Daily Report: Dollar and Yen Mildly Firmer on Risk Aversion

Dollar and yen are mildly firmer as the week starts on risk aversion broadly lower in reaction to Friday's rate hike from Bank of India. Euro continues to be pressured by concern over the Greece situation while Sterling is weighed down by political uncertainty. Dollar index edges higher to 80.91 while crude oil and gold dip to 80.05 and 1103.5 respectively. No important economic data is scheduled to release today and main focus will be on speech from ECB Trichet and BoE Governor King instead.

German Chancellor Merkel said over the weekend that markets should not expect an aid package for Greece from European Union Summit this week. Merkel said Greece isn't insolvent yet and "the question about assistance isn't the one we need to be talking about now." Greek Prime Minister Papandreou urged EU to confirm a package this week or he may turn to IMF for help and such a move will be opposed by French President Sarkozy and ECB President Trichet. In any case, investors are clearly dissatisfied with the uncertainty over the Greece situation and sold the common currency broadly last week. Euro will continue to be under pressure until the situation is cleared out.

Sterling is broadly lower today as markets await UK budget release on Wednesday. Markets are deeply concerned with political uncertainty ahead of the general election. But Chancellor Darling is facing the possibility of punishment from credit rating agencies for any sort of pre-election splurge, considering that UK's budget deficit bears comparison with that of Greece.

We'd talked bout Euro's weakness against commodity currencies in our weekly report and the outlook of Sterling is no better from that. GBP/CAD edged lower to 1.5171 today and the down trend remains in force for 100% projection of 1.9299 to 1.6233 from 1.7890 at 1.4842. A break above 1.5552 resistance is needed to be first signal of bottoming or outlook will remain bearish.

GBP/AUD's recovery failed below 1.6757 resistance and current down trend is likely resuming for 61.8% projection of 2.0979 to 1.7326 from 1.8276 at 1.6018 next, which is close to 1.6 psychological level.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 122.05; (P) 122.70; (R1) 123.14; More.

Intraday bias in EUR/JPY remains mildly on the downside with 123.73 minor resistance intact. As noted before, choppy recovery from 119.64 should have completed at 125.19 already, after failing 125.22 cluster resistance (38.2% retracement of 134.36 to 119.64 at 125.26). Further fall should be seen to retest 119.64. Break there will confirm down trend resumption to 61.8% projection of 134.36 to 119.64 from 125.19 at 116.09 next. On the upside, above 123.73 minor resistance will delay the bearish case and turn intraday bias neutral again. But after all, we'd continue to expect strong resistance at 125.22/26 to conclude the corrective rise from 119.64 and bring down trend resumption.

In the bigger picture, there is no change in our bearish view. That is, medium term rebound from 112.10, which is treated as a correction to long term down trend from 2008 high of 169.96, should have completed at 139.21 already, after multiple failure to sustain above 55 weeks EMA. Recent decline is expected to resume sooner or later to a new low below 112.10. However, note that decisive break of 125.22 cluster resistance will argue that recent fall might have completed already. Further break of 126.88 support turned resistance will argue that medium term rise from 112.10 might be still in progress for another high above 139.21 before completion.

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