Daily Report: GBP Strength ahead of MPC Minutes, USD Weakness Before Bernanke
Action Insight | Written by ActionForex.com | Jul 18 07 07:22 GMT |
Forex Daily Technical Report GBP Strength ahead of MPC Minutes, USD Weakness Before Bernanke
Dollar continues to be under tremendous pressure as traders prepare for another potentially volatile day. With increasing concern on the subprime mortgage market problem, in particular after Bear Stearns reported hedge fund losses and after NAHB homebuilding confidence plummets to fresh 16-year low, the trade-weighted dollar index fell to a fresh 12 year low. The greenback even reversed yesterday’s gain against yen built on record TIC capital flow. A lot market moving economic events are scheduled today, including BoE minutes, UK employment report, Canadian CPI, US CPI, housing starts as well as the highly anticipated semi-annual testimony of Fed chairman Bernanke.
Focus in the European session will center around BoE MPC minutes. Sterling continues to soars to fresh 26 years high of 2.0547 today, rising on yesterday’s stronger than expected 2.4% yoy CPI inflation, which suggests that BoE still has little room to relax its tightening bias, in view of risks that inflation could fail to slow to its 2% target. And the prospects of another near term hike will very much depends on how nervous the MPC members are on such risks. That will be revealed in the minutes in the vote split as well as details about the MPC members’ view. Markets expect the 25bps high earlier this month was done with a 6-3 vote.
Before US data comes in, Canadian CPI will still the show and is expected to accelerate from 2.2% yoy to 2.5%, with core CPI accelerating from 2.2% yoy to 2.6%. USD/CAD remains pressured on dollar’s broad based weakness as well as surging oil prices and continues to press 30 year low of 1.0409. Today’s CPI data will be important for shaping the expectation of the next move from BoC, which hiked 25bps last week. In particular, the core CPI, if comes in as expected will be the highest rate since Mar 03. Also note that in the accompanying statement of last meeting, BoC said that “some modest further increase in the overnight rate may be required to bring inflation back to the target over the medium term”. In such case, odds of another rate hike in Q3, probably in Sep will be greatly increased.
The US session will be started with CPI inflation as well as housing starts and then followed by Bernanke’s testimony. Headline CPI is expected to slow slightly from 2.7% yoy to 2.6% while core CPI is expected to stay at 2.2% yoy. Both building permits and housing starts are expected another dip in Jun. However, markets reaction could be muted with Bernanke in sight. Markets will likely look into any hints that suggest Fed is still very much concerned with the re-acceleration of core inflation as they said no clear evidence of “sustained moderation” is seen yet. On the other hand, comments on the recent problem and slowdown in the housing markets and its drag on the economy will be listened to too. EUR/USD
Daily Pivots: (S1) 1.3758; (P) 1.3778; (R1) 1.3800; «www.actionforex.com»
EUR/USD’s rally from 1.3262 resumes by surging further to as high as 1.3822, touching mentioned medium term resistance of 100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822. Outlook remains unchanged. Though mild bearish divergence conditions in 4 hours MACD and RSI suggest upside momentum is diminishing, a break below 1.3757 minor support is needed to indicate a short term top is formed. Otherwise, further rally is still in favor. Below 1.3729 will bring deeper pull back to 4 hours 55 EMA (now at 1.3721 first). Otherwise, further rally is expected to be seen.
In the bigger picture, the current development is dampening the original view that rise from 1.3262 is the last advance in a five wave structure that started at 1.2483. Firstly, the current momentum of the rise from 1.3262 is seen stronger than the prior rally from 1.2865 to 1.3681. Secondly, the falling trend line in both daily MACD and RSI were broken, negating the bearish divergence conditions. In other words, the underlying bullishness in EUR/USD could be much stronger than we originally thought.
Focus remains on 1.3822 resistance. Sustained trading above this level will add much weight to the case that whole medium term rally from 1.1639 is indeed resumption of multi-year up trend from 0.8223 (00 low). That is, further rise should be seen in medium term towards 95 high of 1.4523 with much chance to extend further to 61.8% projection of 0.8223 to 1.3668 from 1.1639 at 1.5004.
