All My Net Biz

Poll: People doubt feds’ ability to handle disease outbreak »

WASHINGTON The public has little faith the government is adequately screening visitors to the country or could cope with an outbreak of an infectious disease, according to an AP-Ipsos poll. Only one in five surveyed said the government is doing enough to scrutinize people crossing the border into the U.S., the poll found. Just two in five expressed confidence the government is ready for an epidemic. The poll was taken while the Senate debated an immigration bill, supported by President Bush,...

Weekly Outlook: Euro Broke Key Support, Will Sterling and Swissy Follow?

Posted in currency | Thursday, July 26th, 2007 | Trackback

Action Insight | Written by ActionForex.com | Jun 09 07 21:44 GMT |
Forex Weekly Review and Outlook Euro Broke Key Support, Will Sterling and Swissy Follow?

Dollar staged a strong rebound last week after a massive sell off in the bond market which pushed 10 year bond yields back to a five year high above 5%. Such sell off is believed to be triggered by RBNZ’s surprised rate hike that raised concern that other central banks will follow suits. Stock markets also corrected with S&P 500 and Dow Jones industrials both retreated 2.7% on the week, while the Nasdaq dipped 2.3%. The net result is that dollar surged against European currencies after market priced out of a rate cut from Fed this year, Aussie and Kiwi surged across the board on rate expectations, the Japanese yen rebounded against Euro and Sterling yen on risk aversion.

Technically speaking, last week’s could prove to be a defining week for some pairs. EUR/USD’s break of 1.3364 support is an indication that an important medium term top is possibly in place at 1.3681 already. Meanwhile, both GBP/USD and USD/CHF are now pressing important levels which will confirm medium term reversal in both pairs. EUR/JPY should also at least made a short term top at 164.59, which could also be a medium term top, after completing a terminal pattern inches below projection target. Meanwhile USD/JPY, though less clear due to dollar’s strength, could have also ended a multi month high ahead of 122.17 key resistance.

The coming week will feature handful of important economic data but focus will likely be on the development of both the bond markets as well as how the technical patterns play out.
Prev Week’s High Prev Week’s Low Prev Week’s Close Last Week’s High Last Week’s Low Last Week’s Close Change (pips) Change (%)
EURUSD 1.3518 1.3392 1.3448 1.3552 1.3319 1.3370 -78 -0.58%
GBPUSD 1.9898 1.9732 1.9822 1.9964 1.9621 1.9697 -125 -0.63%
USDCHF 1.2328 1.2197 1.2297 1.2364 1.2145 1.2350 53 0.43%
USDJPY 122.13 121.18 122.06 122.10 120.75 121.71 -35 -0.29%
USDCAD 1.0834 1.0595 1.0607 1.0711 1.0548 1.0606 -1 -0.01%
AUDUSD 0.8330 0.8162 0.8330 0.8476 0.8308 0.8447 117 1.40%
NZDUSD 0.7452 0.7247 0.7448 0.7637 0.7437 0.7634 186 2.50%
EURJPY 164.27 162.95 164.14 164.59 161.75 162.76 -138 -0.84%
EURGBP 0.6809 0.6767 0.6783 0.6806 0.6768 0.6786 3 0.04%
EURCHF 1.6539 1.6442 1.6536 1.6548 1.6418 1.6515 -21 -0.13%
GBPJPY 242.06 239.75 241.99 242.97 237.64 239.75 -224 -0.93%
GBPCHF 2.4437 2.4190 2.4361 2.4397 2.4149 2.4331 -30 -0.12%
AUDJPY 101.68 99.09 101.68 102.85 101.21 102.82 114 1.12%

Data from US were generally solid with ISM non-manufacturing index rose surprisingly strongly to 59.7 in May comparing to expectation of 55.3. Q1 labor costs were revised much higher to from 0.6% to 1.8% vs consensus of 1.2% though productivity was revised lower than expected to 1.0%. Apr trade deficit unexpectedly improved to -58.5b thanks to thanks to 2.6% rise in exports and -1.1% fall in imports. Though, dollar was pressured during the week after after comments from Bernanke which said that housing market’s drag on the economy could persist somewhat longer than expected even though the slump has not spilled over into other parts of the economy yet. Also, there was speculation that United Arab Emirates may be the next Middle Eastern country to end the dollar peg after Syria and Kuwait had recent announced that they would dump the dollar peg to curb rising import costs and inflation.

