Asia Quiet Following Strong Dollar Losses

European Morning Update

Releases from Australia:

The only release this morning provided no additional impetus following yesterday's solid gains in the Aussie. However, the decline in construction work is yet another sign to indicate that the peak of the economy has been seen and should continue over the year.

However, the outlook for the Aussie remains tightly linked to the market's current pessimism over the U.S. economy and also benefits from the high level of interest rates. Still, a move above the 0.9399 high is needed to extend gains to any meaningful extent.

The following economic releases are due today:

Q4

U.K. GDP (QoQ) +0.6%
U.K. GDP (YoY) +2.9%

January

German Import Price Index (MoM) +0.3%
German Import Price Index (YoY) +4.7%
Euro-zone M3 Money Supply (3MoY) 11.8%
Euro-zone M3 Money Supply (YoY) 11.3%
U.S. Durable Goods Orders - 4.0%
U.S. Durable Goods Orders ex transp - 1.3%
U.S. New Home Sales (MoM) - 0.7%
U.S. New Home Sales 600K

February

Italian Retailers' Confidence General
Italian Services Survey

March

German GfK Consumer Confidence 4.40

Bernanke is due to report on the economy and Fed policy

I have clearly held on to my Dollar bullish stance too stubbornly and yesterday it was laid to rest with great frustration. I will not abandon the belief that this year will see the Dollar recover but now does not appear to be the right time to retain that level of stubbornness.

Having said that, there are some indications to suggest that we could see a pullback following yesterday's sharp decline. I am also having to re-assess the long term wave counts and the implications of this break lower.

One currency pair that has worked reasonably well over the course of the past 2 months is the Pound and while it did not see losses maintained, cycles are still bearish and unless we see a clean break above 2.0006 the pattern does still seem to suggest a long flat correction from the original 1.9335 low. If that is correct then we don't seem to have much upside left.

While the Pound did run its own course early on it has tended to follow with the Euro over the past 2-3 weeks and if this correlation continues we may just need to be cautious for the Euro when the Pound reaches the recent 1.9957 high.

As I said, while I see the risk of a correction to the Dollar's weakness I also see a couple of measurements that indicate the 1.5210-20 area as resistance in the Euro while the Swissie has support around 1.0520-30. Obviously this is for a later day but it does mean we should bear these levels in mind. One small concern I have is that the daily FXS-RSI doesn't seem close to making a bearish divergence in the Euro and thus, unless we see one develop by 1.5210-20 we may need still to be careful.

One word on Dollar-Yen - it is still trading in a range and only below 106.33 would break the sequence of higher lows. Until then we must still accept the risk of another rally. A break of 106.33 would look pretty bearish for 103.44 at least and possibly lower.

Note important support and resistance areas:

Ian Copsey
Global Forex Trading
http://www.gftforex.com

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