Dollar Remains Weak after Steep Selloff

The overnight strong rally in risks sent dollar index to as low as 74.72 and in spite of mild recovery, the index fails to regain 75 handle and remains weak. Asian equities are broadly higher following the impressive 339pts rally in DOW as sentiments remain optimistic after some progress on solving the debt crisis was made by EU leaders earlier this week. EUR/USD breached 1.42 level and remains firm so far while EUR/GBP is also back above 0.88. While the Japanese yen is noticeably weak against Euro and Aussie, it remains firm against dollar even though Japanese officials continue to warn of its strength.

EFSF Regling arrived in China a day the EU summit for talks about China's contribution to the Eurozone bailouts. There were speculations that China could contribute between $50b to $100b direct to the EFSF or through IMF. Though, Regling tried to cool such speculations and said that "there is no special deal" with China after he met with PBoC and the Finance Ministry. China Vice Finance Minister Zhu Guangyao said the contribution is "under discussion" and there is "no conclusion yet" but China is open to all options. Regling with visit other Asian countries, including Japan in the coming days.

On the data front, Japan National CPI rose 0.2% yoy in September, household spending dropped -1.9% yoy, unemployment rate dropped to 4.1% unexpectedly,, industrial production dropped -4.0% mom in October. UK Gfk consumer sentiment dropped to -32 in October. Swiss KOF leading indicator will be a focus in the European session. From US, personal income and spending are expected to rise 0.3% and 0.6% respectively in September.

AUD/JPY is one of the best performer this week on risk appetite and the strong break of 80.26 resistance confirmed resumption of the rebound from 72.04. Also, the development affirms the case that whole decline form 90.01 is already finished with three waves down to 72.04 after holding above key medium term support at 71.87. Near term outlook will now stay cautiously bullish as long as 77.61 support holds. Current rise should now target 82.80 resistance and 61.8% retracement of 90.01 to 72.04 at 83.14.