Mid-Day Report: Dollar Recovers after CPI, Short Term Bottom in Place?
Action Insight | Written by ActionForex.com | Jul 18 07 14:06 GMT |
Forex Mid-Day Technical Report Dollar Recovers after CPI, Short Term Bottom in Place?
After edging to new record low against Euro earlier today, dollar recovers the losses and is sent higher in early US session after higher than expected headline inflation data. CPI stayed unchanged at 2.7% yoy in Jun, which is above consensus expectation of 2.6%. Meanwhile core CPI stayed unchanged at 2.2% too. The report suggest that inflationary pressures remain broadly under control but there is little evidence for the Fed to relax from its tightening bias yet. The data also provides further support for the Fed to hold the fed funds rate steady at 5.25% in the near term considering that further moderation in inflation would likely be seen with below-potential growth and further slowdown in the housing sector.
Speaking about housing markets, even though building permits ell to fresh 10-year lows of 1.406m annualized rate in Jun, which is much lower than expectation of 1.48m, housing starts provides a breather as it rebounded from a downwardly revised 1.434m in May to 1.467m in Jun, which is slightly about expectation of 1.46m.
Later today, focus will center around Bernanke’s two-day semi annual testimony. His comments will be heavily scrutinized by markets for clues on monetary policy and related topics including inflation as well as the the impact of the subprime mortgage market.
Released earlier today, the BoE minutes revealed that it moved the base rate upward by a quarter point to 5.75% at the conclusion of its Jul meeting, voting 6-3 to hike rates, inline with market consensus. Six members of the committee (including the Governor Mervyn King, John Gieve, Kate Barker, Tim Besley, Andrew Sentance and Paul Tucker) voted in favour of the proposition. However, the minutes suggest that there is no particular urgency, even among the hawks, to have another rate hike in the near term. Even though markets still expect another quarter point hike to 6.00% before the end of the year, the timing will likely be in Q4 and the odds for another one to 6.25% is not that high at this point. Though, the next quarterly inflation report on Aug 8 could still change this expectation.
Technically speaking, while dollar remains particularly weak against the broadly strong Sterling, short term downside momentum has been diminishing against Euro and Swissy for some time. Today’s break of near term support in EUR/USD and resistance in USD/CHF could be the mark of a short term bottom in dollar and some more rebound could be seen in the coming days in profit taking buying in the greenback continues. EUR/USD
Daily Pivots: (S1) 1.3758; (P) 1.3778; (R1) 1.3800; «www.actionforex.com»
EUR/USD retreats sharply after a marginal break of 1.3822 fibo resistance (100% projection of 1.1639 to 1.2978 from 1.2483). The break of 1.3757 minor support, with bearish divergence condition in 4 hours MACD and RSI, suggests that a short term top could be in place at 1.3833 already. At this point, intraday bias is flipped to the downside for 4 hours 55 EMA (now at 1.3725). Break will encourage deeper decline towards 1.3567 support. On the upside, sustained break of 1.3833 is needed to confirm recent rally has resumed. Otherwise, short term outlook remains neutral with risk of another fall.
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, focus will be on 1.3481 cluster support (61.8% retracement of 1.3262 to 1.3833 at 1.3480). As long as this support holds, the fall from 1.3833 will still be treated as correction to rally from 1.3262 only and another rise is still in favor after completion. However, break will put 1.3262 low into focus. And break will indicate that medium term rally from 1.1639 has likely completed after being limited by 1.3822 resistance as originally expected.
GBP/USD
Daily Pivots: (S1) 2.0384; (P) 2.0429; (R1) 2.0510; «www.actionforex.com»
Cable retreats mildly after surging to as high as 2.0547 earlier today. But still, intraday bias remains on the upside as long as 2.0456 support holds. Further rise is expected to be seen to next upside target of 100% projection of 1.9183 to 2.0132 from 1.9621 at 2.0570. However, break of 1.20345 will indicate deeper pull back is underway for a retest of inner rising trend line (now at 2.0259).
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 once again fails to sustain below 1.1993 cluster support and recovers in early US session, break of 1.2035 minor resistance, with bullish convergence condition in 4 hours MACD and RSI, indicates that a short term bottom could be in place at 1.1960. At this point, intraday bias is flipped to the upside and further recovery should be seen to 4 hours 55 EMA (now at 1.2067) and above. On the downside, firm break of 1.1960 is needed to confirm recent fall from 1.2467 has resumed for 1.1878 (06 low).
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 continues to gyrate inside established range of 121.54 and 122.60 today. As discussed before, 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 continues to trade inside established range of 167.71 and 168.93 today. But still, since 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
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Wed, 18 Jul 2007 11:25:00 GMT from Bloomberg
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Wed, 18 Jul 2007 11:25:00 GMT from Bloomberg
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Wed, 18 Jul 2007 11:24:00 GMT from Bloomberg
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Wed, 18 Jul 2007 11:22:00 GMT from Reuters
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Wed, 18 Jul 2007 11:16:00 GMT from The Australian
«www.actionforex.com» Economic Indicators Update
GMT Ccy Events Actual Consensus Previous Revised
00:30 AUD Australia W’pac leading index M/M May 0.20% N/A 0.70% 0.60%
23:50 JPY BOJ minutes Jun
05:00 JPY Japan Leading indicators rev. May 40.90% 36.40% 30.00%
08:30 GBP MPC Meetings Minutes Jul 6 to 3 6 to 3 5 to 4
08:30 GBP U.K. Claimant count Jun -13.8K -10 K -9.3 K -11.8K
08:30 GBP U.K. Average earning 3mth Y/Y May 3.50% 3.70% 4.00% 4.10%
08:30 GBP U.K. ILO unemployment May 5.40% 5.50% 5.50%
09:00 EUR Eurozone Trade balance (euro) May 1.7B 2.2 B 1.8 B 2.3B
11:00 CAD Canada CPI M/M Jun -0.20% 0.20% 0.40%
11:00 CAD Canada CPI core M/M Jun 0.00% 0.20% 0.30%
12:30 CAD Canada Leading indicators Jun 0.20% 0.40% 0.50% 0.40%
12:30 USD U.S. CPI M/M Jun 0.20% 0.20% 0.70%
12:30 USD U.S. CPI Y/Y Jun 2.70% 2.60% 2.70%
12:30 USD U.S. CPI - X M/M Jun 0.20% 0.20% 0.10%
12:30 USD U.S. CPI - X Y/Y Jun 2.20% 2.20% 2.20%
12:30 USD U.S. Building permits Jun 1.406M 1.48 M 1.50 M 1.502M
12:30 USD U.S. Housing starts Jun 1.467M 1.46 M 1.48 M 1.434M
12:30 USD U.S. Real earnings Jun 0.50% 0.00% -0.20%
14:00 USD Fed’s Bernanke Testifies Before House Panel on Monetary Policy