Daily Report: AUD Hardest Hit as Stock Market Crash Continues

While the stock market crash continues all over the world, the forex markets are relatively steady so far. Yen edges higher against dollar, euro and sterling but remains in range so far. Dollar continues to retreat against most major currencies. The biggest loser today is indeed the Aussie which dives to as low as 0.6746 against dollar and 67.26 against the yen. The weakness in the Aussie is some what a delayed reaction to yesterday's unexpected 100bps rate cut from RBA as well as carry trade unwinding. The Aussie is additionally pressured after data showed consumer confidence plummeted by -11% in Oct.

Both Bernanke's speech and FOMC minutes yesterday hinted that Fed is ready to cut rates. Interest rates futures continue to show full probability of 50bps cut from Fed on Oct 29. Though the odds for 75bps cut was down slightly from 40% to 32%. Nevertheless, the firm expectation for rate cut provided no support to US stock markets. Down recovered briefly to above 10,000 level but reversed and extended decline to close over 500pts down to 9,447. Fed's new measure to buy commercial paper to help corporations offered little relief to investor confidence.

Nikkei was also hit hard today, dropping over 9% and hit the lowest intraday level of 9,159 in five years. Research report showed the number of corporate defaults in Japan accelerated in Sep. Bankruptcies rate rose sharply to 34.4% annualized rate. Total debt from bankruptcies in Japan grew to 5.36T yen.

UK government announced a plan to invest about 50b pounds to prevent collapse of the UK banking system. The government will buy preference shares and BoE will make 200b or above available for banks to borrow under the special liquidity plan. UK government will also provide a guarantee of 250b pounds to help refinance debts.

On the data front, Nationwide consumer confidence in UK dropped less than expected to 50 in Sep. Japanese Economic watch DI dropped slightly to 28 in Sep. Eurozone Q2 GDP final, Germany industrial production, Canadian housing starts and US pending home sales will be released later today.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.6928; (P) 0.7142; (R1) 0.7270; More

AUD/USD's recent decline resumes after brief consolidation and dives to as long as 0.6746 so far, jut inch above mentioned long term fibonacci level of 61.8% retracement of 0.4773 to 0.9849 at 0.6712. At this point, there is no sign of a bottom yet. Any recover should be brief as long as 0.7361 resistance holds and further decline is still expected from short term angle. Break of 0.6712 will target 100% projection of 0.9849 to 0.7802 from 0.8519 at 0.6472 next. On the upside, above 0.7361 will indicate that a short term bottom is in place. But recovery should be limited by 0.7802 support turned resistance and bring another fall.

In the bigger picture, a long term top is in place at 0.9849 with bearish divergence condition in monthly MACD and RSI. Considering the corrective three wave structure of the multi year up trend from 0.4773 to 0.9849, it could represents a correction to multi decade down trend or part of consolidation. Thus, the current fall should at least extend to 61.8% retracement of 0.4773 to 0.9849 at 0.6712. Firm break will target 76.4% retracement level at 0.5971. On the upside, medium term outlook will remain bearish as long as 0.8519 resistance holds even in case of stronger than expected rebound.

Forex News Digest

• Japan Economy Watchers Survey Says Current Conditions Bad, Outlook Better
• Japanese Bankruptcies Soar in September
• Bank of Japan Says Weakening Exports Cause of "Sluggish" Economy
• Asia-Pacific Market Recap: Yen Up, Stocks Down as Risk Aversion Won't Subside
• Westpac's Consumer Confidence Index Nose-Dives in October
• UK's NIESR GDP Forecast for September Holds Steady
• The Day Ahead Canada and U.S.: U.S. Pending Home Sales, Canadian Housing Starts
• The Day Ahead Europe and UK: Euro Zone GDP, German Industrial Production
• Chance of 75bp Fed Rate Cut Declines after Bernanke Speech and Fed Announcement
• Yen Advances Against Dollar as Stocks Plunge, Traders Reduce Carry Trades
• Australian Dollar Falls to Five-Year Low Versus Greenback, Yen on Slowdown
• Buy Dollar Against Yen as Governments Work to Boost Confidence, UBS Says
• Subprime Devastation Retraces Path of Savings & Loan Crisis in U.S. States
• Pound Advances Versus Dollar, Euro on U.K. Plan to Provide Cash to Banks
• HSBC, Royal Bank, Barclays in Financing Double Whammy as Debt, Rates Rise

More Forex News

Economic Indicators Update

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