GBP, CAD, AUD Hit Hard as Financial Crisis Deepens

Dollar and yen are generally higher today as global stock markets tumble following DOW’s 678pts fall to 8579. Niikkei dropped nearly another 10% to 8276, having the worse weekly drop in history after a 98 year old Japanese insure Yamato Life files for bankruptcy. European stock markets also open sharply lower with FTSE 100, DAX and CAC 40 dropping nearly 10%. Dollar index resumes recent rally and climbs to as high as 81.91 so far. Crude oil tumbles another 5% to 82 level while gold climbs over 3% to above 930.

AUD/USD and AUD/JPY are the biggest loser today so far but are still holding above this week’s low. The more important developments these few days are the persistent weaknesses in Sterling and Canadian Dollar. Sterling is pressured by concern that UK-Iceland assets row may escalate further. The two nations are tussling over on who should compensate British savers with money locked in Icelandic banks after the system collapsed. Prime Minister Gordon Brown said UK may freeze the assets of Icelandic companies using anti-terrorism laws. GBP/USD took out 1.7047 key medium term support and falls to as low as 1.6786 so far. GBP/JPY drops to as low as 165.91. EUR/GBP is back above 0.8 level. USD/CAD on the other hand, surges sharply to as high as 1.1647 on falling oil prices. Euro is sold off sharply in EUR/CHF with the cross breaking Mar’s low of 1.5331 and diving to as low as 1.5167 so far. Though, the common currency remains relatively steady against dollar and yen.

On the economic data front, Swiss unemployment rate was unchanged at 2.4% in Sep. Main focus is on Canadian job report which is expected to show unemployment rate up to 6.2% in Sep, with 11k jobs added. Canadian and US trade balance will also be featured. Nevertheless, economic data will likely continue to take a back seat and focus remains on development in the global financial crisis. Also, attention will be on the G7 meeting which begins on Friday, followed by annual IMF/World Bank meeting from Oct 11-13.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.7157; (P) 1.7406; (R1) 1.7552; More

GBP/USD’s fall extends further to as low as 1.6786 today, taking out mentioned 61.8% projection of 2.158 to 1.7445 from 1.8668 at 1.6991. At this point, intraday bias remains on the downside and further decline is expected to next target of 61.8% retracement of 1.3680 to 2.1161 at 1.6538. above 1.7398 will turn intraday outlook neutral first. But consolidation should be relatively brief as long as 1.7398 resistance holds and recent decline is still expected to resume sooner rather than later.

In the bigger picture, a long term top is in place at 2.1161 and down trend from there is still in progress. Next medium term target is 61.8% retracement of 1.3680 to 2.1161 at 1.6538. The impulsive nature and the scale of the fall from 2.1161 also provides strong evidence to the case of the start of a long term down trend. Sustained break of 1.6538 will target 1.3681 (01 low). On the upside, above 1.8668 resistance is need to confirm that a medium term bottom is formed. Otherwise, outlook will remain bearish and further decline is still expected even in case of stronger than expected rebound.

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