Forex - Worries grew about US auto industry and Fed warning about deflation

Forex News and Events: The Dollar slipped versus Yen on Wednesday, as worries grew about the ailing US auto industry and a record slide in US consumer prices fanned fears of a deeper recession. The euro weakened against the Dollar as worries about a worsening global slowdown prompted investors to reduce stocks and other risky assets for the safety of US Treasuries. Safe-haven capital flows have also benefited the Yen as investors, in times of stress in financial markets, tend to sell assets financed with the cheaply-borrowed Yen. Wall Street shares ended sharply lower amid uncertainty about a proposed rescue package for the auto industry, with the Dow index closing below 8,000 points for the first time since March 2003. It was last down 5.07% at 7997.28. Minutes from the Federal Reserve's meeting last month released on Wednesday further added to the global economic worries. The Fed said US economic data in the run-up to the next meeting in December would show significant weakness and could well mean that the bank may need to cut its benchmark interest rate target from an already low 1%. Yesterday, UsdJpy fell 0.75% to 96.03. EurJpy fell 1.81% to 120.06. EurUsd ended 1.05 lower at 1.2503 after hitting 1.2814 high. GbpUsd was fairly unchanged after volatile day posting 1.5250 intraday high. GbpJpy fell 0.67% at 143.77. UsdChf rose into new high 1.2146 and ended up 0.82% at 1.2118. Bank of England released minutes of this month’s policy meeting showing policy-makers unanimously agreed to cut interest rates by 150bp to 3% and even discussed a bigger cut. Federal Reserve Vice Chairman Donald Kohn on Wednesday warned against deflation, saying the risk has risen in recent months and policy-makers should be vigilant to ensure the phenomenon does not become sustained. The fate of the struggling US auto industry was another worry for investors, as automakers may fail to win emergency government loans. General Motors, Ford and Chrysler have warned that bankruptcy for one or more would lead to massive job losses. Executives from all three companies have been testifying before Congress in the last two days to press their case for $25 billion in emergency loans.

Today's Key Issues (time in GMT): 07:00 EUR October German Producer prices 0% vs 0.3% (mom) 07:00 EUR October German Producer prices +7.8% vs 8.3% (yoy) 08:15 CHF October Trade Chf 1838.6m vs 1442.6m 09:30 GBP October PSNB £0.5b vs £8.09b 09:30 GBP October PSNCR -£3b vs £12.65b 09:30 GBP October Retail sales -0.9% -0.4% (mom) 09:30 GBP October Retail sales 1.4% 1.8% (yoy) 13:30 USD weekly Initial claims 505k vs 516k 13:30 CAD September Wholesale trade -0.3% vs -1.5% (mom) 15:00 USD October Lead indicators -0.6% vs 0.3% 15:00 USD November Philadelphia Fed business index -35 vs -37.5 19:00 USD Treasury’s Paulson speaks at Reagan Library California 19:00 EUR EU’s Almunia speaks at events in Madrid

The Risk Today: EurUsd Market dropped as low as 1.2330 on October 28th and sharply rebounded to 1.3298 high Thursday last week. This shows actual trading range 1.2330 – 1.3298 drawing a triangle consolidation pattern. On the downside, renewed weakness will open the way down to trendline support 1.2208. Next long-term support holds 1.1640 November 2005 low. Further support holds 1.0739 September 2003 low. On the upside, only a return over 1.4000 (former trendline support) and 1.5000 will release actual pressure and may put key resistance 1.6000 into focus. Resistance holds 1.4002 former trendline support. Initial resistance holds 1.3298 end October high ahead of strong resistance 1.2814 yesterday high. GbpUsd Market dropped as low as 1.4558 last Thursday in current 3-month downtrend dropping from late October 1.6673 high. Strong supports hold 1.4560 trendline and 1.3682 March 2001 low. On the upside, strong resistance holds 1.6673 30th October high ahead of 1.7080 (38.2% retracement of 2.1161 – 1.4558). Further resistance holds 1.7860 (50% retracement). Yesterday volatile market hit 1.5250 high before reversing to 1.4973. UsdJpy Market has been holding slightly below 99.80 September-October trendline resistance in the latest weeks and drop to 94.47 last week. Initial resistance holds 97.55 Monday high. On the upside, only a recovery over 103 upper trendline and 105 pivot point will put focus again on 108 and 110.67 15th August high. Strong resistance holds 100 pivot point. Further pressure in the current downtrend might open the way down to 94.80 13th November low and then 79.70 April 1995 low. Strong support holds 90.91 24th October low. UsdChf Market hit 1.2146 yesterday 1-year high. Further strength may open the way over 1.2153 trendline resistance. Next resistance holds 1.2463. On the downside, renewed weakness below 1.1605 initial support and 1.1203 30th October low would undermine the current uptrend and reverse through 1.0692 22nd September low and down to 1.0500 and 1.0375. Such a move may look for 1.0013 15th July low in front of 0.9637 17th March low.

Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.5000 S 1.8860 S 103.07 T 1.2463 S 1.3500 P 1.7080 S 100.00 P 1.2153 T 1.2814 M 1.6673 S 99.48 M 1.2146 M 1.2515 1.4875 95.30 1.2140 1.2490 T 1.4659 M 92.77 M 1.1605 M 1.2308 M 1.4560 T 95.75 T 1.0692 S 1.1640 T 1.3682 T 92.00 M 1.0500 K S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot