Mid-Day Report: Euro Gets No Support from Trichet

ECB left rates unchanged at 4.25% as widely expected. Trichet continued to sound hawkish in the following press conference, emphasizing the upside risks to inflation and ECB's sole mandate of maintain price stability. Trichet expects inflation to remains far above target for protracted period of time. Also, Trichet played down recent weakness in Q2 GDP by saying that it's just a 'technical correction' after exceptionally strong growth in Q1.

However, it's believed that EUR/USD's weakness as the press conference goes is due to the mentioning of "substantial decline in annual M1 growth" which is seen as an important obstacle to further rate hike from ECB. Trichet once again said that ECB has no bias regarding monetary policy for the moment.

Technically speaking, EUR/USD's recovery was limited below 1.5518 minor resistance and thus giving no indication of an intraday low yet. More downside is still expected. EUR/JPY's sharp fall argues that the cross is still bounded in consolidation that started at 169.96 and more choppy trading will likely be seen.

BoE left rates unchanged at 5.00% as widely expected. Focus will turn to inflation report to be published on Aug 13 and minutes to be published on Aug 20.

On the data front, US jobless claims jumped again to 455k. Canadian building permits dropped much more than expected by -5.3% in Jun. Germany trade surplus widened more than expected to 19.7b in Jun on strong export growth at 4.2% mom. Germany industrial production climbed 0.2% mom, 1.7% yoy in Jun. UK Halifax house priced dropped -8.8% yoy in Jul, -1.7% mom. Japan Machine orders dropped -2.6% mom in Jun, rose 9.7% yoy. Aussie and Kiwi recovers earlier today after after stronger than expected job report. New Zealand job markets grew 1.2% qoq, 0.7% yoy in Q2, beating expectation of 0.2% qoq, -0.6% yoy. Though, unemployment rate rose more than expected to 3.9%. Australian job market added 10.9% job in Jul, above expectation of 5.0k. Nevertheless, prior month's growth was revised down from 29.8k to 22.k. Unemployment rate was unchanged at 4.3% after upward revision in Jun. However, the support was brief and mild only.

Quick Update: Dollar lifted further by unexpected rise in pending home sales by 5.3% in Jun.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.5366; (P) 1.5440; (R1) 1.5483; More

EUR/USD's recovery from 1.5398 was limited below mentioned 1.5518 minor resistance and fall resumes in early US session by taking out this low. At this point, intraday bias remains on the downside and further decline is still expected to 1.5284/5302 support zone. Above 1.5518 will turn intraday outlook neutral first. Also, considering mild bullish convergence conditions in 4 hours MACD, this could also signal that a short term bottom is in place and bring stronger rebound. But upside should be by 1.5700 resistance and bring fall resumption.

In the bigger picture, 1.6 proves to be an important barrier for the EUR/USD. Current development argues that EUR/USD is either a) still unfolding the sideway consolidation that started at 1.6019; OR, b) developing a double top (1.6019, 1.6038, neckline at 1.5284). Favor is mildly on the latter case considering bearish divergence condition in weekly RSI. Break of the medium term trend line support which EUR/USD adds even more credence to the case that a medium term top is in place. Sustained break of 1.5284 will confirm the double top formation and encourage deeper fall to 1.4309/4966 support zone.

However, strong rebound from 1.5284, followed by break of 1.5700 resistance, will provide the argument for the former case, i.e. sideway consolidation. Though, deceive break of 1.6000/38 resistance zone is still needed to confirm short term bullishness. Otherwise, more choppy trading could still be seen before resuming the up trend.

Forex News Digest

• ECB Keeps Rates Unchanged at 4.25% as Expected
• Bank of England Holds Bank Rate Unchanged at 5.00%
• European Market Recap: European Bonds Mixed, Equities Higher Ahead of BOE, ECB
• UK HBOS House Prices Drop 8.8% on a Yearly Basis in July
• German External Trade Surplus Jumps to €19.7 Billion in June
• Japanese Core Machine Orders Maintain Uptrend in June
• Australian unemployment rate remains steady at 4.3% in July 2008
• Australian Dollar Falls as Commodities Slide; New Zealand Dollar Drops
• Highest Unsold Home Supply Since '82 Needs 50% Reduction to Signal Rebound
• Pound Falls Against Euro as Bank of England Keeps Main Rate on Hold at 5%
• Euro May Weaken to $1.5224 on Technical Charts in Two Weeks, Forecast Says
• ECB Leaves Benchmark Rate at Seven-Year High of 4.25% to Fight Inflation

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