Daily Report: Asian Stocks Firm as Auto Bailout Deal Agreed, Dollar and Yen Soft

Dollar and yen trade with a soft tone in Asia today as Asian stocks rally for the fourth day, supported by news that Democrats and White House agreed on a $15b bailout deal for the big three automakers in US. Congress could vote on the plan as early as Wednesday, which includes appointed of a "car czar" who could force the automakers into Chapter 11 bankruptcy if they don't come up with a business plan by Mar 31. MSCI Asia Pacific index climbs mildly to 83.65. Dollar index is mildly down to 85.67 level. Crude oil and Gold recover mildly to 43.49 and 779.5 respectively.

Technically speaking, main focus remains on where Dollar index is completing a head and shoulder top (ls: 87.87, h: 88.46, rs: 87.68) reversal pattern, or it's just unfolding as triangle consolidation. Dollar index continues to press neckline support (now at 85.67) but there isn't follow through selling for a breakthrough yet. As mentioned before, sustained trading will add much credence to the case that a medium term rise from 71.31 has concluded at 88.46 already. Further break of 83.11 will confirm this case and bring deep medium term correction to 75.89/80.38 support zone. However, note that it's usually hard to predict whether the pattern is a head and shoulder or a triangle before it's completed. Even after a break of the neck line support, any strong rebound above 83.11, followed by break of 87.68 will indicate that medium term up trend in the dollar index is still in force. In short term, though, favor is on the downside as long as 86.47 minor resistance holds.

On the data front, Japan's CGPI fell to one-year low at 2.8%, inline with consensus but worse than the revised 5% in the previous month, because of decline in commodity prices and reduction in demand. On monthly basis, the figure came in at 1.9%, more than market expectation of -1.7% and October's revised -1.4% in November. Core machinery orders dropped 4.4% MoM and 15.5% YoY in October, worse than consensus of -3.9% and -15%, as corporate reduced investments in recessionary times.

In Australia, the Westpac consumer confidence improved 7.5% in December from November. Treasurer Wayne Swan said the uptick is encouraging and heartening given the global economic condition.

The UK's NIESR GDP estimates for November plunged -1% after contracting -0.5% in October, indicating deeper contraction in the nation's economy.

Later today, Germany will report November WPI which should have dropped -1.4% mom but rose 1.5% yoy from October. Switzerland's ZEW economic expectation for December is anticipated to remain weak after falling to -88.5 in November. US October wholesale inventories should have fallen 0.1%, same as last month. Also, the Fed will announce November's budget which should have recorded a deficit of US$175.2B, compared with a deficit of US$237.1B in October.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.2816; (P) 1.2909; (R1) 1.3018; More

After brief retreat, EUR/USD's rise from 1.2549 resumes and edges higher to 1.3000. Nevertheless, it's still struggling around mentioned inner trend line resistance. Note that price actions from 1.2329 is viewed as developing into triangle consolidation and should be near to completion. While another rise cannot be ruled out, upside should be limited below 1.3080 resistance and bring down trend resumption. Below 1.2799 will indicate that an intraday top is in place. Further break of 1.2549 will be an important signal that the triangle consolidation has completed and should bring retest of 1.2389/2329 support. Decisive break there will confirm that medium term down trend has resumed for 50% retracement of 0.8223 to 1.6038 at 1.2131 next.

However, above 1.3080 will invalidate the triangle scenario and bring strong rise to 1.3290 and above. Though, in such case, upside is still expected to be limited below 1.3768 cluster resistance and bring down trend resumption.

In the bigger picture, as discussed before, the strength of the fall from 1.6038 reinforces the case that whole decline from 1.6038 is developing into a five wave impulsive fall with first wave completed at 1.3881, second at 1.4867, third at 1.2329. Consolidation from 1.2329 might represent the fourth wave consolidation. Hence, another decline is still expected before making a medium term bottom. Below 1.2329 will target next long term fibonacci level of 50% retracement of 0.8223 to 1.6038 at 1.2131 or even further to 1.1639 key medium term support. On the upside, sustained break of 1.3768 cluster resistance (38.2% retracement of 1.6038 to 1.2329 at 1.3746) is needed to invalidate this view and indicate that whole decline from 1.6038 has made a medium term bottom.

Forex News Digest

• The Day Ahead U.S. and Canada: MBA Mortgage Applications, Wholesale Inventories
• The Day Ahead Europe & UK: French and Italian Industrial Production, Italian GDP
• Japan's Corporate Goods Prices Level off in November
• Japanese Machine Orders Drop Off in October on Declining Foreign Buyers
• Australia's Westpac Consumer Confidence Jumps Higher in December
• Markets Price In 75bps Fed Rate Cut Following Drop in Pending Home Sales
• New Zealand's Terms of Trade Fall Less Than Forecast
• Closing Market Recap: Stocks Stutter After Two Days of Gains
• Yen Declines as Stock Gains Encourage Purchases of Higher-Yielding Assets
• Democrats, White House Agree on $15 Billion U.S. Automaker Bailout Plan
• U.K. Economy May Be Shrinking at Fastest Pace Since 1990, Institute Says
• Australian Dollar May Rise to 1.12 Against Singapore's Dollar, Saxo Says

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