Forex Mid-Day Technical Report

Dollar in Tight Range, Sterling Softer

Dollar remains in tight range against Euro in early US session. Bernanke is having his second part of semi-annual testimony today. The prepared speech is identical to that given yesterday. The main difference, if there's any, will be in the Q&A session but generally speaking, the messages will likely be the same too. FOMC minutes will be released but are unlikely to reveal much that has not already been discussed. Thus, reactions to these event will likely be muted.

Sterling heads lower today after the release of UK retail sales data which showed growth slowed more than expected in Jun. Growth in retail sales dropped form 0.4% mom to 0.2% mom, dragging yoy rate from 3.9% to 3.4%, which is a touch lower than consensus of 3.5%. BoE Governor Mervyn King is also quoted today saying that inflation is "is likely to drop further but we will have to wait and see," and "we have to look through the short- term volatility caused by gas and electricity prices." After all, the retreat in GBP/USD is mild so far and traders could hold their bets before tomorrow's more important Q2 GDP report.

Canadian dollar is lifted after wholesalers reported a modest increase of 0.6% in sales in May, partially offsetting the steep decline of -3.0% in sales in April. but no follow through buying is noted as USD/CAD continues to trade in tight range.

EUR/USD

Daily Pivots: (S1) 1.3758; (P) 1.3795; (R1) 1.3838; More

EUR/USD continues to recover today but after all it's still limited by 1.3833 high. As discussed before, with 4 hours MACD staying below signal line, bearish divergence condition in 4 hours RSI and the touching of 1.3822 fibo resistance (100% projection of 1.1639 to 1.2978 from 1.2483), 1.3833 is still likely the short term top. Further decline is still expected as long as 1.3833 high remains intact. Break of 1.3757 support again will confirm that a short term top is formed and further decline should be see to 4 hours 55 EMA (now at 1.3741). Break will encourage deeper decline towards 1.3567 support. On the upside, sustained break of 1.3833 is needed to confirm recent rally has resumed. Otherwise, short term outlook remains neutral with risk of another fall.

In the bigger picture, the current development is dampening the original view that rise from 1.3262 is the last advance in a five wave structure that started at 1.2483. Firstly, the current momentum of the rise from 1.3262 is seen stronger than the prior rally from 1.2865 to 1.3681. Secondly, the falling trend line in both daily MACD and RSI were broken, negating the bearish divergence conditions. In other words, the underlying bullishness in EUR/USD could be much stronger than we originally thought.

Focus remains on 1.3822 resistance. Sustained trading above this level will add much weight to the case that whole medium term rally from 1.1639 is indeed resumption of multi-year up trend from 0.8223 (00 low). That is, further rise should be seen in medium term towards 95 high of 1.4523 with much chance to extend further to 61.8% projection of 0.8223 to 1.3668 from 1.1639 at 1.5004.

On the downside, focus will be on 1.3481 cluster support (61.8% retracement of 1.3262 to 1.3833 at 1.3480). As long as this support holds, the fall from 1.3833 will still be treated as correction to rally from 1.3262 only and another rise is still in favor after completion. However, break will put 1.3262 low into focus. And break will indicate that medium term rally from 1.1639 has likely completed after being limited by 1.3822 resistance as originally expected.

GBP/USD

Daily Pivots: (S1) 2.0474; (P) 2.0511; (R1) 2.0563; More

Cable continues to trade sideway below 2.0547 high today. 4 hours MACD crosses below signal and RSI retreats from overbought region, suggesting that a short term top is in place. But still, break of 2.0456 is needed to confirm. Otherwise, further rise is still in favor to 100% projection of 1.9183 to 2.0132 from 1.9621 at 2.0570. But upside could be limited there initially. On the downside, 2.0456 will encourage deeper pull back for a retest of inner rising trend line (now at 2.0273).

In the bigger picture, the sustained break of 2.0207 projection target confirms underlying upside momentum is still strong. Also, it added much credence to the case that whole up trend from 1.7047 is resumption of multi-year up trend from 1.3680. In such case, further rally should then be seen to 61.8% projection of 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05 low) at 2.0677 first. Sustained trading above this level will encourage further rise to 100% projection at 2.3321.

Meanwhile, even in case of a short term correction, consolidation should be relatively brief as long as 2.0056 support holds and rally should resumes sooner after later after completion. But a break below 2.0056 will indicates a medium term top is possibly formed and bring deeper decline to medium term rising trend line (now at 1.9803).

USD/CHF

Daily Pivots: (S1) 1.1962; (P) 1.2005; (R1) 1.2051; More.

USD/CHF continues to be bounded in tight range today. Nevertheless, bullish convergence condition in 4 hours MACD and RSI indicates that a short term bottom could be in place at 1.1960. At this point, intraday bias is still on the upside and further recovery should be seen to 4 hours 55 EMA (now at 1.2055) and above. On the downside, firm break of 1.1960 is needed to confirm recent fall from 1.2467 has resumed for 1.1878 (06 low).

