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Eur/usd 22/01/2008
Current level-1.4451
The currency pair is in an uptrend unfolding from the 1.2484 bottom and probably ahead of a significant reversal on weekly basis. The technical indicators are rising and the trading is situated above the 50-day and the 200-day SMA, currently projected at 1.4302 and 1.3697.
A local bottom has been built at 1.4367 and we expect an uptrend to emerge, targeting 1.4576 and 1.4695 later on. With the recent low at 1.4367 probably the general uptrend has been renewed for a break above 1.4967, towards 1.5294, but only a break above 1.4695 will confirm our bullish view.
Resistance Support
intraday intraweek intraday intraweek
1.4826 1.4826 1.4347 1.4295
1.4867 1.4967 1.4295 1.4123
Usd/jpy 22.01.2008
Current level-106.46
The pair is in a clear downtrend from the 117.97 top, after completing the broad consolidation since 111.65. The technical indicators are falling on daily basis and trading is situated below the 50- and 200-day SMA, currently projected at 113.78 and 117.86.
The brief consolidation since 105.93 (16.01) ended at 107.58, forming a triangle corrective pattern, that provoked renewing of the slide towards 104.03. Intraday expect a break below 105.82 and test of the 104.93 support.
Resistance Support
intraday intraweek intraday intraweek
111.91 112.59 105.82 104.03
112.59 115.32 104.93 101.23
USD/CAD Daily Outlook 22/01/2008
USD/CAD's recent rally continues today and takes out 1.0333 support turned resistance as expected. At this point, further rise is still expected as long as 1.0215 support holds. Next upside target is 61.8% projection of 0.9056 to 1.0248 from 0.9756 at 1.0493. On the downside, however, below 1.0215 will indicate that a short term top might be in place already and bring pull back. However, downside should be contained above 0.9971 resistance turned support and bring another rise.
In the bigger picture, a medium term bottom is in place at 0.9056 after USD/CAD just missed double projection target of 161.8% projection of 1.4006 to 1.1716 from 1.2737 at 0.9032 and 161.8% projection of 1.2737 to 1.0930 from 1.1874 at 0.8950. Nevertheless, the current rise from 0.9056 is still treated as correction to the long term down trend for the moment. Strong resistance should be seen as USD/CAD approaches key medium term resistance of 1.0930, with 100% projection of 0.9056 to 1.0248 from 0.9756 at 1.0948, 38.2% retracement of 1.4006 to 0.9056 at 1.0947 and 50% retracement of 1.2737 to 0.9056 at 1.0897. Attention will be paid to reversal signal as USD/CAD approaches this resistance zone. On the downside, break of 0.9756 to needed to be the first alert that rise from 0.9056 has completed. Otherwise, short term outlook remains bullish.
Daily Report: FX Markets Calm Down But Risk Aversion Still Dominates
Markets are a little calmer after yesterday's massive rally in the Japanese yen. While Asian stock markets tumble sharply for another day, then yen turns sideway after edging higher earlier today. Though, sentiments remains fragile in the global markets and further upside is still expected from the Japanese yen, in particular when US stock markets return to action later today. BoJ left rates unchanged at 0.5% as widely expected. The vote was unanimous. In the monthly report, BoJ noted that the economy is still expanding moderately but growth rate may be slowed down by drop in housing investment. Finance Minister Fukushiro said that the Japanese government has no intention of resuming "large-scale interventions" in the forex markets.
Elsewhere, Aussie and Canadian dollar are mostly pressured. BoC is widely expected to follow Fed to have another 25bps rate cut later today to 4.00%. Aussie is hit by carry trade unwinding as well as reduced expectation for rate hike from RBA. Markets scale back their bets of a rate hike from RBA in Feb, down from around 40% to 25% as global financial market turmoil could have an impact of the Australian economy. Additional, both currencies are pressured by weakness in gold and oil prices. From Canada, Nov retail sales will also be released today.
Euro/Usd: a Double Top Forming?
Diverging opinions on rates among ECB officials weight on the European currency, as the United States prepares a bold rate cut. The Euro enters a crucial period. Shortly, the trend for the next two to four months could emerge. A double top formation is in construction. If confirmed, it could inspire a deep correction for the European currency against the U.S. dollar.
