Daily Report: Uncertainties ahead after TARP Defeat

World investors are deeply concerned with the widening of financial crisis after the unexpected rejection of US $700b bailout plan sent DOW to a historical fall yesterday. Asian and European stock markets open sharply lower today. Though, follow through selling is not apparent and the markets recover mildly instead. Yen crosses are still holding above Sep's low and recovers mildly after edging lower earlier today. Dollar remains bounded in range against European majors.

There are a large amount of uncertainty for the moment, depending on how Bush and colleagues will modify the plan before House meets against on Thursday. The vote was just 228 to 205 and some cosmetic changes might be good enough to win 13 votes to get the bill passed. On the other hand, the Senate might vote the the bill first on Wed and then send it over to the House but some Senates has already expressed that they have no inclination to take up a bill without being certain of its fate in the House. In addition, markets are starting to speculate an intermeeting 50bps cut from Fed if no progress is seen this week. Indeed, speculations went even further for a coordinated 50bps cut from world central banks which could include BoE, BoC and RBA. With the amount of uncertainty lying ahead, sentiments of investors could flip either side as things develops

Technically speaking, the overall outlook in the forex markets are largely unchanged. Euro, Aussie and Sterling are still expected to weaken further against dollar as correction has already completed last week. Yen crosses are still expected to extend weakness and retest of last month's low should be seen in near term. USD/CAD has likely made a short term bottom and more upside should be seen, possibly following weakness in oil prices. USD/JPY remains mixed.

More on TARP Defeat

• Back to The Drawing Boards
• House Kills the Bailout Plan and the US Dollar
• US House: No Thank You Rescue Plan
• Backfire Monday, the Voice of Average Joe
• U.S. House Rejects Financial Rescue Plan 228 to 205 (Update 4)
• Dow Jones Falls More Than 700 Points Intraday After U.S. House Rejects Bailout Plan
• Bailout Vote Fails To Pass, Equities, Dollar, Rates Plummet
• Rejection of Rescue Package, Failure to Get Bill Passed

The economic acelndar is very busy today. UK Gfk consumer sentiment improved from -36 to -32 in Sep. Australia retail sales posted stronger than expected gain of 0.3% mom in Aug. Japanese manufacturing PMI dropped further to 44.3 in Sep. Household spending dropped much fore than expected by -4% yoy in Aug. Unemployment rate rose more than expected to 4.2% in Aug. Industrial production fell -3.5% mom, -6.9% yoy in Aug. Housing started rose 53.6% in Aug.

Looking ahead, finalized UK Q2 GDP growth is expected to be unrevised at 0% qoq, 1.4% yoy. Eurozone HICP flash is expected to moderate further to 3.6% yoy in Sep. Canadian GDP is expected to show 0.1% mom growth in Jul. Conference Board Consumer Confidence in US is expected to improve to 57.8 in Sep.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 148.60; (P) 151.84; (R1) 153.57; More.

EUR/JPY recovers mildly after diving to as low as 148.83. Though, intraday bias remains on the downside as long as 151.97 minor resistance holds. Break of 152.00 support confirms that rebound from 147.03 has already completed at 156.84. Further decline is expected to retest this low and break will confirm whole sharp fall from 169.96 has resumed. On the upside, above 151.97 will turn intraday outlook neutral first. Though, above 156.84 will put focus to 159.92 resistance again.

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, while some more consolidation cannot be ruled out in near term, the fall from 169.96 is expected to extend further to 38.2% retracement of 88.97 to 169.96 at 139.02 first after completing the correction. On the upside, firm break of 61.8% retracement of 169.96 to 147.03 at 161.20 is needed to indicate fall from 169.96 has completed and invalidate the above view. Otherwise, medium term outlook remains bearish.

Forex News Digest

• The Day Ahead Canada and U.S.: Cdn GDP, CaseShiller Home Prices, Chicago ISM
• The Day Ahead Europe and UK: French PPI, German Unemployment, ECB's Trichet
• U.S. Preview: Financial Crisis Likely Drove Down U.S. Consumer Confidence in Sept
• U.S. Preview: ISM Manufacturing to Slide in September after August's Rise
• U.S. Preview: Chicago PMI to Slide in September after August's Rise
• Asia-Pacific Market Recap: Equities Plunge After U.S. Congress Refuses Bailout
• Fed's Hoenig Says U.S. Will Emerge From Crisis With a Stronger Economy
• Australian Retail Sales Tick Higher Than Forecast
• UK Consumer Confidence Better Off Than Forecast
• Fed Funds Futures Price in 50Bp Cut as U.S. Congress Rejects Bailout Plan
• Paulson Disappointed with House Vote, Will Work With Congress to Find Solution
• Monday's News Recap: U.S. House Rejects Bailout Plan, Sparks Global Stock Sell-off
• Closing Market Recap: Equities Suffer Worst Day in 20 Years as Bailout Fails
• Yen Rises Against Euro as U.S. Financial Rescue Plan Voted Down in House
• U.S. Heading for Deeper Economic Slump, With or Without Treasury Bailout
• Fed May Need to Dip Further Into Toolbox as Congress Tries to Revive Bill
• U.S. Consumer Confidence Probably Fell as Credit Shrank, Stocks Plummeted
• EU Nations May Get More Say on Their Banks' Foreign Units as Crisis Widens
• Australian, New Zealand Dollars Slump as $700 Billion Rescue Plan Rejected

More Forex News

Economic Indicators Update

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