Mid-Day Report: Risk Aversion Recedes as Stocks Surge
Risk aversion takes a back seat today as China's $586b stimulus package boosts global stocks as well as commodity markets. With focus on infrastructure, it's believed that the package will boost demand for commodities. Aussie, thus, lead the rebound today and strengthens over 200pips against yen and nearly 200 pips against dollar. The US stock market is set to open higher and will continue to pressure yen and dollar in near term.
Technically speaking, there is no breakthrough in the forex markets though. As mentioned before, dollar index and EUR/USD are probably both in triangle consolidation in converging range. So today's move isn't a surprise based on this view. The focus should indeed be on any turnaround from near term levels, i.e. EUR/USD's 1.3115 resistance and 83.9 in dollar index which could signal the completion of the triangle consolidation.
Economic data are largely ignored today. UK PPI output dropped -1.0% mom in Oct with yoy rate down more than expected to 6.8%. Input PPI dropped sharply by -5.6% mom in Oct with yoy rate sharply down to 13.8%. Core PPI moderated steeply from 5.5% to 4.9% yoy. Eurozone Sentix investor confidence plunged from -27.8 to -36.4, worst reading on record. Canadian housing starts dropped slightly to 211.8k in Oct while new housing price index unexpectedly rose 0.1% in Sep.
In the quarterly monetary policy statement released today, RBA lowered growth forecasts in 2008 from 2.0% to 1.5%. Inflation is expected to meet target range of 2-3% by mid 2001. The bank said that it was forced to make the "unusually large" rate deduction in Oct and Nov. Consumer spending and business investment will remain subdued for a while and unemployment rate is expected to rise in the coming months. Markets are still expecting another 75bps in Dec from RBA.
USD/CHF Mid-Day Outlook
Daily Pivots: (S1) 1.1709; (P) 1.1753; (R1) 1.1827; More
USD/CHF continues to stay in tight range below 1.1800 today without making any progress. While some more sideway trading might still be seen, further rally is still expected as long as 1.1546 support holds. Next target is 1.1878 cluster resistance. On the downside, however, below 1.1546 will indicate that a short term top is in place and put focus back to trend line support at 1.1173.
In the bigger picture, medium term rise from 0.9634 is still in progress and is expected to take on 1.1878 (61.8% retracement of 1.3283 to 0.9634 at 1.1889). As discussed before, sustained trading above will add strong evidence to the case of a long term reversal and encourage further medium term rally to 1.3283 high. On the downside, break of the mentioned trend line support (1.0010, 1.0693, now at 1.1173) is needed to be the first indication that such medium term rally has completed.
By Actionforex