On the downside, failure to take out 1.3822 decisively, followed by a break of 1.3262 support, will retain the original case. That is, medium term rally from 1.1639 has likely completed after being limited by 1.3822 resistance as expected. Deeper decline should then be seen to 1.2978 cluster support first (38.2% retracement of 1.1639 to 1.3813 at 1.2983) and then next cluster support at 1.2483 (61.8% retracement of 1.1639 to 1.3813 at 1.2469). Also, since in such case, rise from 1.1639 is likely merely part of a larger scale consolidation that started at 1.3668 there will be much chance of extending the fall to retest 1.1639 low before completing the consolidation.
GBP/USD
Daily Pivots: (S1) 2.0384; (P) 2.0429; (R1) 2.0510; «www.actionforex.com»
Cable remains powerful today and soars to as high as 2.0547 so far. At this point, further rise is still expected as long as 2.0455 minor support holds. Next upside target is 100% projection of 1.9183 to 2.0132 from 1.9621 at 2.0570. Below 2.0456 will turn intraday outlook consolidative first.
In the bigger picture, the sustained break of 2.0207 projection target confirms underlying upside momentum is still strong. Also, it added much credence to the case that whole up trend from 1.7047 is resumption of multi-year up trend from 1.3680. In such case, further rally should then be seen to 61.8% projection of 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05 low) at 2.0677 first. Sustained trading above this level will encourage further rise to 100% projection at 2.3321.
Meanwhile, even in case of a short term correction, consolidation should be relatively brief as long as 2.0056 support holds and rally should resumes sooner after later after completion. But a break below 2.0056 will indicates a short term top is formed and turn short term outlook bearish for deeper correction first.
USD/CHF
Daily Pivots: (S1) 1.1988; (P) 1.2012; (R1) 1.2052; «www.actionforex.com».
USD/CHF’s recovery from 1.1971 was limited below mentioned 2.0038 resistance and edges marginally lower to 1.1960. At this point, further decline is still expected as long as 1.2035 resistance holds. Next downside target will be 1.1878 (06 low). However, above 1.2038 will indicate that a short term bottom is likely formed with bullish convergence condition in 4 hours MACD and RSI. This should bring stronger rebound to 4 hours 55 EMA (now at 1.2067) and above.
In the bigger picture, USD/CHF has likely completed a medium term triangle consolidation already, which started at 1.1919 with five waves to 1.2467. Firm break of 1.1993 will confirm this case. 1.1878 (06 low) will be the initial target. And since, in such case, fall from 1.2467 is viewed as resumption of medium term down trend from 1.3283, further weakness should be seen to 100% projection of 1.3283 to 1.1919 from 1.2768 at 1.1404, with much chance to extend to retest 1.1288 (04 low).
On the upside, break of 1.2232 resistance will mess up the short term picture a little bit. In such case, chance is swung to the case that the triangle consolidation indeed started at 1.1878. In other words, the overall outlook didn’t change and just that another rally should be seen before completion. Hence, even in such case, upside should be limited below 1.2467 high and bring another medium term decline.
USD/JPY
Daily Pivots: (S1) 121.87; (P) 122.14; (R1) 122.59; «www.actionforex.com»
USD/JPY’s rebound was once again limited by 4 hours 55 EMA (now at 122.28) and retreats sharply as the day starts. Further rise is still mildly in favor as long as 121.54 support holds. Break of 122.60 resistance will indicates the rally from 120.96 has resumed. In other words, this will also add much weight that correction from 124.13 has completed at 120.96. Further rise should then be seen to 123.66 resistance. Break will bring retest of 124.13 high.
On the downside, below 121.54 will turn short term outlook mixed again. In such case, correction from 124.13 could still be in progress for another test of 120.76 cluster support (38.2% retracement of 115.13 to 124.13 at 120.70) before completion.