Awaiting the Federal Reserve rate cut
The economic situation in the United States should be critical, when Chairman Bernanke calls for the fiscal stimulus package to become immediately effective. A concentric work might be the best solutions to take the economy back on track with stocks tumbling to new lows, housing in a steep decline and consumers prudent over the future. The Federal Reserve will do its job by cutting rates aggressively in the first part of 2008. At the end of January, a rate cut by 50/25 basis points seems to be a possible move, but time may be required to get things going again.
In effect, December housing starts slumped again by 14.2% to 1.006 million units annualized (1.150 expected). The decline was conspicuous, but in line with the actual downtrend in the housing market. Investors are on the sideline hoping for lower prices, while some families are finding more difficult to sustain a mortgage. The fall was broad based, probably exacerbated by the seasonal winter slowdown. It covered single and multiple components, from the Northeast to the Midwest. The future appears uncertain at best with inventories at such plethoric level and a recovery is not around the corner. A period of stagnation could instead be the first step toward stability.
Inflation could moderate over the short term
Spending might softened in the first part of 2008, as retail sales declined 0.4% (+0.2% expected) in December compared to November's increase of 1%. Excluding the volatile energy components, sales were up 0.2% on the top of November's gains. Industrial production, on the other hand, was unchanged in December (-0.2% expected) and rose only 1% in the fourth quarter of 2007. Capacity utilization slid a bit to 81.4% month over month from November's 81.6%.
The decline in industrial production confirms the slowdown of the economy, but capital spending is again increasing, although at a lower pace compared to the third quarter of 2007. In addition, the preliminary consumer sentiment index reported by the University of Michigan provided some relief by increasing to 80.5 (75.2 expected) in January from December's 75.50. In was the first move up since July and it follows last week improvement in jobless claims.
The fall of energy prices from recent highs has softened inflation numbers during the last month of 2007. In December, the Producer Price Index (PPI) declined 0.1% versus November's increase of 3.2%. The yearly rate is nevertheless strong at 6.3%, but below the 7.2% registered the previous month. Core prices were up 0.2% month over month and 2.0% year over year. The slowdown of inflation might only represent a brief pause before a new explosion of commodity prices would take place. Nonetheless, the short term correction could continue for some more time, if crude oil confirms recent declines.
In Europe, diverging opinions weight on the currency
If the United States wants to take the growth process back on track in the shortest period of time, European decisions will depend on how the economy will behave to the possible slowdown on the other side of the Atlantic. Opinions are many among ECB officials and sometimes diverging at the extreme. On one side, President Trichet confirmed that inflation stays a priority. On the other, ECB council member Mr. Mersch underlined the downside risk of the economy. In effect, the European inflation stayed at 3.1%, well above ECB's target of 2.0%, in December 2007. Since then, crude oil prices have retraced from the stellar levels reached in 2007 and the decline might continue, considering the actual cyclical and technical patterns. What will happen if energy prices will further soften from recent highs and the growth process contracts more than has been previously forecasted? The European Central Bank (ECB) will be pressed to cut rates like it did back in 2001.
It is a fact that the European economy have started the year on a positive. In 2007, the Gross Domestic Product moved up 2.5% in Germany versus 2006's growth of 2.9%. Results were in line with market expectations and confirmed a dynamic, albeit softening, economy. A good starting point, but not a guarantee that the future will be as brilliant as it has been in the past. Last week fall of the European currency, after only few comments on growth by ECB officials, demonstrates that investors do not believe Europe will be immune to an eventual hard landing of the economy in the United States. At the contrary, a slowdown will effect the European consumers and might undermine growth this year. In January, as an example, the ZEW economic sentiment indicator for Germany fell to -41.6 (-40 expected) points from December's -37.2 points. It was the lowest level of the past fifteen years.
Euro/Usd: double top forming?
EUR/USD is facing though resistance at 1.49/1.50. It is at the conjunction of various long term trendlines and the higher Bollinger band and should be overcome with decision for higher prices. A double top formation is in construction. If confirmed, it could inspire a deeper move to 1.44, 1.42, eventually 1.38. The long term trend is still pointing upward for European currency against the U.S. dollar and should support the currency over time. However, a swing above 1.5140 is necessary to clear the congestion of two months and take the European currency into new historical highs.
GBP/USD has briefly tested the important resistance line at 1.97/1.98, before resuming its short/medium term downtrend. The next target could be 1.9450, 1.9350 eventually 1.92. Only a move above 1.9855 would take Gbp/Usd to 1.9950/2.00.
