Mid-Day Report: Dollar Retreats Mildly, FOMC Awaited
Action Insight | Written by ActionForex.com | May 09 07 13:41 GMT |
Forex Mid-Day Technical Report Dollar Retreats Mildly, FOMC Awaited
Dollar retreats mildly into early US session as markets prepare for FOMC rate decision and statement. There were some buying of dollar yesterday on speculation that FOMC won’t make much change to the statement but it seems like there is no consensus view from on the markets on what the Fed will deliver. Traders start to lighten positions ahead of this major event. Just like the last few FOMC meeting, Fed is widely expected to keep rate unchanged at 5.25% and focus will again be on the accompanying statement.
During the last Fed meeting, there were some notable changes in the language of the statement. Firstly, “somewhat firmer economic growth” was replaced by “recent indicators have been mixed” while “tentative signs of stabilization in the housing market” was replaced by “adjustment in the housing sector is ongoing”. This was taken as a downgrade of the growth outlook. On the other hand, core inflation was described as “somewhat elevated” instead of “improved modestly” reflecting rebound in core inflation. And after all, FOMC members seemed quite uncertain about the outlook on both inflation and growth, and thus uncertain on future policy events. Hence, “addition firming” was replaced by “future policy adjustments” to reflect the possibility of both a hike and a cut.
As for this meeting, there were some sign of improvement in both ISM indices as well as durable goods order. However, disappointing Q1 GDP remained a concern. Hence, there may not be any noticeable change in the language regarding growth. Core inflation has improved as shown in both core CPI and core PCE deflator and moderation could be back on track. However, it remains to be seen whether one month of data is enough to convince FOMC members to remove the labeling of inflation as the predominant concern since headline inflation is still high on rising energy prices.
Part of the markets are pricing a rate cut in June. However, if there is little change in today’s Fed statement, it will indicate that Fed members’ are still uncertain and will more likely continue to wait-and-see before another move. And in such case, markets could quickly price out a June cut and that would likely be dollar supportive. And after all, it’s still early to conclude that Fed’s next move is a cut so far. EUR/USD
Daily Pivots: (S1) 1.3496; (P) 1.3558; (R1) 1.3601; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/
EUR/USD’s recovery from 1.3514 continues and touching of 1.3563 minor resistance turns intraday outlook consolidative. However, as discussed before, break of the short term rising channel warns that the whole rally from 1.2865 has already completed at 1.3681 on bearish divergence condition in 4 hours MACD and RSI. Hence, further decline is still in favor as long as the current recovery is limited by 1.3627 resistance. Below 1.3514 again will indicate fall from 1.3681 has resumed for 1.3406/10 support. However, break above 1.3627 will indicate correction from 1.3681 has completed and encourage a retest of 1.3681 high.
In the bigger picture, with 1.3668 target met, risk of medium term reversal is also increasing. As discussed before, medium term up trend from 1.1639 is interpreted as having first move completed with three waves up to 1.2978, subsequent sideway consolidation completed at 1.2483. Rise from 1.2483 is treated as resumption of the whole up trend from 1.1639. With such interpretation we’d expect risk of medium term reversal to increase significantly as EUR/USD enter into resistance zone between 1.3668 and 100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822. Hence, focus is now on reversal signals.
On the downside, break of the short term rising channel support is already a warning that the rise from 1.2865 has likely completed. Decisive break of 1.3406/10 support, with 55 days EMA (now at 1.3406) taken out too, will confirm such case. More importantly, with bearish divergence condition in daily MACD and RSI, this will be the first warning that the rise rally from 1.2483 has also completed, and thus, so is the whole up trend from 1.1639. Focus will then be back to medium term rising channel support (now at 1.3007).
GBP/USD
Daily Pivots: (S1) 1.9858; (P) 1.9910; (R1) 1.9942; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/
Cable’s rebound from 1.9841 resumes by rising sharply in early US session. Break of 1.9974 minor resistance turned intraday bias back to the upside for a retest of 2.0073 resistance. As discussed before, break of 2.0073 will indicate the consolidation from 2.0132 has probably completed and will bring retest of this high. Meanwhile, below 1.9876 will turn short term outlook neutral again. But firm break of 1.9824 resistance turned support is needed to confirm that correction from 2.0132 has resumed for 55 days EMA (now at 1.9755) first. Otherwise, even though rise from 1.9183 has finished at 2.0132, subsequent price actions from there could merely be developing into sideway consolidation.
