Daily Report: Dollar and Yen Mildly Firmer, Focus on Manufacturing Data

Dollar and yen edge mildly higher as the week starts but the momentum is mild so far. Aussie and Kiwi are leading the decline on risk aversion as well as speculations of deep rate cuts from RBA and RBNZ this week. ECB and BoE will also meet this week and the opinions on how much they will cut are also divided. In particular, Euro has been pressured across the board since data showed quicker than expected moderation in inflation last week. Though, EUR/GBP cross is drawing some support from cluster fibonacci levels at 0.823/24 and recovers mildly today. Market's focus will turn to manufacturing data from major countries today.

Eurozone manufacturing PMI is expected to finalize at 36.2 in Nov. Germany retail sales probably have recovered slightly by 0.5% in October, after a sharp -2.3% fall in September. On year-over-year basis, the gauge should have lost -0.1% from a year ago. Retail sales dynamics will continue to be sluggish and possible contractions will be seen after December, the traditional high season.

Economists expect UK manufacturing PMI to fall sharply to 39.5 in November after a surprisingly stable figure last month. Factory output should have fallen for the 7th straight month at the fastest pace in 17 years. Business confidence has declined and input and output prices got hammered because of plunges in oil and commodity prices in world markets. UK will also release Halifax house price for November. The market expects the figure to come in at -1%, compared with -2.2% in October. Although the rate at which house prices are falling eased in November, it's still too early to talk about recovery as the nation's credit condition is still tight and economic growth continues to be slow.

Swiss SVME PMI for November is expected to have contracted for the third month to 44.5 from 47.

From US, ISM Manufacturing index is expected to stay below 50 for the fourth consecutive months and continue to fall to 38.4 from 38.9 due to softening in factory activities. Price paid component has been dropping sharply from Jun's peak of 91.5 and is expected to extend the decline from 37 to 33 in Oct. Employment component dived steeply to 34.6 in Oct and would likely remain deeply below 50. Construction spending should weaken further by -0.9% in Oct, down from -0.3%. Markets will also pay attention to speechs from Fed Bernanke and Fisher and Treasury Paulson.

Another main focus will be GDP in Canada. Economists forecast growth of annualized 0.8%% from 0.3% in Q2. The growth should not be taken as indicator that the Canadian economy has bottomed because the Q3 data mainly reflected the period before financial crisis worsened.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.6503; (P) 0.6543; (R1) 0.6584; More

AUD/USD weakens mildly today with 4 hours MACD crossed below signal line, an intraday top is likely in place. Intraday outlook is turned neutral for the moment. On the downside, below 0.6334 will indicate that rebound from 0.6075 should have completed at 0.6619. In such case, intraday bias will flip back to the downside for 0.6075 and then 0.6008. On the upside, though, above 0.6619 minor resistance will suggests that rebounded from 0.6075 is still in progress and another rise to above 0.7014 could be seen before completing consolidation from 0.6008.

In the bigger picture, whole fall from 0.9849 has possibly completed the five wave sequence already, with the fifth wave ended at 0.6008. However, note that the impulsive nature of the fall from 0.9849 to 0.6008 indicate that price actions from 0.6008 is developing into correction/consolidation only. The long term down trend is still expected to resume after completing the consolidation. Sustained break of 0.6008 will indicate that the down trend from 0.9849 has resumed for at least another five wave medium term decline, targeting 0.4773 (01 low). But, note that as long long as 0.6008 low holds, consolidation from could still extend further. Above 0.7014 will target 38.2% retracement of 0.9849 to 0.6008 at 0.7475 before completing the consolidation.

Forex News Digest

• AU Preview: RBA Sure to Cut, How Aggressively Is Up For Debate
• Australian Dollar Falling Along with Stocks, Ahead of RBA Meeting
• Chinese Manufacturing Takes a Hit in November
• Australian Inflation Levelling Off in November, Says TD Securities
• Yen Rises on Concern Recession in Japan Will Spur Repatriation of Funds
• Australian, New Zealand Dollars Drop as Central Banks Prepare to Cut Rates
• Canadian Dollar Posts Sixth Monthly Decline on Commodities Including Oil
• U.S. Job Losses, Factory Slump Probably Intensified as Recession Deepened

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