Action Insight | Written by ActionForex.com | Mar 22 07 07:33 GMT |
Forex Daily Technical Report Focus on Fed Speakers after Dovish FOMC, UK Retail Sales Watched

Dollar remains weak today and edges further lower against euro, sterling and aussie. Though oversold condition may keep dollar in tight range for a while, but sentiments remains fragile after FOMC’s dovish statement yesterday and further downside is still expected to be seen in the near term. With a rather light economic calendar in the US today, markets’ focus will mainly be on speeches from Bernanke, Kroszner and Kohn from Fed on any further elaboration on Fed’s stance. Meanwhile, focus in the European session will mainly be on retail sales from UK.

To recap, Fed left rates unchanged at 5.25% yesterday as widely expected. The most important change in the accompanying statement is that the tightening bias is now abandoned. In the Jan 31 statement, Fed said that “the extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.” This was changed to ” Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.” This is taken as a sign that a rate cut is now possible. Assessment of economy was changed from “somewhat firmer economic growth” to recent indicators have been “mixed”. “Some tentative signs of stabilization have appeared” was changed to “the adjustment in the housing sector is ongoing”. Regarding inflation, the “risk that inflation will fail to moderate as expected” is still fed’s predominant concern.

Recent rally in Sterling was based on solid PPI inflation and stronger than expected CPI inflation that prompted speculation that BoE will raise rate sooner in Q2 and could probably continue beyond. However, yesterday’s dovish MPC minutes that revealed an 8-1 vote instead of a 7-2 vote, with Blanchflower surprisingly voted for a cut, has triggered some traders to reposition themselves. Today’s retail sales data will be important and a strong number will shift expectation back to an Apr hike. Retails sales is expected to bounce back from Jan’s -1.8% fall to 0.7% rise in Feb, pushing yoy rate higher from 3.3% to 3.9%.

Released earlier today, Japan’s trade surplus for Feb came in slightly higher than expected at 980 billion. Exports surprised on the upside by rising 9.7% while imports remained solid by rising 10.1% yoy. EUR/USD

Daily Pivots: (S1) 1.3319; (P) 1.3354; (R1) 1.3418; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/

EUR/JPY’s rally extends further to as high as 1.3410, breaking above last year’s high of 1.3364 and touches 61.8% projection of 1.2483 to 1.3364 from 1.2865 at 1.3409. At this point, intraday bias remains on the upside. Sustained break of 1.3409 fibo resistance will confirm that whole medium term up trend from 1.1639 has resumed for next upside target of 1.3668 (04 high).

On the downside, touching of 1.3354 minor support will turn intraday outlook consolidative first but downside should be contained above 1.3268 support and bring rally resumption. However, break of 1.3268 will argue that the rise from 1.3070 has completed, probably with bearish divergence condition in 4 hours MACD and RSI. In such case, deeper pull back could be seen towards 1.3185 resistance turned support.

In the bigger picture, correction from 1.3364 have already completed with three waves down to 1.2865 and the current rise from there is treated as resumption of the whole medium term up trend from 1.1639 as EUR/USD is still staying well within the rising channel. Sustained break of 1.3364/09 resistance zone will confirm this case and bring stronger rally towards 1.3668 resistance (04 high).

However, with bearish divergence condition in weekly MACD and RSI, a medium term top could be around the corner. Upside of this medium term up trend could be limited by resistance zone of 1.3668 (04 high) and 100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822. But clear reversal pattern or a break of the lower channel line (now at 1.2883) is needed to indicate a medium term top is formed, otherwise, further rise is still in favor.

On the downside, below 1.3185 support will be the first warning that whole rise from 1.2865 has completed and will put 1.3070 support back into focus again. Sustained break of 1.3070 will confirm this and bring deeper decline towards medium term rising channel (now at 1.2888).

GBP/USD

Daily Pivots: (S1) 1.9590; (P) 1.9640; (R1) 1.9725; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/

Cable’s rally extends further to as high as 1.9695 today, break marginally above 1.9672 resistance. At this point, further rise is still expected to follow as long as cable stays above 1.9552 support. As discussed before, sustained break of 1.9672 resistance. will encourage a retest of 1.9913 high. Meanwhile, touching of 1.9552 will indicate that a short term top is likely formed and further consolidation will follow with risk of pull back to 4 hours 55 EMA (now at 1.9471). But still, a break below 1.9395 support is needed to indicate rise from 1.9213 has completed. Otherwise, further rally is still in favor.

