Daily Report: Dollar and Yen Higher as Risk Aversion Fights Back

Recession concerns spread over from the US stock markets to the global stock markets today. Nikkei 225 had the biggest drop since 1987 and plunged over 11% to 8,445 today following the 733 pts fall in DOW. MSCI Asian index had a record decline of 8.4%. Major European indices open 3-4% lower too. Japanese yen and dollar are both generally higher on risk aversion while crude oil continues it's decline and breaches $72 a barrel level. World leaders are still working on measures to fight the financial crisis. Leaders of G8 nations, including US, UK, Canada, France, Germany, Italy, Japan and Russia, said they will meet in the near future to discuss the current financial crisis and set forth a "concerted framework for individual and collective action." EU leaders called for a global summit as soon as next month to rewrite the 1944 Bretton Woods accord to prevent a repeat of the current credit crisis. French President Sarkozy emphasized the need for "refoundation of the international financial system.".

Technically speaking, more upside is expected in the dollar and yen in the near term with major pairs and yen crosses heading to retest recent highs and lows in respective pairs. Though, there is no confirmation of resumption of prior trend until breaking of these levels. Also, as intermarket relationship continues to dominate, the key focus will remain on whether DOW could hold above recent low at 7,884. While yen crosses may extend lower, DOW's break of this low is needed to confirm the strength of yen's rally. Otherwise, markets are probably still in consolidation phase in general.

On the economic data front, main focus will be on US CPI which is expected to show moderation from 5.4% yoy to 5.0% yoy in Sep. Core CPI is expected to be unchanged at 2.5%. Other data from US include jobless claims, TIC capital flow, industrial production, Philly Fed survey and NAHB housing market index. In European session, Swiss retail sales rose 0.0% yoy in Aug, below expectation. Swiss ZEW economic expectation is expected to deteriorate further to -58.5.

USD/CHF Daily Outlook

Daily Pivots: (S1) 1.1274; (P) 1.1339; (R1) 1.1382; More

USD/CHF's rise from 1.1126 extends further to 1.1488 today but lacks following through buying to take out 1.1486 high decisively yet. Nevertheless, further rally is now in favor as long as 1.1295 minor support holds. Firm break of 1.1486 high will confirm that rise from 1.0693 has resumed for next upside target of 1.1596 medium term resistance. On the downside, though, below 1.1295 will indicate that consolidation from 1.1486 is still in progress for another test of 1.1126 low before completion. Though, downside is still expected to be contained well above 1.0944 support in such case.

In the bigger picture, medium term rally from 0.9634 is still in progress and is targeting next two cluster resistance, 1.1596 (161.8% projection of 0.9634 to 1.0623 from 1.0010 at 1.1610) and 1.1878 (61.8% retracement of 1.3283 to 0.9634 at 1.1889). On the downside, below 1.0944 is needed to be the first signal that such up trend has topped out. Otherwise, medium term outlook remains bullish even in case of another pull back.

Forex News Digest

• The Day Ahead Canada & U.S.: U.S. CPI, Philly Fed Survey
• The Day Ahead Europe & UK: ECB-Speak; Italian Trade Balance
• U.S. Preview: Jobless Claims to Continue Soaring in Week Ending October 11
• U.S. Preview: Philly Fed Manufacturing to Capture Full Brunt of Credit Crunch
• U.S. Preview: CPI Data Unlikely to Shake Markets
• G8 Leaders to Hold Special Meeting on Financial Crisis
• Asia-Pacific Market Recap: Nikkei Crashes Through 1987 Record Fall
• Fed's Kohn Says We Need More Than Government's $250 Billion Stock Purchase
• U.S. Treasury Secretary Paulson Stresses $250 Billion Buy Was No Nationalization
• Wednesday's News Recap: Downbeat U.S. Indicators, Stock Plunge Again
• Markets Pricing in 42% Chance of 50 bps Cut on Downbeat Data
• Fed's Beige Book Says U.S. Economy Weak, Credit Tight, Prices Moderate
• Yen Gains Versus Euro as Recession Risk Spurs Sales of High-Yield Assets
• Bernanke May Discard Decades-Old Aversion to Meddling With Asset Bubbles
• Fed's Warsh Sheds Lightweight Label, Emerges as Key Player on Bank Rescue
• Declining Fuel Costs Probably Restrained U.S. Consumer Prices in September
• U.K. Pound Advances a Fifth Day Against Euro, Declines Versus U.S. Dollar
• Global Credit Markets Won't Start to Recover Until 2009, BlackRock Says
• Australia, New Zealand Dollars Drop Most in Week on Global Recession Fears

More Forex News

Economic Indicators Update

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