In the bigger picture, USD/CHF has likely completed a medium term triangle consolidation already, which started at 1.1919 with five waves to 1.2467. Firm break of 1.1993 will confirm this case. 1.1878 (06 low) will be the initial target. And since, in such case, fall from 1.2467 is viewed as resumption of medium term down trend from 1.3283, further weakness should be seen to 100% projection of 1.3283 to 1.1919 from 1.2768 at 1.1404, with much chance to extend to retest 1.1288 (04 low).

On the upside, break of 1.2232 resistance will mess up the short term picture a little bit. In such case, chance is swung to the case that the triangle consolidation indeed started at 1.1878. In other words, the overall outlook didn't change and just that another rally should be seen before completion. Hence, even in such case, upside should be limited below 1.2467 high and bring another medium term decline.

USD/JPY

Daily Pivots: (S1) 121.56; (P) 121.95; (R1) 122.32; More

USD/JPY continues to gyrate inside established range of 121.54 and 122.60 today. As discussed before, further rise is still mildly in favor as long as 121.54 support holds. Break of 122.60 resistance will indicates the rally from 120.96 has resumed. In other words, this will also add much weight that correction from 124.13 has completed at 120.96. Further rise should then be seen to 123.66 resistance. Break will bring retest of 124.13 high.

On the downside, below 121.54 will turn short term outlook mixed again. In such case, correction from 124.13 could still be in progress for another test of 120.76 cluster support (38.2% retracement of 115.13 to 124.13 at 120.70) before completion.

In the bigger picture, rise from 115.13 has made a top at 124.13 and turned into consolidation since then. But still, rally from 108.99, which is treated as resumption of whole up trend from 101.66, is still in progress. Even in case of a deeper correction, downside is expected to be contained by 118.35/57 cluster support zone (38.2% retracement of 108.99 to 124.13 at 118.35 and 61.8% retracement of 115.13 to 124.13 at 118.57) and bring rally resumption. Next medium term upside target will be resistance zone of 100% projection of 101.65 to 121.38 from 108.99 at 128.72 and 100% projection of 108.99 to 122.17 from 115.13 at 128.31. However, break of 118.35/57 cluster support argue that rise from 108.99 has possibly completed and put 115.13 low into focus.

EUR/JPY

Daily Pivots: (S1) 168.01; (P) 168.30; (R1) 168.60; More

EUR/JPY's raise from 167.71 resumes in today and at this point, further rally is expected to follow to retest 168.93 high. Break will confirm that recent rally from 164.23 has resumed for next upside target of 100% projection of 161.49 to 166.94 from 164.23 at 169.68. However, a break below 168.09 support a short term top is likely in place at 168.93, possibly with bearish divergence conditions in 4 hours MACD and RSI. In such case, deeper decline should be see to166.49 support first.

In the bigger picture, whole medium term rally from 130.60 is still in progress and the interpretation remains unchanged. First wave up ended at 143.60, subsequent correction ended at 137.167. The third wave up ended at 159.63 while fourth wave correction has ended at 150.75. Rise from there represents the final advance in this structure. With 61.8% projection of 137.16 to 159.63 from 150.75 at 164.64 taken out decisively, next medium term upside target will be 100% projection of 137.16 to 159.63 from 150.75 at 173.22.

However, break of the short term rising trend line support (now at 165.22) will dampen this view and indicate that the rise from 150.75 has possibly completed earlier then we thought.In such case, deeper decline should be seen to test 161.49 low first.

Forex News Digest

Dollar Trades Near Record Low Against Euro Before U.S. Economic Reports

China May Revalue Yuan by 3.5 Percent, Societe Generale's Maguire Says

Canada's Dollar Approaches 30-Year High After Wholesale Sales Increase

Bernanke Prepares Ground for Longest Interest-Rate Freeze in Two Decades

Euro Gains May Stall at $1.3850 on Barrier Options, Mitsubishi-UFJ Says

U.K. Pound Declines Versus Dollar on Slower Retail Sales, Mortgage Loans

Gold May Advance in London as Dollar Trades Near Record Low; Silver Gains
Thu, 19 Jul 2007 11:35:00 GMT from Bloomberg

Euro trades near record dollar high after Bernanke warning
Thu, 19 Jul 2007 11:34:00 GMT from Turkish Press

FOREX-Dollar slips slightly as US subprime woes linger
Thu, 19 Jul 2007 11:12:00 GMT from Reuters UK

Dollar Nears Record Lows Vs. Euro, Pound
Thu, 19 Jul 2007 10:52:00 GMT from AP via MSN Money

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