Daily Report: Kiwi Tumbles on RBNZ Cut, Key Data from EZ, UK Featured

Kiwi was the biggest mover overnight after RBNZ's surprised 25bps cut in OCR and a rather dovish statement. In the accompanying statement, RBNZ noted that "economic activity is likely to remain weak over the remainder of 2008," and "provided that the outlook for inflation continues to improve and there is no excessive exchange-rate depreciation, we would expect to lower the OCR further." NZD/USD fell sharply and reaches as low as 0.7410 today, over 300 pips off this week's high of 0.7761 and near to 10% off this year's high of 0.8231. AUD/USD is also dragged down to as low as 0.9570 today.

On the other hand, dollar remains generally firm across the board. The U.S. House of Representatives has passed the controversial housing bill to rescue Fannie Mae and Freddie Mac from possible insolvency on Wednesday. It will now move on to the Democrat-controlled U.S. Senate for approval and is expected to pass too. Fed's Beige Book released yesterday noted that all of the 12 districts said that prices were "elevated" or "increasing, supporting recent hawkish rhetoric of Fed members. Though, five districts reported a 'softening in their overall economies". Traders continued to add bets to a rate hike from Fed in Sep, with interest rate futures now showing 57%, up from 49% earlier this week. markets will look into today's Existing home sales for hope on sign of bottoming in the housing recession.

Euro remains generally soft against dollar and Sterling and the weakness is limiting EUR/JPY's rally. Important data will be released out of Eurozone today, including Germany Ifo and Eurozone PMIs. the Ifo business climate index was a disappointment in Jun and is expected to deteriorate further from 101.3 to 100 in Jul. PMI manufacturing and services are both expected to drop further in Jul and stay in contraction region below 50.

Sterling's rebound against dollar yesterday was relatively mild with the pair still bounded below near term resistance of 2.0075. Traders will look into today's retail sales report from UK for further strength. Though, note that at this moment, strength in Sterling is much more apparent in EUR/GBP, GBP/JPY and GBP/CHF crosses. In particular, with important data out of UK and Eurozone today, the major mover in European session could again be the EUR/GBP and GBP/CHF.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.9569; (P) 0.9650; (R1) 0.9701; More

AUD/USD's fall from 0.9849 extends further to as low as 0.9751 today. At this point, intraday bias remains on the downside as long as 0.9668 minor resistance holds and further fall could be seen towards 161.8% projection of 0.9849 to 0.9677 from 0.9792 at 0.9514. Though, such decline from 0.9849 is still treated as correction to rise from 0.9475 only and is expected to be contained well above this support and bring rally resumption. Above 0.9668 will turn intraday outlook neutral first. Further break of 0.9792 resistance will indicate recent rally has likely resumed for 1.0000 psychological resistance.

In the bigger picture, the whole rally from 0.8512 is still in progress. Also, note that the break of near term trend line resistance and break out of bearish divergence conditions in daily MACD and RSI are both reaffirming the underlying strength in AUD/USD. Regardless of the structure, such rally is treated as part of the long term up trend from 0.4773 (01 low) and is still expected to extend further to next medium term target of 100% projection of 0.4773 to 0.8008 from 0.6773 at 1.0008 which overlaps with parity. On the downside, break of 0.9475 support is needed to be the first signal that a short term top is formed. Otherwise, recent uptrend is still expected to extend further.

Forex News Digest

• Governments Should Help, Rather than Criticize, the ECB, Says EU's Almunia
• U.S. Preview: Jobless Claims Expected to Rise to 360k for Week Ending July 19
• The Day Ahead Canada & U.S.: U.S. Existing Home Sales, U.S. Jobless Claims, Continuing Claims
• U.S. Preview: Existing Home Sales Expected to Fall to 4.94 Million in June
• The Day Ahead Europe & UK: German, French & Eurozone PMI, Eurozone Current Accounts
• U.S. House Resoundingly Passes Housing Bill
• Closing Market Recap: Oil Down, U.S. Equities and Dollar Higher
• Dollar Trades Near One-Month High as Fannie, Freddie Rescue Bill Advances
• New Zealand Dollar Falls to Six-Month Low on Rate Cut; Aussie Declines
• Home Resales in U.S. Probably Dropped in June as Loan Losses Curbed Credit
• McCain, Obama Back Bernanke, Would Keep Distance From Fed's Policy Making
• German Business Confidence Probably Dropped to Two-Year Low on Record Oil
• U.K. Pound Declines Before Report Likely to Show Retail Sales Fell in June

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