sideway triangle consolidation that completed at 1.2467, where the medium term down trend from 1.3283 resumed . Having said that, next medium term downside target will be 161.8% projection of 1.3283 to 1.1919 from 1.2467 at 1.0260. Also, such medium term decline is tentatively treated as resumption of the long term down trend from 1.8305 (00 high) which could extend further to parity.
On the upside, though, above 1.1120 resistance will firstly argue that fall from 1.1596 has completed and bring stronger rebound towards 55 days EMA (now at 1.1201). But still, sustained break of 1.1596 is needed to indicate whole down trend from 1.3283 has completed. Otherwise, long term outlook will remain bearish