ECB raised rates by 25bps to 4.00% as widely expected. In the press conference, Trichet, to the contrast of some analysts, still described rates as “on the accommodative side.” Financing condition was still described as favorable. Risk to inflation is still on the upside and “acting in a firm and timely manner to ensure price stability in the medium term is warranted.” The staff projections on inflation and growth confirmed to be upwardly revised. 07 CPI to 1.8-2.2% up from 1.5-2.1% previously and 08 still 1.4-2.6%. 07 GDP is seen at 2.3-2.9% from 2.1-2.9% with 08 1.8-2.8% from 1.9-2.9%. Though the press conference wasn’t anything dovish, it seemed that markets were dissatisfied with ECB’s keeping 08 inflation forecasts unchanged with mid-point at 2.0% which didn’t give any guidance to the monetary policy in 08. After all, another hike in Sep is still widely expected by the markets.

BoE held interest rates unchanged at 5.50% last week. From the market actions, it seemed like the expected no change from BoE was indeed quite unexpected to part of the markets which bid up GBP/USD to as high as 1.9968 earlier last week. Sterling tumbled since then, with additional pressure from dollar and yen. Mixed industrial production and manufacturing production data was unable to provide any help to the Pound.

Data from Japan saw Q1 capital spending rising more than expected by 13.6% versus consensus of 9.6%. However, Apr machine orders fell short of expectation by rising 2.2% in Apr only. There were some jitters on the yen after news report that North Korea fired several short-range missiles off its west coast. But, the yen still ended the week higher against dollar and euro as important resistance played the effect and as EUR/JPY carry trade unwinding continued.

RBA kept rates unchanged at 6.25% as widely expected. Though, the Aussie was boosted by much stronger than expected Q1 GDP which grew 1.6% qoq, 3.8% yoy comparing to consensus of 1.2%, 3.1%. Unemployment rate unexpectedly fell from 4.4% to 4.2% in May, which is a 32 years low, thanks to a net increase of 39,400 jobs over the month. Persistent strength in the Aussie economy is continuing to increase the chance that RBA will restart the tightening sooner than originally thought. AUD/USD strengthened to 17 year high of 0.8476 before consolidating towards the end of the week.

Kiwi soared to a 22 year high after surprised rate hike from RBNZ by 25bps, for the third time this year, that brought overnight cash rate to 8.00%, which was an unexpected move to most analysts. The accompanying statement was very hawkish with RBNZ focusing almost solely on upside risks and that a “sustained period of slower growth in domestic activity will be required to alleviate inflation pressures.” This is raising the expectation that RBNZ is not yet done and at least one more rate hike could be seen in Q3.

Canadian dollar turned sideway after reaching new 30 year high of 1.0547. Mixed data saw Ivey PMI at 62.7, building permits dropped -8.4%, missing expectation. Unemployment rate remained at 6.1% while housing starts rose to 229.7k and trade surplus widened to 5.76b.

Suggested Readings:

- http://www.actionforex.com/forex_analysis_and_forecasts/economic_calendar/summary_6%1010_-_6%1015_2007060922996/
- http://www.actionforex.com/forex_analysis_and_forecasts/forex_weekly_reports/weekly_focus%3a_keep_an_eye_on_the_equity_markets_2007060822987/
- http://www.actionforex.com/forex_analysis_and_forecasts/forex_weekly_reports/economic_outlook%3a_consumer_spending_looks_set_to_weaken_2007060822959/
- http://www.actionforex.com/forex_analysis_and_forecasts/forex_technical_analysis_reports/%24_index%2c_still_a_major%2c_longer_term_bull_but…._2007060822972/.
- http://www.actionforex.com/forex_analysis_and_forecasts/forex_weekly_reports/australian_%26_new_zealand_weekly%3a_rba_governor_to_set_the_scene_2007060822955/
- http://www.actionforex.com/forex_analysis_and_forecasts/forex_fundamental_analysis_reports/australian_dollar_-_heading_towards_18_year_highs?_2007060622852/
- http://www.actionforex.com/forex_analysis_and_forecasts/forex_fundamental_analysis_reports/canadian_dollar:_how_much_more_can_it_rise?_2007060522768/ EUR/USD

Recapping previous discussions, 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. As discussed before, with this interpretation, the up trend from 1.1639 is expected to end between 1.3668 and 100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822. EUR/USD has already touched this resistance zone back in April and focus is on reversal signal since then.