In the bigger picture, strong rebound from mentioned 23.6% retracement of 1.7047 to 1.9913 at 1.9237 favors the case that cable corrective fall from 1.9913 is merely correction to the rise from 1.8517 only. Sustained break of 1.9672 resistance will add more weight to this view and should bring another high above 1.9913 and attempt to meet 2.0106 cluster resistance before having a medium term reversal.

However, note that bearish divergence conditions remains in weekly RSI and daily MACD, suggesting a medium term top is around the corner and the up trend from 1.7047 might complete at 2.0106 cluster resistance (1992 high, 100% projection of 17047 to 1.9024 from 1.8090 at 2.0067). On the downside, break of 1.9395 will turn focus back to 1.9183/9237 support zone again.

USD/CHF

Daily Pivots: (S1) 1.2064; (P) 1.2114; (R1) 1.2145; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/

USD/CHF’s recovery from 1.2029 was limited at 1.2166 after touching 4 hours 55 EMA (now at 1.2152). Subsequent fall has pushed USD/CHF to below 1.2100 support, suggesting that such recovery has completed. At this point, intraday bias will be on the downside for a retest of 1.2029 support (78.6% retracement of 1.1879 to 1.2571 at 1.2027). Firm break will confirm recent decline has resumed for next downside target of 1.1879 support (06 low).

Meanwhile, above 1.2166 will indicate correction from 1.2029 is still in progress and further recovery could still be seen. But still, fall from 1.2354 should still be in force as long as upside is limited by 1.2228/30 cluster resistance (61.8% retracement of 1.2354 to 1.2029 at 1.2230, 38.2% retracement of 1.2550 to 1.2029 at 1.2228) and another decline is still expected.

In the bigger picture, medium term outlook remains bearish with USD/CHF staying below both 55 days EMA and 55 weeks EMA. Daily and weekly MACD are staying negative, supporting this view too. The preferred interpretation at this point is that 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 nand price actions from there represent resumption of such down trend. Sustained break of 1.1879 will add more credence to this view and bring further medium term weakness towards 100% projection of 1.3283 to 1.1919 from 1.2768 at 1.1404.

However, note that USD/CHF is still bounded in wide range of 1.1878 to 1.2768. A rebound to above 1.2354 resistance will dampen this view and indicate that the fall from 1.2571 has completed and another rise could be seen to retest this high and then the upper end of the range at 1.2768.

USD/JPY

Daily Pivots: (S1) 117.13; (P) 117.53; (R1) 117.91; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/

Not much to add as USD/JPY is still bounded in choppy consolidation between 115.13 and 118.49. As discussed before, the fall from 122.17 should have made a short term low at 115.13. And hence further consolidation is expected to follow. But upside should be limited by 100% projection of 115.13 to 118.49 from 115.75 at 119.10 and bring another fall.

On the downside, further consolidation cannot be ruled out as long as USD/JPY stays above 115.75 support. But a break there will encourage a retest of 115.13 low and break will confirm that fall from 121.61 has resumed for next downside target of 114.02/41 support zone (61.8% retracement of 108.99 to 122.17 at 114.02).

In the bigger picture, our view remains unchanged. Previous break of medium term rising channel support (108.99, 114.41, 117.87) indicates the whole up trend from 108.99 has completed at 122.17. Weekly MACD’s stay below signal line is still supporting this. The corrective nature of the rise from 108.99 swings favors back to the case that such medium term rally is merely part of a large scale consolidation that started at 121.38, with first leg completed at 108.99 and second leg completed at 122.17. The fall from 121.17 should then the third leg of such consolidation and deeper decline should at least be seen to below 114.02/41 support zone (61.8% retracement of 108.99 to 122.17 at 114.02) first with much possibility of further fall to retest 108.99 low.

However, decisive break of 119.48 fibo resistance will argue that the price actions from 122.17 is developing into large range consolidation instead. A retest of 122.17 high could be seen in such case. 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.

