Daily Report: Market Sentiments Still Down on Greece Drama, FOMC Watched Today

World markets are still troubled by the Greek drama as Asian equities are broadly lower following the near -300pts fall in DOW overnight. Dollar index once reached as high as 77.67 before turning sideway and is currently hovering above 77 level. After a marathon seven hour cabinet meeting, Greek prime minister Papandreou got support from his ministers for the initiative on a referendum on EU's rescue package. And, the referendum would be held "as soon as possible". Papandreou has now made it very clear that the referendum is about 'yes or no to the agreement', 'yes or no to Europe', 'yes or no to the euro.'

Responses to Papandreou's call for referendum have been overwhelmingly negative abroad. French President Sarkozy said the announcement "surprised all of Europe". EU head of finance ministers Juncker said the referendum was a dangerous decision that could endanger Greece's next tranche of bailout loans. Dutch Prime Minister Rutte said he would "attempt to see that it doesn't happen." Fitch warned that rejection of the EU/IMF bailout plan would "increase the risk of a forced and disorderly sovereign default and potentially a Greek exit from the Euro". Both scenarios "would have severe financial implications for the financial stability and viability of the euro zone." EU leaders will hold an emergency talk today, ahead of the G-20 summit.

Another main focus today is the FOMC meeting. There has been increasing talk about QE3 from Fed officials recently, in particular on buying more mortgage backed securities to support the real estate market. Though, while Fed will leave the policy rate unchanged at 1%, it's unlikely to announce additional easing measures as recent economic data improved. Yet, the focus lies on policymakers' discussion about ways of increasing transparency and tools to boost growth when needed. At the post-meeting press conference, Chairman Ben Bernanke will assure the market that the stimulus currently in place is sufficient and the Fed will promptly implement further easing measures should the recovery disappoint. More in Fed to Hold Policy Stance Unchanged, Focus on Improving Communication.

On the data front, Japan monetary base rose 17% yoy in October. Australia building approvals dropped sharply by -13.6% mom in September. Germany unemployment, Eurozone PMI manufacturing final and UK PMI construction will be released. From US, Challenger job cuts and ADP private payroll will also be released.

The sharp rebound in dollar index this week invalidated that immediate bearish case as the index is now back above the flat 5 days EMA. Nonetheless, there is no change in the view that price actions from 72.69 are corrective in nature and should merely be consolidation to the larger decline from 88.70. Having said that, we'd expect more consolidation between 74.72 and 79.84 in near term. There is prospect of extending the correction to above 80 but even in that case, strong resistance should be seen between 80.70 and 82.58 (50% retracement and 61.8% retracement of 88.70 to 72.69.) An eventual downside breakout in medium term through 72.69 is still anticipated.