In the bigger picture, rise from 115.13 has made a top at 124.13 and turned into consolidation since then. But still, rally from 108.99, which is treated as resumption of whole up trend from 101.66, is still in progress. Even in case of a deeper correction, downside is expected to be contained by 118.35/57 cluster support zone (38.2% retracement of 108.99 to 124.13 at 118.35 and 61.8% retracement of 115.13 to 124.13 at 118.57) and bring rally resumption. Next medium term upside target will be resistance zone of 100% projection of 101.65 to 121.38 from 108.99 at 128.72 and 100% projection of 108.99 to 122.17 from 115.13 at 128.31. However, break of 118.35/57 cluster support argue that rise from 108.99 has possibly completed and put 115.13 low into focus.
EUR/JPY
Daily Pivots: (S1) 167.96; (P) 168.32; (R1) 168.93; «www.actionforex.com»
EUR/JPY’s rebound from 167.71 fails to take out 168.93 high and retreats sharply today. Nevertheless, retreat from 168.93 should have completed after drawing support from 4 hours 55 EMA. Intraday bias is still on the upside for retest of 168.93 high. Break will indicate recent rally from 161.49 has resumed for next upside target of 100% projection of 161.49 to 166.94 from 164.23 at 169.68. However, a break below 167.71 again will indicate that a short term top has likely completed, possibly with bearish divergence conditions in 4 hours MACD and RSI. In such case, deeper decline should be see to166.69 support first.
In the bigger picture, whole medium term rally from 130.60 is still in progress and the interpretation remains unchanged. First wave up ended at 143.60, subsequent correction ended at 137.167. The third wave up ended at 159.63 while fourth wave correction has ended at 150.75. Rise from there represents the final advance in this structure. With 61.8% projection of 137.16 to 159.63 from 150.75 at 164.64 taken out decisively, next medium term upside target will be 100% projection of 137.16 to 159.63 from 150.75 at 173.22.
However, break of the short term rising trend line support (now at 165.22) will dampen this view and indicate that the rise from 150.75 has possibly completed earlier then we thought.In such case, deeper decline should be seen to test 161.49 low first.
Forex News Digest
«c.moreover.com»
Wed, 18 Jul 2007 04:59:00 GMT from Reuters
«c.moreover.com»
Wed, 18 Jul 2007 04:48:00 GMT from The Australian
«c.moreover.com»
Wed, 18 Jul 2007 04:43:00 GMT from Bloomberg
«c.moreover.com»
Wed, 18 Jul 2007 04:39:00 GMT from Financial Post
«c.moreover.com»
Wed, 18 Jul 2007 03:44:00 GMT from Bloomberg
«www.actionforex.com» Economic Indicators Update
GMT Ccy Events Actual Consensus Previous Revised
0:30 AUD Australia W’pac leading index M/M May 0.20% N/A 0.70% 0.60%
23:50 JPY BOJ minutes Jun
5:00 JPY Japan Leading indicators rev. May 40.90% 36.40% 30.00%
8:30 GBP MPC Meetings Minutes Jul 6 to 4 5 to 4
8:30 GBP U.K. Claimant count Jun -10 K -9.3 K
8:30 GBP U.K. Average earning 3mth Y/Y May 3.70% 4.00%
8:30 GBP U.K. ILO unemployment May 5.50% 5.50%
9:00 EUR Eurozone Trade balance (euro) May 2.2 B 1.8 B
11:00 CAD Canada CPI M/M Jun 0.20% 0.40%
11:00 CAD Canada CPI core M/M Jun 0.20% 0.30%
12:30 CAD Canada Leading indicators Jun 0.40% 0.50%
12:30 USD U.S. CPI M/M Jun 0.20% 0.70%
12:30 USD U.S. CPI Y/Y Jun 2.60% 2.70%
12:30 USD U.S. CPI - X M/M Jun 0.20% 0.10%
12:30 USD U.S. CPI - X Y/Y Jun 2.20% 2.20%
12:30 USD U.S. Building permits Jun 1.48 M 1.50 M
12:30 USD U.S. Housing starts Jun 1.46 M 1.48 M
12:30 USD U.S. Real earnings Jun 0.00% -0.20%
14:00 USD Fed’s Bernanke Testifies Before House Panel on Monetary Policy