EUR/JPY

Daily Pivots: (S1) 156.43; (P) 156.93; (R1) 157.84; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/

EUR/JPY’s rally extends further as expected, reaching as high as 157.51 so far. At this point, further rally is still expected as long as EUR/JPY stays above 155.57 support. Sustained break of 157.61/73 cluster resistance (100% projection of 150.75 to 155.72 from 152.64 at 157.61, 78.6% retracement of 159.63 to 150.75 at 157.73) will encourage further rally to retest 159.63 high.

On the downside, below 155.57 again will suggest that a short term top is possibly formed and deeper retreat could be seen towards short term rising trend line (now at 154.61). Rally from 150.75 should still be in force as long as this trend line holds. But a break there will warn that such rebound has completed and will put 152.64 support into focus.

In the bigger picture, we’re treating the whole year long rise from 130.60 as resumption of the long term up trend with first wave ended at 143.60, subsequent correction ended at 137.167. The third wave up could have ended at 159.63 with a diagonal triangle already. Fall from 159.63 should represent the fourth wave correction and has already met it’s target of 38.2% retracement of 137.16 to 159.63 at 151.05) and lower channel line (143.60 to 159.63, 137.16, now at 151.53). Prior strong rebound from the channel line is so far consistent with this view. Hence, retest of 159.63 high should be seen and EUR/JPY should make a new high before finally forming a medium term top.

However, below 152.64 support again will dampen this view indicate that the rebound from 150.75 could probably be a correction to fall from 159.63 only. This will also put the channel support back into focus. Sustained break of the channel will indicate that a major medium term top already in place at 159.63 and that much deeper decline is indeed underway towards 147.71 support first.

Forex News Digest

http://c.moreover.com/click/here.pl?r855743609
Thu, 22 Mar 2007 04:58:00 GMT from Reuters

http://c.moreover.com/click/here.pl?r855710699
Thu, 22 Mar 2007 04:26:00 GMT from Bloomberg

http://c.moreover.com/click/here.pl?r855681936
Thu, 22 Mar 2007 03:58:00 GMT from Reuters

http://c.moreover.com/click/here.pl?r855665466
Thu, 22 Mar 2007 03:42:00 GMT from Bloomberg

http://c.moreover.com/click/here.pl?r855649284
Thu, 22 Mar 2007 03:28:00 GMT from Bloomberg

http://c.moreover.com/click/here.pl?r855648962
Thu, 22 Mar 2007 03:28:00 GMT from stuff.co.nz

http://c.moreover.com/click/here.pl?r855641536
Thu, 22 Mar 2007 03:22:00 GMT from The Australian

http://www.bloomberg.com/apps/news?pid=20601083&sid=akDkEcjLFWc0&refer=currency

http://www.bloomberg.com/apps/news?pid=20601083&sid=aqn0hVHDh_VQ&refer=currency

http://www.bloomberg.com/apps/news?pid=20601083&sid=a8q6deyGVW4E&refer=currency

http://www.bloomberg.com/apps/news?pid=20601083&sid=aHoSFEbzVvKA&refer=currency

http://www.actionforex.com/latest_news/latest_news/forex_news_20060323537/ Economic Indicators Update
GMT Ccy Events Actual Consensus Previous Revised
23:50 JPY Japan Trade balance (jpy) Feb 979.6B 711.1 B 4.4B -1.9B
23:50 JPY Japan Exports Y/Y Feb 9.70% 6.20% 18.90%
23:50 JPY Japan Imports Y/Y Feb 10.10% 12.40% 10.90%
9:30 GBP U.K. Retail sales M/M Feb 0.70% -1.80%
9:30 GBP U.K. Retail sales Y/Y Feb 3.90% 3.30%
10:00 EUR Eurozone Trade balance (euro) Jan 1.2 B 2.50%
10:00 EUR Eurozone Industrial new ords M/M Jan -1.00% 2.80%
10:00 EUR Eurozone Industrial new ords Y/Y Jan 10.10% 1.60%
11:00 GBP U.K. CBI industrial trends Mar 6 4
12:30 USD U.S. Jobless claims 323 K 318 K
13:30 USD Fed Bernanke Speaks
14:00 USD U.S. Leading indicators Feb -0.30% 0.10%
16:00 USD Fed Kroszner Speaks
17:30 USD Fed Kohn Speaks

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