REPORT ON DOLLER

Dollar Extends Rally on Rate Talk :
Dollar resumes recent strong rebound after a brief retreat today with dollar index breaching 76 level briefly and remains firm. Strength in the greenback also drags gold down to below 1150 while crude oil is also back below 75 level. Last week's strong employment report triggered much speculations that Fed would hike sooner than earlier expected while dollar could start to lose its status of funding currency in carry trades. Traders continue to bid up the greenback ahead of Bernanke's first speech since last week's non-farm payroll where markets would expect something on rate outlook.

Looking at the dollar index, the rally today affirms the case that rebound from 74.19 is still in progress and should now be targeting 161.8% projection of 74.19 to 75.58 from 74.27 at 76.52 next. Break there will suggest that the rise from 74.91 is developing into an impulsive wave which add more credence to the case that the bullish case that the index has bottomed out in medium term at 74.19. As noted before, we're looking at the prospect of rally to 38.2% retracement of 89.62 to 74.19 at 80.08 in the least bullish scenario. On the downside, though, below 75.49 minor support will turn intraday bias neutral first.

Sterling is one of the worst performer today on talk that UK will be the first G10 country to have a full-blown debt crisis and may lose its AAA debt rating next year after elections. Morgan Stanley European investment team wrote in a report that "growing fears over a hung parliament would likely weigh on both the currency and gilt yields as it would represent something of a leap into the unknown, and would increase the probability that some of the rating agencies remove the UK's AAA status. " Morgan Stanley also said sterling may fall a further 10% in trade-weighted terms.

On the other hand, Canadian dollar is rather resilient so far, as boosted my much stronger than expected housing data. Building permits rose 18.0% mom in October versus expectation of 1.0% while September's figure was also revised up from 1.6% to 3.2%. The strengthen and weakness of both currencies are well represented in today's sharp fall in GBP/CAD cross which confirms that fall from 1.7890 is resuming. We're looking at the prospect of further decline to 1.7103 support later this week to confirm completion of rebound form 1.6233.

AUD/USD Outlook:
Daily Pivots: (S1) 0.9071; (P) 0.9182; (R1) 0.9256

AUD/USD's break of 0.9102 support confirms that rebound from 0.8945 has completed. Fall from 0.9321 is now expected to continue to retest 0.8945 support next. As noted before, break there will confirm the bearish case that AUD/USD has topped out in medium term, by completing a head and shoulder top (ls: 0.9326, h: 0.9404, rs: 0.9321). In such case, further fall should be seen to 100% projection of 0.9404 to 0.8945 from 0.9321 at 0.8862 next. On the upside, above 0.9170 minor resistance will turn intraday bias neutral and bring sideway consolidations. But risk will remain on the downside as long as 0.9321 resistance holds.

In the bigger picture, at this point, we're still slightly preferring the bearish case that medium term rise from 0.6008 has completed at 0.9404 already, with bearish divergence condition in daily MACD. Break of 0.8945 support will confirm this case by completing a head and shoulder top (ls: 0.9326, h: 0.9404, rs: 0.9321). In such case, sizeable correction should be seen to 0.7702/0.8626 support zone but strong support should be seen there to bring rebound. On the upside, decisive break of 0.9321 resistance will indicate that fall form 0.9404 has completed. The corrective three wave structure will indicate that AUD/USD's up trend is not completed yet and medium term rally from 0.6008 is still in progress for 0.9849 high.