Daily Report: Risk Aversion Back, Yen Crosses to Heading to New Lows, EUR/CHF Extends Down Trend

Yen strengthens across the board today as risk aversion dominates Asian markets. Nikkei dropped as much as -3.55% to close at 8824 in spite of yesterday's additional quantitative measures from BoJ. Former BoJ policy board member Nobuyuki Nakahara said that BoJ's measures were "too little and too late" and "can't stop the yen's advance." Asian equities are also broadly lower following late selling in US stocks which saw DOW back pressing 10000 level. USD/JPY, EUR/JPY and GBP/JPY have taken out minor support levels which indicates that last week's recovery is over and we'd likely seen new lows in theses yen crosses in near term. Swiss franc is also strong with EUR/CHF broken to new record low while GBP/CHF breaks 1.5825 support to resume recent down trend. Dollar is also benefited from risk aversion and is firm except versus yen and swissy.

 

Economic data released today so far are solid but provide little support to market sentiments. UK Gfk consumer confidence improved more than expected to -18 in August. Japan industrial production rose 0.3% mom, 14.8% yoy in July, retail sales rose 3.9% yoy in July, housing starts rose 4.3% yoy but PMI manufacturing dropped to 50.1 in August. Australian building approvals snapped a three month losing streak and rose 2.3% mom in July. retail sales rose more than expected by 0.7%. Swiss UBS consumption indicator rose to 1.86 in July.

 

Looking ahead in European session, some further volatility might be triggered by Eurozone data. Germany unemployment is expected to drop -20k in August while unemployment rate is expected to be unchanged at 7.6%. Eurozone flash CPI is expected to drop slightly to 1.6% yoy in August while unemployment rate is expected to be unchanged at 10% in July. Canadian GDP will be another focus today and is expected to rise 0.2% mom in July. US house prices, chicago PMI and consumer confidence will be released together with FOMC minutes.

 

DOW continues to struggle around 10000 level for the moment. Recent price actions since last week are clearly corrective in nature and thus favors our view that fall from 10719.94 is not over. As noted before, we'd expect fall from 10719 to resume whole medium term decline from 11258 eventually for another low below 9614 and sustained trading below 10000 level this week will further affirm our view. We'll stay bearish as long as 10480 resistance holds.

GBP/CHF finally takes out 1.5825 support today which confirms that whole decline from 1.8111 has resumed. It's a bit early to confirm if current fall is resuming the long term down trend from 2007 high of 2.4960. But near term outlook will remain bearish as long as 1.6063 resistance holds. We'd expect a test on 1.5111 low going forward.

 

EUR/CHF breaks 1.2970 low to resume the whole fall from 1.3923 and reaches as low as 1.2912 so far. Intraday bias is back to the downside and further decline should be seen to 100% projection of 1.4587 to 1.3072 from 1.3923 at 1.2408 next. On the upside, break of 1.3143 resistance is needed to signal that EUR/CHF has made a short term bottom. Otherwise, outlook will still remain bearish even in case of recovery.

 

In the bigger picture, fall from 1.3923 should be resuming long term down trend from 2007 high of 1.6872. 100% projection of 1.8234 to 1.4391 from 1.6827 at 1.2984 next, which is close to 1.3 psychological level, is already met. Sustained trading below 1.3 will pave the way to next medium term target of 161.8% projection of 1.6368 to 1.4315 from 1.5138 at 1.1816. On the upside, break of 1.3923 resistance is needed to be the first signal of medium term reversal. Otherwise, outlook will remain bearish.