Last week’s break of 1.3364 cluster support (38.2% retracement of 1.2865 to 1.3681 at 1.3369) was a significant development as it’s now confirmed that rise from 1.2865 has ended at 1.3681 already. More importantly, with bearish divergence condition in daily MACD and RSI, it’s likely that the rally from 1.2483 has ended too, so is the whole medium term up trend from 1.1639.

Hence from a short term angle, outlook will remain bearish as long as 1.3553 resistance holds and further decline should be seen to medium term rising channel support (now at 1.3072) and 55 weeks EMA (now at 1.3025). Decisive break of this support zone will confirm that whole up trend from 1.1639 has ended and turn medium term outlook bearish.

However, on the upside, above 1.3553 will indicate fall from 1.3681 has completed and is merely a correction in the medium term up trend only. A retest of 1.3681 would be seen and the rebound could extend further towards 100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822. But focus will remain on reversal signal as even in such case, the up trend from 1.1639 is still expected to conclude between 1.3668 and 1.3822.

In the longer term picture, it’s still early to conclude whether medium term rally from 1.1639 represents resumption of multi-year up trend from 0.8223 or just part of a large scale consolidation that started at 1.3668. But, the three wave corrective nature of the rise from 1.1639 to 1.2978 suggest that this whole rally from 1.1639 will be corrective too, thus, favoring the latter case. Sustained break of of the medium term channel support and 55 weeks EMA will confirm this case and could probably extend medium term weakness to 1.1639 to complete the consolidation pattern. But sustained break of 1.3822 fibo resistance will dampen this view and path the way towards 95 high of 1.4523.

GBP/USD

Despite extending the rebound to as high as 1.9968, cable failed to take out 1.9956/58 cluster resistance (61.8% retracement of 2.0132 to 1.9676 at 1.9958 and 100% projection of 1.9676 to 1.9899 from 1.9733 at 1.9956) and reversed sharply to as low as 1.9621, taking out prior low of 1.9676. As discussed before, the three wave structure of the rebound from 1.9676 and meeting of 100% projection target indicate that such rebound from 1.9676 is of corrective nature and in other words, whole decline from 2.0132 is still in progress. From a short term angle, such fall is expected to continue as long as 1.9968 resistance holds. More importantly, cable is now pressing the medium term rising channel support (now at 1.9621) which is important to determine whether the rally from 1.8090 has already completed and an important medium term is formed at 2.0132.

Recapping previous discussion, 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 MACD and RSI, as well as daily MACD and key 2.0106 resistance (92 high) not decisively taken out, 2.0132 could be the important medium term top already.

Hence, firm break of the medium term rising channel support (now at 1.9621) 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, on the upside, above 1.9968 will suggest that correction from 2.0132 has completed after drawing support from the medium term rising channel. In such case, cable could retest 2.0132 high before making the medium term top.

In the longer term picture, previous break above 1.9554 resistance (04 high) is favoring the case that long term up trend from 1.3680 has resumed after correction from 1.9554 was supported by 55 months EMA. However the structure of the medium term rise from 1.7047 is not clearly supporting this yet. And, we’re still skeptical on it. The structure of the fall after finishing the current up trend from 1.7047 should reveal more information. But a strong break of mentioned 2.0106 resistance indicate add much favor to the case that multi year up trend from 1.3680 has resumed and hence should bring rally to next target of 61.8% projection of 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05 low) at 2.0677 first.

USD/CHF

USD/CHF’s correction from 1.2331 was contained above mentioned 1.2124 cluster support (61.8% retracement of 1.1993 to 1.2331 at 1.2122) and reached 1.2146 only. Subsequent strong rally last week has pushed USD/CHF above 1.2331 high, confirming that whole rise from 1.1993 has resumed and USD/CHF is now pressing an important resistance of 61.8% retracement of 1.2571 to 1.1993 at 1.2350.

Recapping previous discussions, USD/CHF could be completing a medium term head and shoulder bottom formation (ls: 1.1919, h: 1.1878, rs: 1.1993) which will confirm the completion of whole down trend from 1.3283. At this point, the neck line (1.2768 to 1.2571, now at 1.2321) was taken out already. Sustained break of 1.2350 fibo resistance will add much credence to this case and bring retest of 1.2571 high. Break will confirm the head and shoulder formation and have medium term outlook turned bullish for 1.2768 resistance and then 1.3283 high.