In the bigger picture, we’d like maintain that risk of medium term reversal remains high and is increasing. Firstly, the whole up trend from 1.7047 is not clearly impulsive. One interpretation is that rally from 1.7047 ended with three waves up to 1.9024. Subsequent correction ended at 1.8090. Rally from 1.8090 has already met mentioned target of 100% projection of 1.7047 to 1.9024 from 1.8090 at 2.0067. Secondly, regardless of the larger trend, rise from 1.8090 can be interpreted as being a five wave sequence with first wave ended at 1.9142, second at 1.8517, third at 1.9913 and fourth at 1.9183. The channeling property supports this interpretation too. In such case, the fifth wave rally from 1.9183 has also met target of 61.8% projection of 1.8517 to 1.9913 from 1.9183 at 2.0046 too. With bearish divergence condition remains in weekly RSI and Daily MACD and key 2.0106 resistance (92 high) not decisively taken out, cable could be forming a top at the current price level.
On the downside, firm break of the medium term rising channel support (now at 1.9536) will indicate that the whole rally from 1.8090 has completed and add much credence to the case that an important medium term top is already formed and put focus to 1.9183 low. However, sustained trading above mentioned 2.0106 resistance will dampen the above interpretation and indicates that underlying bullishness in cable is much stronger then we thought. Further medium term rally should then be seen towards 61.8% projection of 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05 low) at 2.0677.
USD/CHF
Daily Pivots: (S1) 1.2122; (P) 1.2159; (R1) 1.2216; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/
USD/CHF’s retreat from 1.2194 continues today and breaking of 1.2148 minor support and turned intraday outlook consolidative. However, With bullish convergence condition in 4 hours MACD and RSI as well as daily MACD and RSI, 1.1993 should at least be a short term bottom. Hence, further rally is still in favor as long as current retreat is supported by 1.2079 support. Above 1.2194 again will encourage further rise towards 1.2282 cluster resistance (50% retracement of 1.2571 to 1.1993 at 1.2282). But break of 1.2079 will turn focus back to 1.1993 low.
In the bigger picture, firstly, note that weekly MACD remains below signal line and USD/CHF is still trading comfortably below 55 weeks EMA (now at 1.2358), medium term risk remains on the downside and the current rebound from 1.1993 could merely be part of a sideway consolidation to the whole fall from 1.2571. The original case is still in favor as long as 1.2282 cluster resistance holds. That is the whole down trend from 1.3283 is still in progress with the first move from 1.3283 finished with three waves down to 1.1919. Subsequent rebound to 1.2768 was the interim correction and price actions from there represent resumption of such down trend. Break of 1.1993 low will add more credence to this case and bring further decline to 1.1878 low.
However, strong break of 1.2282 cluster resistance will dampen this view and indicate that the fall from 1.2571 has completed after meeting 1.2027 fibo support. Another rise could then be seen to retest this high and then the upper end of the range at 1.2768.
USD/JPY
Daily Pivots: (S1) 119.66; (P) 119.89; (R1) 120.26; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/
USD/JPY’s choppy consolidation from 119.52 continues today. As discussed before, further decline is still mildly in favor as long as USD/JPY stays below 120.14 minor resistance but still, downside is expected to be contained by 119.02 cluster support (50% retracement of 117.60 to 120.45 at 119.03) and bring rally resumption. Above 120.14 will indicate the current correction has completed and rise from 117.60 has possibly resumed for trend line resistance (now at 120.75) and 78.6% retracement of 122.17 to 115.13 at 120.66 first.
In the bigger picture, previous break of medium term rising channel support (108.99, 114.41, 117.87) indicates the whole medium term rally from 108.99 has completed at 122.17. However, firm break of falling trend line resistance (122.05 to 121.61) and sustained trading above 119.48 fibo resistance (61.8% retracement of 122.17 to 115.13) indicates price actions from 122.17 are probably developing into sideway consolidation to rise from 108.99 only, instead of a sharp reversal. Hence, a retest of 122.17 high could be seen. But still, firm break above this resistance is needed to confirm medium term rally from 108.99 has resumed. Otherwise, medium term outlook will be neutral at best and risk of another remains.
