Mid-Day Report: Dollar Sold off, Head and Shoulder Top Completed?

US stocks open higher on optimism that lawmakers will prove the $15b automaker bailout after it's agreed in principle by White House and Democrats. It's generally expect that such a package will give the car industry a lifeline and avoid a massive layoff. Dollar and Japanese yen respond by trading lower broadly on improved investors sentiments. Technically speaking, dollar index is now trying to get rid of the mentioned neckline support (now at 85.75). Further decline is still expected as long as 86.47 minor resistance holds. And as mentioned before, sustained trading below the trend line support will add much credence to the case that a medium term top is in place and deep fall should then be seen 83.11 support and below. This will remain the main focus in short term.

Data released in US session saw Wholesale inventories dropped -1.1% in Oct, much worse than expectation of -0.1% and being the largest drop since 2001. Switzerland's ZEW economic expectation in December improved to -76.2 from -88.5 in November and -91.1 in October, boosted by the recent aggressive 100bps cut by SNB. Germany's November WPI dropped 3.3% mom (October: -1.5%), below market estimates of -1.4% and the lowest level since the gauge began in 1968, as demand for raw materials plunged sharply amid global recession. On annual basis, prices declined 0.8%, worse than consensus of +1.5% and October's +3.6%. The UK's NIESR GDP estimates for November plunged -1% after contracting -0.5% in October, indicating deeper contraction in the nation's economy.

Japan's CGPI fell to one-year low at 2.8%, inline with consensus but worse than the revised 5% in the previous month, because of decline in commodity prices and reduction in demand. On monthly basis, the figure came in at 1.9%, more than market expectation of -1.7% and October's revised -1.4% in November. Core machinery orders dropped 4.4% MoM and 15.5% YoY in October, worse than consensus of -3.9% and -15%, as corporate reduced investments in recessionary times. In Australia, the Westpac consumer confidence improved 7.5% in December from November. Treasurer Wayne Swan said the uptick is encouraging and heartening given the global economic condition.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 1.1980; (P) 1.2078; (R1) 1.2149; More

USD/CHF's fall from 1.2248 continues as expected and dips below 1.2 level again. As discussed before, corrective rise from 1.1828 is probably completed at 1.2248 already. Below 1.1924 support will confirm that rebound from 1.1828 is merely part of consolidation that started from 1.2296 and will bring deeper fall to 1.1828 support or below to complete such consolidation. Though, downside is expected to be contained by 1.1746 cluster support (50% retracement of 1.1208 to 1.2296 at 1.1752) and bring strong rebound. On the upside, above 1.2176 will flip intraday back to the upside for retesting 1.2296 high.

In the bigger picture, medium term rise from 0.9634 is still in progress and should be targeting long term resistance zone of 38.2% retracement of 1.8305 to 0.9634 at 1.2946 and 1.3283 resistance (05 high). While some interim pull back might be seen, a break below 1.1208 is needed to indicate that a medium term top is formed. Otherwise, outlook will remain bullish.

Forex News Digest

• Next Euro Zone Economic Forecast Expected to Be Worse, Says EU's Buti
• OECD Chief Economist Expects Further Monetary Easing, Fiscal Stimulus Packages
• German Wholesale Prices Fall At a Record Pace Year-Over-Year in November
• Japan's Corporate Goods Prices Level off in November
• Japanese Machine Orders Drop Off in October on Declining Foreign Buyers
• Australia's Westpac Consumer Confidence Jumps Higher in December
• Yen Falls Versus Euro on Speculation Stock Gains Will Boost Carry Trade
• Canada's Dollar Strengthens as Crude Oil Climbs, Stock Futures Increase
• South Korean Won Leads Gains in Asian Currencies as Regional Stocks Rally
• Australian Dollar May Rise to 1.12 Against Singapore's Dollar, Saxo Says
• Yen May Rise to 90 Per Dollar Should Yield Drop Below 0.6%, JPMorgan Says

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