From a short term angle, the above case will hold as long as 1.2146 support holds. But a break of 1.2146 will indicate rise from 1.1993 has completed and switch favor back to the case that choppy price actions from 1.1919 could merely be part of a medium term triangle consolidation. And, down trend from 1.3283 should still resume after completing such consolidation in such case.

The longer term picture is rather unclear at this moment because as mentioned above, price actions from 1.1919 could either be forming a reversal pattern or is just a consolidation pattern. Also, USD/CHF is somewhere in the middle of a long term range of 1.1288 and 1.3283. But the outlook should be much clear in the next few weeks after confirming the medium term pattern.

USD/JPY

USD/JPY’s extended the fall from 122.13 last week to as low as 120.78. Such decline, together with bearish divergence condition in 4 hours MACD and RSI as well daily MACD’s turn below signal line indicate that 122.13 should at least be a short term top. Hence, even though USD/JPY did rebound impressively after reaching failing to take out 120.78 low again, short term outlook will remain bearish as long as 122.17 key resistance holds and another fall is still in favor towards short term rising trend line support (now at 120.30).

Recapping previous discussions, since the rally from 115.13 is not clearly impulsive, it’s being treated as part of a consolidation pattern that started at 122.17. Having said that, upside of this rise will likely be limited by 122.17 and bring another fall to retest 115.13 low before finishing the consolidation. The signal of a short term top and failure to take out 122.17 key resistance is supporting this view so far. Break of mentioned short term rising trend line will add more weight to this case which should be confirmed by sustained break of 119.43 cluster support (38.2% retracement of 115.13 to 122.13 at 119.46).

However, strong break of 122.17 resistance will indicate that the correction from 122.17 is already completed at 115.13. That is, the current rise from there represents resumption of the whole up trend from 108.99. In such case, the up trend is expected to extend further to 61.8% projection of 108.99 to 122.17 from 115.13 at 123.28 first.

In the longer them picture, whether correction from 121.38 has completed with three waves down to 108.99 remains a question. But with 114.02/41 support zone remains intact, the rise from 108.99 is still in progress and hence favors that rise from 108.99 represents resumption of the whole rally from 101.65. Strong break above 122.17 will add much weight to this case. And with this interpretation, next medium term target will be 100% projection of 101.65 to 121.38 from 108.99 at 128.72.

EUR/JPY

Price actions of EUR/JPY played out pretty much as expected. Even though edging higher to 164.59 last week, upside was just limited by mentioned 61.8% projection of 137.16 to 159.63 from 150.75 at 164.64. Subsequent sharp decline from 164.59 has both the short term rising trend line and 162.18 support taken out. This confirmed that EUR/JPY has completed a diagonal triangle formation at 164.59 on bearish divergence condition in 4 hours MACD and RSI and should have concluded the rally from 150.75.

Hence, short term outlook is turned bearish and further fall is expected to follow towards support zone of 159.60 and 38.2% retracement of 150.75 and 164.59 at 159.30. Sustained break above mentioned 164.64 is needed to confirm underlying bullishness.

In the bigger picture, EUR/JPY is now at a critical point. Whole up trend from 130.60 is interpreted as having 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, and could have ended at 164.59, just missing target of 61.8% projection of 137.16 to 159.63 from 150.75 at 164.64. In other words, 164.59 could indeed be the top of the whole rise from 130.60.

Focus is now on 159.30/60 support zone. Break of this support zone will add more weight to case that 164.59 is indeed the important medium term top. Further decline should then be seen towards medium term rising channel support (now at 153.98) and 55 weeks EMA (now at 154.16). Sustained break of this important support will confirm such case and turn medium term outlook bearish for 150.75 support first.

However, strong rebound from 159.60 will switch favor to the case that EUR/JPY could merely be in sideway consolidation to the rise from 150.75 only and another medium term rally could be seen after finishing such consolidation. Though, sustained break of 61.8% projection of 137.16 to 159.63 from 150.75 at 164.64 is still needed to confirm such case.

« Obesity Is Contagious, Study Finds

By LAURA BLUE Wondering why your waistline is expanding? Have a look at those of your friends. Your close friends can influence your weight even more than genes or your family members, according to new research appearing in the July 26 issue of The New England Journal of Medicine. The study’s authors suggest that obesity isn’t just spreading; rather, it may be contagious between people, like a common cold. Researchers from Harvard and the University of California, San Diego,...

Comments are closed.

Weekly Outlook: Euro Broke Key Support, Will Sterling and Swissy Follow?

Search

Categories

RSS

Archives

Friends

News