Daily Report: Dollar Retreats Mildly, House Vote and Non-Farm Payroll Eyed

Dollar retreats mildly as markets are preparing for two big event risks today, House vote on the financial bailout plan and Non-Farm payroll report. The updated $700b bailout plan was approved in the Senate Wednesday night after it was unexpectedly rejected by House on Monday. The U.S. House of Representatives will vote again on the sweetened version of the rescue plan at about 12:30 p.m. in Washington. While investors generally expect House to approve the plan finally, the impact on the markets is questionable. And intermarket movements will remain a major driving force in the forex markets.

Non Farm Payroll report is expected to show US economy lost another -100k jobs in Sep, the ninth consecutive months of contraction. Unemployment rate is expected to be unchanged at 6.1%. Leading indicators to NFP provide little hints on whether the actual figure will be higher or lower than 100k. On the one hand, employment component of manufacturing ISM dropped sharply from 49.7 to 41.8. Four average of initial jobless claims reached a five year high. Challenger layoff increased by 32.6%. On the other hand, ADP report was much better than expected at -8k in Sep. Consumer confidence also improved unexpectedly from 58.5 to 59.8.

Other focuses today include finalized Services PMI and retail sales from Eurozone, UK Services PMI and ISM non-manufacutring index in US.

Technically speaking, Euro and Aussie are so far the biggest losers this week, against dollar and yen. Markets are starting to speculate that ECB might cut as soon as in November if the financial crisis in European worsen in the coming weeks. Dollar index is staying firm above 80 level and is still in progress to 81 level. Generally speaking, more upside is still expected from dollar and yen despite some interim consolidation.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 144.04; (P) 146.36; (R1) 147.85; More.

EUR/JPY dives further to as low as 144.54 before recovering mildly. At this point, intraday bias remains on the downside. Break of 147.03 low confirms that sharp decline from 169.96 has resumed and should target 61.8% projection of 169.96 to 147.03 from 156.84 at 142.67 next. Break will put long term fibonacci support at 139.02 in focus. On the upside, above 146.89 will turn intraday outlook neutral first and bring recovery. But upside should be limited by 151.34 resistance and bring fall resumption.

In the bigger picture, sustained trading below the long term rising channel added strong evidence that whole up trend from 88.97 (00 low) has completed, with bearish divergence conditions in weekly MACD and RSI and with monthly MACD remains below signal line. Break of 149.27 provides further credence too. Hence, the fall from 169.96 is expected to extend further to 38.2% retracement of 88.97 to 169.96 at 139.02 first. While some rebound might be seen, medium term outlook will remain bearish as long as 156.84 resistance holds.

Forex News Digest

• The Day Ahead Canada and U.S.: U.S. Nonfarm Payrolls, Jobless Rate, ISM Non-Mfg
• The Day Ahead Europe and UK: Regional, EU Services PMI, Euro Zone Retail Sales
• U.S. Preview: September's Nonfarm Payrolls to See Biggest Decline Yet in 2008
• U.S. Preview: ISM Non-Manufacturing Index to Be Neutral in September
• Asia-Pacific Market Recap: Stocks Down Before U.S. Congress Takes a Second Look
• Japan's Economics Minister Says Bank of Japan Making the Right Moves
• Fed's Bullard Says Despite Crisis, Cutting Rates Not the Answer (Update 2)
• Fed Funds Futures Price In 50bps Cut as Outlook on Economy turns Gloomy
• Thursday's News Recap: US Jobless Claims Soar, ECB Holds Rates, Equities Sell Off
• ECB Rate Cut to Come Possibly as Early as November
• Dollar Falls Against Euro, Paring Weekly Advance, Before U.S. Jobs Report
• Sell Euro, Pound Versus Yen on Slowing Europe Growth, Morgan Stanley Says
• British Pound Little Changed Versus Euro as U.K. Services Probably Shrank
• Australia Dollar Set for Worst Week Since 1985; New Zealand Dollar Slumps

More Forex News

Economic Indicators Update

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