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Action Insight | Written by ActionForex.com | May 10 07 13:38 GMT |
Forex Mid-Day Technical Report Dollar Still Firm after BoE Hike, ECB’s “Vigilance” & Weak Trade Data

Dollar managed to head higher in early US session despite ECB’s signal for a June hike, BoE’s rate hike as well as worse than expected trade deficit in Mar. Trade deficit widened more than expected by 10.4% in Mar, caused by increased energy prices and reaches $-63.9b despite revision of Fed’s deficit from $-58.4b to $-57.8b. Both exports and imports increased, while imports increased more than exports. Though, the goods deficit with China, however, narrowed 6.4% to $17.2 billion. Import Price Index increased 1.3% in Apr., led by a 6.5% increase in petroleum prices. Export prices rose 0.3%. Jobless claims unexpectedly fell to 297k, much below expectation of 315k

ECB left rates unchanged at 3.75% today and Trichet said in the following press conference that “strong vigilance is of the essence to ensure that risks to price stability in the medium term do not materialize,” as there are clear upside risks to price stability. The word “vigilance is taken as a signal that ECB will raise rates again by 25bps in Jun to 4.00%. However, this provided little support to the Euro. In addition, in responding to a question over EUR/USD’s recent strength, Trichet seemed talking down the Euro by twice referring to US Treasury Paulson’s comments that a strong dollar is in US interest. This put additional pressure to the common currency.

BoE raised benchmark rates by 25bps to 5.50% as widely expected. After last month’s surprisingly high CPI of 3.1%, BoE still expects that “CPI inflation is likely to fall back to around the 2% target in the course of this year”. However, BoE notes that with narrowing capacity constraints and enhanced producer pricing power, risk is ’tilted’ to the upside. After all, the tone of the accompanying statement was non-committal, and focus will turn to May 16’s Inflation Report for the latest inflation and output projections for hints on the how much more is needed from BoE to realistically bring inflation down to it’s 2% target. Meeting minutes on May 23 will also be closely watched on the split of votes and views of the MPC members.

Sterling has been under pressure pre BoE announcement after weaker than expected data. Trade deficit widened to -7.05B while industrial production rose 0.3% mom, and dropped -0.2% yoy, below expectation of 0.4% mom rise and 0.0% yoy. BoE’s non-committal statement and UK Prime Minister Tony Blair ’s much-anticipated announcement that he will step down on Jun 27 offered little help to the pound. EUR/USD

Daily Pivots: (S1) 1.3508; (P) 1.3537; (R1) 1.3555; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/

EUR/USD’s fall from 1.3681 resumes again in early US session by breaking below 1.3514 support. At this point, intraday bias will remain on the downside as long as EUR/USD stays below 1.3566 resistance and further decline is expected to follow. As discussed before, previous 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, the current decline is expected to extend further towards 1.3406/10 support. However, a strong rebound to above 1.3566 resistance will suggest that the current fall has possibly completed and will put focus back to 1.3627 resistance.

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 1.3410) 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 1.3010).

GBP/USD

Daily Pivots: (S1) 1.9879; (P) 1.9938; (R1) 1.9995; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/

Cable’s rebound from 1.9841 was limited at 1.9999 and reversed by falling sharply since then. Break of 1.9824 resistance turned support indicates that the whole decline from 2.0132 should have resumed for 55 days EMA (now at 1.9772) first. As discussed before, rise from 1.9183 has completed at 2.0132 already after breaking through short term channel support. Break of the EMA will put medium term rising channel support (now at 1.9501) into focus. Meanwhile, above 1.9925 will turn short term outlook neutral again and suggests that fall from 1.999 has likely finished.

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 1.9501) 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) 1.2153; (P) 1.2173; (R1) 1.2206; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/

USD/CHF’s rally resumes by breaking above 1.2194 resistance, reaching as high as 1.2211 so far. At this point, intraday bias remains on the upside as long as USD/CHF stays above 1.2157 support. As discussed before, 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 is expected to be seen towards 1.2282 cluster resistance (50% retracement of 1.2571 to 1.1993 at 1.2282). But below 1.2157 support again will turn short term outlook neutral.

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) 119.75; (P) 119.94; (R1) 120.25; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/

USD/JPY’s rally from 119.52 extends further by breaking above 120.45 resistance. At this point, further rally is still expected to follow as long as USD/JPY stays above 119.93 support. Next upside target will be trend line resistance (now at 120.75) and 78.6% retracement of 122.17 to 115.13 at 120.66. However, below 119.93 will turn short term outlook neutral again.

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) 162.14; (P) 162.36; (R1) 162.65; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/

EUR/JPY’s recovery from 161.90 continues to day. As discussed before, with 4 hours MACD staying above signal line, further recovery is still in favor. But still, note that 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. Hence, further decline is still expected as long as the current recovery is limited by 163.40 resistance. Below 161.90 again will encourage deeper decline towards 159.60 support. However, above 163.40 will turn focus back to 163.59 high.

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.

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Thu, 10 May 2007 08:47:00 GMT from Reuters UK

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Thu, 10 May 2007 08:31:00 GMT from Bloomberg

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Thu, 10 May 2007 07:14:00 GMT from Reuters South Africa

http://www.actionforex.com/latest_news/latest_news/forex_news_20060323537/ Economic Indicators Update
GMT Ccy Events Actual Consensus Previous Revised
22:45 NZD New Zealand Unemployment rate Q1 3.80% 3.80% 3.70%
01:30 AUD Australia Unemployment rate Apr 4.40% 4.50% 4.50%
06:00 JPY Japan Machine tool orders Y/Y Apr 7.20% N/A 9.70%
06:00 EUR Germany WPI M/M Apr 0.80% 0.70% 0.50%
06:00 EUR Germany WPI Y/Y Apr 2.90% 2.80% 3.10%
07:00 JPY Japan Economic watch DI Apr 49.7 N/A 50.8
08:30 GBP U.K. Industrial prod’n M/M Mar 0.30% 0.40% -0.20%
08:30 GBP U.K. Industrial prod’n Y/Y Mar -0.20% 0.00% 0.30%
08:30 GBP U.K. Manufacturing prod’n M/M Mar 0.60% 0.50% -0.60%
08:30 GBP U.K. Manufacturing prod’n Y/Y Mar 0.90% 0.90% 1.20%
08:30 GBP U.K. Trade balance (gbp) Mar -7.05B -6.68 B -6.79 B
11:00 GBP BOE rate decision May 5.50% 5.50% 5.25%
11:45 EUR ECB rate decision May 3.75% 3.75% 3.75%
12:30 EUR ECB Press Conference
12:30 CAD Canada Trade balance (cad) Mar 4.6B 5.5 B 4.8 B 5.2B
12:30 USD U.S. Jobless claims 297K 315 K 305 K 306K
12:30 USD U.S. Trade balance (usd) Mar -63.9B -60.0 B -58.4 B -57.8B
18:00 USD U.S. Fed budget Apr 136.7B 118.84B

http://www.actionforex.com/general_information/forex_newsletters/forex_newsletter_200507301487/