Daily Report: Markets Consolidate with Focus Back to Fundamentals

Dollar and yen recover mildly today as markets calm down from the boost from rescue plan in major countries. Dollar index is back above 81.5 after extending the correction to as low as 80.75 yesterday. Yen crosses are also generally softer as stock markets retreat. The fear of breakdown in the global financial system peaked last week and receded after world leaders announced their respective action plans. Nevertheless, the investors' concerns now turn to the impact of the credit crisis to the real economy. Financial markets will likely consolidate for a while as economic data reveals how bad the downturn in the world economy is developing into. Technically speaking, in the forex markets, the medium term uptrends in dollar and yen are still intact even though some more short term choppy consolidation would be seen.

Talking about fundamentals, some important economic data will be released from UK and US today. From UK, employment report is expected to show unemployment rate to climb from 5.5% to 5.6% in Aug. Claimant count is expected to rise from 32.5k to 35k in Sep. From US, retail sales is expected to drop sharply by -0.7% mom in Sep with ex-auto sales dropping -0.3%. Empire state manufacturing index is expected to deteriorate to -10. PPI is expected to show mixed inflation picture with headline PPI moderated from 9.6% to 8.7% while core PPI rose from 3.6% yoy to 3.8% yoy. Fed's beige book will be watched for clues on how bad the credit crisis is affecting regional economy. Eurozone HICP is expected to finalize at 3.6% yoy in Sep.

Released earlier today, Japanese trade deficit came in larger than expected at -236b yen. Industrial production dropped -3.5% mom, -6.9% yoy in Aug. Germany HICP is finalized at -0.1% mom, 3.0% yoy in Sep.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.6853; (P) 0.7045; (R1) 0.7156; More

AUD/USD retreats mildly after rebound from 0.6330 extended to 0.7237. Though, further rebound is still mildly in favor as long as 0.6668 minor support holds. Above 0.7237 will indicate rebound has resumed. However, note that upside of the current rebound is expected to be limited below 0.7674/83 cluster resistance (61.8% retracement of 0.8519 to 0.6330 at 0.7683, 38.2% retracement of 0.9849 to 0.6330 at 0.7674) and bring down trend resumption. Below 0.6668 will indicate that rebound from 0.6330 has completed and will bring retest of this low first.

In the bigger picture, the strength of the fall from 0.9849 strongly suggests that it's developing into an impulsive fall in at least the same degree as the up trend from 0.4773 to 0.9849. The current interpretation is that first wave of such fall has completed at 0.7802. Second wave correction has completed at 0.8519 and fall from there should represents the third wave decline. In other words, we're probably in the middle of such decline only. Any interim correction should be limited below 0.7802 support turned resistance and bring down trend resumption. Sustained break of 0.7802 is needed to invalidate this view and indicate that a medium term bottom is formed.

Forex News Digest

• The Day Ahead Canada & U.S.: U.S. Retail Sales, PPI; Fed's Bernanke to Speak
• The Day Ahead Europe & UK: Euro Zone CPI, UK Unemployment
• U.S. Preview: Empire State Manufacturing Survey to Continue Declining in October
• U.S. Preview: Core Producer Prices Expected to Rise 0.2% in September, 3.8% Y/Y
• Fed's Beige Book to Give Insight on How Recent Stage in Crisis Hurts Main Street
• German Preliminary September Inflation Estimates Confirmed
• Japan Final Industrial Production Holds Steady in August
• Tokyo Condominium Sales Plummet in September
• Fed's Yellen Says U.S. Treasury's $250 Billion Buy Was Necessary (Update)
• Asia-Pacific Market Recap: Equities Turn Red Following Wall Street's Fall
• Paulson Declares Initial US$250 Billion Buy Only the Beginning, Report Says
• Japan's Current Account Total Falls 52.5% in August
• Tuesday's News Recap: Equity Rallies Peter Out After Fed's Bailout Plan Details
• Yen Rises on Speculation Falling Stocks Will Reduce Demand for Carry Trade
• Euro May Slide 13% vs Yen on Credit Crunch, Citigroup's Fitzpatrick Says
• Paulson Lacks Leverage to Force Banks to Put Federal Cash Infusion to Work
• U.S. Retail Sales, Wholesale Prices Probably Dropped as Economy Faltered
• New York May Lose 165,000 Jobs as Wall Street Woes Spread, Official Says
• Trichet Says Credit Crisis Calls for Return to Bretton Woods `Discipline'
• British Pound Strengthens for Third Consecutive Day Against U.S. Dollar
• U.K. Lenders Press Government to Reconsider Terms of Bailout, FT Reports
• Australia, New Zealand Dollars Decline as Commodity Prices, Stocks Retreat

More Forex News

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