Mid-Day Report: Dollar Lower after Fannie Mae Losses

Dollar is broadly lower in early US session following the news that mortgage lender Fannie Mae, reported a larger- than-expected $2.19 billion loss. The news revived concern that the worst of subprime problem triggered financial markets crisis may not be over yet. Yen and Swissy are also broadly higher as risk aversion is fighting back. Though, Euro and Aussie remains firm even though some pressure is seen in respective yen crosses.

Canadian dollar is another bigger winner today. Some weakness is seen in the Loonie after disappointing building permits what dropped -4.5% in March. But the Canadian currency staged a strong rally after Ivey PMI beat expectation by dropping from 59. 57.6, above consensus of 54.5.

Released earlier today, Eurozone PPI climbed more than expected from 5.3% yoy to 5.7% yoy. Services PMI rose more than expected from 51.6 to 52.0 in Apr. UK Services PMI, on the other hand, deteriorated more than expected from 52.1 to 50.4. EUR/GBP popped higher on the releases. Swiss CPI moderated from 2.6% yoy to 2.3% yoy in Apr.

RBA left interest rates unchanged at 7.25% as widely expected. The accompanying statement suggests that even though headline inflation rose to a seven year high in Q1, RBA is satisfied that "evidence is accumulating" that "growth in aggregate demand" will be "significantly slower" in 08 and will "reduce inflation over time". This is taken as an indication that RBA will be on hold for the time being. Trade deficit narrowed more than expected to -2.7b in Mar with exports climbing 4.4% mom, imports rising 1.0% mom. AUD/USD's break of 0.9472 resistance today is taken as an indication that correction from 0.9541 is finished and focus is now back to this 24 year high.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 104.52; (P) 105.07; (R1) 105.40; More.

USD/JPY's retreat from 105.70 extends further today and touches mentioned 4 hours 55 EMA (now at 104.27). Nevertheless, with 103.19 support still holding, the rise from 95.77 is still in favor to extend. Above 105.12 minor resistance will indicate that retreat from 105.70 has completed and will then turn intraday bias back to the upside. Above 105.70 will indicate rebound from 95.77 has resumed for 38.2% retracement of 124.13 to 95.77 at 106.60. But still, as mentioned before, resistance should continued to build up significantly as USD/JPY approaches 108.59 medium term resistance. However, break of 103.19 support, with bearish divergence conditions in 4 hours MACD and RSI as background, will argue that the whole rise from 95.77 is over. Focus will then be shifted back to 100.02 support first.

In the bigger picture, sustained trading above 55 days EMA (now at 103.52) indicates that a medium term bottom is in place after down trend from 124.13 has just met 76.4% retracement of 79.75 to 147.68 at 95.78. Focus is now on 108.59 resistance and break of which will break a series of lower highs, lower lows pattern that started at 124.13 and will confirm that this down trend has completed already. In such case, stronger medium term rebound should then be seen to retest 114.77 resistance first. However, failure below 108.59, followed by break of 100.02 support will firstly indicate rebound from 95.77 has completed. Secondly, it will keep the lower higher, lower lows pattern intact and suggest that down trend from 124.13 is still in force.

Forex News Digest

• Morning Market Recap: Treasuries Rally on Fannie Mae Profit Miss
• Canadian Building Permit Values Down 4.5% in March
• Fed's Fisher Sees Little Need for Further Rate Cuts, Warns of Inflation Risk
• Euro Zone PPI Rises 0.7% in March, in Line With Forecasts
• Euro Zone Services PMI Slightly Above Expectations After Mixed Country Results (Update)
• Overnight News Recap: RBA Holds Rates, EU Speakers Worried on Inflation
• UK Services PMI Falls to 50.4 in April
• Swiss CPI Comes in Lower than Expected in April
• Asia-Pacific Market Recap: Japanese Stocks Surge, Aussie Declines
• Australia's Reserve Bank holds the official interest rate at 7.25%
• Dollar Falls Most Versus Yen in Three Weeks on Fannie's $2.19 Billion Loss
• Yen May Rise to 100 Per Dollar as Housing, Global Growth Slows, UBS Says
• Canada's Dollar Is Little Changed as Building Permits Decrease in March
• Australian, New Zealand Dollars Advance on Outlook for Interest Rates

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