Daily Report: Consolidations Continue, Euro Supported by Trichet Speculations

Forex pairs are generally engaging in consolidations as markets digest recent moves. DOW closed below 10,000 psychological level at 9908 for the first time in three months but was kept above last week's low of 9835. Asian stocks are mixed which gold and crude oil are still in corrective recovery. There were talk in markets that ECB Trichet will leave central bank meetings in Australia a day earlier in order to attend ECB council meeting. That triggered some speculations that some policy measures directed to fiscal situations in Eurozone countries including Greece, Portugal and Spain would be discussed in the council meeting. Such speculations provided some support to Euro.

The common currency has been under much pressure recently on concern of Greece's ability to fund it's budget deficit and contagion spreadover to other countries. Portugal and Spain have been put into spotlight in the market recently. EUR/CAD dived to as low as 1.4582 last week, just inch above 61.8% projection of 1.7499 to 1.5183 from 1.6006 at 1.4575 and turned sideway. But after all, outlook remains bearish with 1.5030 resistance intact and we'd expect more downside in the Euro against Canadian dollar going forward.

At this moment, dollar index is still holding firm above 80 level but upside momentum is clearly diminishing with 4 hours MACD crossed below signal line. An intraday top is in place at 80.68 and bias is turned neutral. Some more consolidations are likely and a dip below 80 would probably be seen as correction goes. But downside should be contained above 78.68 support and bring rally resumption.

On the data front, UK BRC retail sales monitor dropped -0.7% in January. RICS house price balance unexpectedly improved to 32% in January. German trade surplus is expected to narrow to EUR 15b in December. CPI is expected to be finalized at -0.6% mom, 0.8% yoy in January. UK trade deficit is expected to narrow to GBP -6.7b in December. US wholesale inventories is expected to rise 0.5% in December.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.3609; (P) 1.3661; (R1) 1.3700; More.

EUR/USD's consolidation from 1.3585 is still in progress and further recovery cannot be ruled out. But still, upside is expected to be limited by 1.3852 support turned resistance and bring fall resumption. Below 1.3585 should target 61.8% retracement of 1.2329 to 1.5143 at 1.3404 first. Break will target 161.8% projection of 1.5143 to 1.4217 from 1.4578 at 1.3076 next.

In the bigger picture, three wave rise from 1.2329 is treated as consolidation to fall from 1.6039 only and should have completed at 1.5143 already. Fall from 1.5143 is tentatively treated as resumption of the whole down trend form 1.6039 and should target a new low below 1.2329. Break of 1.4217 resistance is needed to be the first signal of medium term bottoming. Otherwise, outlook will remain bearish even in case of strong rebound.

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