USD/JPY hit the important support level at 105.70/40. A decline under 105.10 is now necessary for 104.50, 104.00. A breakout failure could instead take the U.S. dollar into higher levels, considering the large divergence between the Rsi indicator and the pattern on the daily and weekly charts. A move above 109.90 is nevertheless requested for 110.20, 111.50, eventually 113.40.
Despite the fact that we really believe that the USDJPY will rebound from here in the very short term (from 106 to maybe 110), we found necessary to remind our readers about the long term view in this pair.
In fact nothing has really changed since our last piece on this subject. In mid July of 2007 started the most bearish sequence of technical events:
The re-entry inside the triangle, near 120.
The pair's RSI crossed its long term trend line (red-dotted line).
In August we saw the crossing of the long term 20 Single moving average and a very important trend line that held since the middle of 2004.
In August we saw also the RSI crossing the 50 level.
In October, we saw a test of the moving average crossing from below.
After a test of the greater triangle boundary, near 111-112, the pair broke it.
Why do we think that 105 is the first major target and 100 the medium term one? Because there are support areas that have proven themselves well in the past in these vicinities. 100 is also the lower boundary of the smaller triangle.
The other major reason for our belief is what you can see in the RSI part of the chart. Look how the rebounds, at the lower boundary of the triangle, occur in second rebound of the RSI and not at the first one. In 1 orange, the second rebound came while breaking the descending trend line. In 2 orange, it occurred at the test of the break of the trend line.
In our current situation, the first rebound of the RSI has not yet appeared. The descending trend line has not yet been broken up and there is no sign for a meaningful relief in the downdraft of the USD versus the YEN.
Please take care when you trade this pair because it is the mother of all the Carry-trade oriented pairs. The amount of fear that will be generated by the bear markets all over the assets span, will cause waterfall effect here and subsequent short covering rallies.
Eur/usd
EUR continues to show a bounce and hold off the retrace resistance of the latest daily AB Upswing from A = 1.4117 B = 1.4959 with a C = 1.4257/.786 inside a larger timeframe buy zone and it looks like we will probably begin a very interesting yet choppy consolidation trading range due to the huge pullback seen after the currency completed the beautiful bear crown reaching a D extension at 1.4310 and fundamentally boosted by the interest rate cut by the Federal Reserve bank. You can see why we advised to close positions from the shorts taken earlier, as the market may now probably work on the construction of a new down wave. Our focus for now will give preference to stand aside at least during the initial hours of the upcoming session.
Gbp/usd
GBP shows a huge pullback after completing the down wave we appointed in our previous analysis from A = 1.9831 B = 1.9476 creating a retrace at the 1.9770/.786 and completing the down wave and scoring a point at its D 1.27 extension 1.9382, mostly caused by the normal retrace after the maket arrives to a D extension and by the emergency Interest rate cut seen by the Federal Reseve bank today. The daily timeframe continues to move below a downtrend line that holds as resistance for the recently formed sell zone environment, inside an AB Downswing A = 2.0579 B = 1.9734, with the market being able to take out the strong support S4 located at the A low 1.9650 You can obviously see why we called to close any short positions opened as the market is working on a new AB Downswing A = 1.9789 B = 1.9344. The conservative focus will look for bear patterns to resume selling the GBP, however if this setup fails then aggressive traders will try to get into quick scalp long positions.
Usd/chf 23.01.2008
After the bounce and hold from the B low and support from the latest daily AB Downswing from A = 1.1785 B = 1.0882 with a C = 1.1592/.786, CHF now presents a trendless environment as the currency breaks both the latest down and uptrend lines, creating mixed up signals in the form of potential bull and bear crowns. This means that after A = 1.0839 B = 1.1086 we will probably get an AB Downswing in the upcoming hours of the next session, bringing more confussion to the CHF's environment. This is why our focus for now will give preference to stand aside from the market awaiting for a more clear signal.
Usdjpy
JPY successfully completes the daily AB Downswing from A = 115.93 B = 107.23 with a C = 114.71/.86 reaching a D 1.18 extension at 105.80, following the mentioned beautiful bounce off the resistance downtrend line. The yen is therefore trying to slow down the pace of its recent move and it is now looking to work on what may be the decision of whether to keep the bear environment or to create a complex retrace and therefore a new major daily AB Upswing at A = 114.71 B = 105.81. This is why the smaller timeframe presents several up-down moves that reflect indecision and that will make us stand aside at least during the initial hours of the upcoming session.