Market sentiments stabilized today after Hungary government said there was no danger of default and pledged to stick to the budget deficit goal approved by creditors. In order to meet the 3.8% deficit target 2010, the hungarian government might launch a three-year radical tax-cut plan starting from July and introduce a flat income tax in 2011. Euro was also limited mildly by much stronger than expected Germany factory orders which rose 2.8% mom, 29.6% yoy in April. Eurozone Sentix Investor confidence also improved to -4.1 in June. Major European indices recover from earlier loss and is nearly flat the time of writing. Meanwhile, crude oil is also back above 71 level.
Nevertheless, recovery in Euro is so far mild only. ECB data showed overnight deposits with the bank rose to record high on last Friday, up to EUR 351b. The high level of bank deposits indicates that banks are concerned that the 750b rescue package might not be enough to stop credit crisis from spreading over to the banking industry. Markets worried that the world is entering into a post- Lehman-type banking crisis again.
Among major currencies, Canadian dollar is the one that stands out on today's risk sentiment rebound. CAD's strength is particularly apparent against AUD and NZD, which remain soft. AUD/CAD's break of 0.8646 support indicates that whole medium term fall from 0.9912 has resumed and should target 61.8% retracement of 0.7164 to 0.9912 at 0.8214 next.
USD/CHF Mid-Day Outlook
Daily Pivots: (S1) 1.1483; (P) 1.1563; (R1) 1.1706;
USD/CHF retreats ahead of 1.1729 resistance and at this point intraday bias remains neutral. More consolidative trading might be seen and bring 1.1429 minor support will bring deeper fall. But after all, we'd expect strong support from 1.1244 (38.2% retracement of 1.0434 to 1.1729 at 1.1234) to contain downside and bring up trend resumption. On the upside decisive break of 1.1729 will target 1.1963 next, 200% projection of 1.0131 to 1.0897 from 1.0434 at 1.1966.
In the bigger picture, as noted before, rise from 0.9916 is treated as resumption of the long term rise from 2008 low of 0.9634. Such rise is expected to have a test on 1.1963/2296 resistance zone first and then 100% projection of 0.9634 to 1.2296 from 0.9916 at 1.2578. On the downside, break of 1.0897 resistance turned support is needed to be the first sign of reversal. Otherwise, we'll stay bullish.
Economic Indicators Update
GMT Ccy Events Actual Consensus Previous Revised 8:30 EUR Eurozone Sentix Investor Confidence Jun -4.1 -7 -6.4 10:00 EUR German Factory Orders M/M Apr 2.80% -0.20% 5.00% 5.10% 10:00 EUR German Factory Orders Y/Y Apr 29.60% 25.40% 26.10% 26.20% 17:50 CAD BoC Governor Carney Speaks -- -- 12:00 USD Fed Potter Speaks -- -- 21:00 USD Fed Yellen Speaks -- -- 23:55 USD Fed Bernanke Speaks