On the downside, a firm break below 117.60 support will confirm that rebound from 115.13 has completed and deeper fall should then be seen to retest this low and probably further towards 114.02/41 support zone (61.8% retracement of 108.99 to 122.17 at 114.02). But firm break of this support zone is needed to confirm the underlying medium term bearishness and shift favors back to the case that fall from 122.17 is the third leg of a wide range consolidation that started at 121.38 (first leg completed at 108.99, second at 122.17). Otherwise, as discussed before, price actions from 122.17 could merely be developing into sideway consolidation only and further medium term rally could still be seen.
EUR/JPY
Daily Pivots: (S1) 161.83; (P) 162.61; (R1) 163.31; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/
EUR/JPY’s choppy consolidation from 161.90 continues today. As discussed before, sustained break of the short term rising channel support warns that the whole rise from 150.75 has completed with bearish divergence condition in 4 hours MACD and RSI. At this point, as long as 162.80 resistance holds, deeper correction should be seen towards 159.60 support first. On the upside, above 162.80 will turn intraday outlook consolidative first But it will take a break above 163.40 resistance to turn focus back to 163.59 high. Otherwise, risk remains on the downside.
In the bigger picture, EUR/JPY’s previous break above medium term rising channel resistance (now at 162.46) suggests that strength of the rally from 150.75 could be much stronger than we thought. But still, interpretation of rally from 130.60 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, targeting 61.8% projection of 137.16 to 159.63 from 150.75 at 164.64 and could terminate there.
On the downside, break of the short term channel support indicates that rise from 150.75 has completed and deeper correction should then be seen towards 55 days EMA (now at 159.54). Also, this will give a serious warning signal that the whole rise rise from 130.60 has ended. EUR/JPY should set to channel the medium channel support (now at 153.33) in case this EMA is taken out decisively. However, strong rebound from there will suggest that another rise should be seen towards mentioned 164.64 projection target before making a medium term top.
Forex News Digest
http://c.moreover.com/click/here.pl?r925772323
Wed, 9 May 2007 10:39:00 GMT from Reuters
http://c.moreover.com/click/here.pl?r925726229
Wed, 9 May 2007 10:08:00 GMT from Bloomberg
http://c.moreover.com/click/here.pl?r925653692
Wed, 9 May 2007 09:16:00 GMT from AP via MSN Money
http://c.moreover.com/click/here.pl?r925595260
Wed, 9 May 2007 08:28:00 GMT from Reuters
http://c.moreover.com/click/here.pl?r925590223
Wed, 9 May 2007 08:24:00 GMT from Bloomberg
http://c.moreover.com/click/here.pl?r925575901
Wed, 9 May 2007 08:14:00 GMT from Bloomberg
http://c.moreover.com/click/here.pl?r925606491
Wed, 9 May 2007 08:38:00 GMT from AP via MSN Money
http://c.moreover.com/click/here.pl?r925568821
Wed, 9 May 2007 08:09:00 GMT from Reuters
http://c.moreover.com/click/here.pl?r925567414
Wed, 9 May 2007 08:08:00 GMT from Reuters
http://c.moreover.com/click/here.pl?r925540836
Wed, 9 May 2007 07:49:00 GMT from Bloomberg
http://c.moreover.com/click/here.pl?r925527004
Wed, 9 May 2007 07:40:00 GMT from Reuters UK
http://www.actionforex.com/latest_news/latest_news/forex_news_20060323537/ Economic Indicators Update
GMT Ccy Events Actual Consensus Previous Revised
23:01 GBP U.K. N’wide consumer confi. Apr 90 89 88
05:00 JPY Japan Leading indicators Mar 40 40 27.3
06:00 EUR Germany Trade balance (euro) Mar 18.4B 14.5 B 13.8 B
06:00 EUR Germany Current account Mar 17.2B 10.0 B 8.4 B 8.5B
06:00 EUR Germany Exports M/M Mar -1.40% 0.30% 1.90% 1.80%
06:00 EUR Germany Imports M/M Mar -3.00% -0.90% 5.60% 4.10%
18:15 USD FOMC rate decision May 5.25% 5.25%
http://www.actionforex.com/general_information/forex_newsletters/forex_newsletter_200507301487/