Forex Daily Technical Report

Sterling Lifted Mildly by Stronger than Expected Q2 GDP

Sterling is lifted mildly after stronger than expected Q2 GDP report which shows 0.8% qoq, 3.0% yoy growth, comparing to expectation of 0.7% qoq, 2.9%yoy. Also released in European session, Swiss combined PPI remain unchanged at 2.8% yoy rate in Jun, which is below expectation of 3.0%. More importantly, the mom rate dropped sharply from 0.9% to 0.0%. But after all, markets remains pretty quite today. Technically speaking, we maintain our view that a short term bottom is likely in place for the dollar already. Further rebound will likely be seen in the coming days. But there is no clear sign of medium term bottom yet.

The FOMC minutes released overnight basically echoed the themes in Bernanke's testimony. Even though the downside risk to the economy is a bit diminished, the members are deeply concerned about housing and the potential for spillover. Also, they sound less confident on consumer spending. On inflation, they acknowledged recent improvements in key pricing metrics but are still concerned that moderation is not convincing enough to alter the balance of risk yet. Also, the rise in headline inflation is perceived to be a threat to inflation expectations. Generally speaking, there isn't much happenings that change the Fed's stance yet and FOMC will like remain sideline for some considerable period of time.

EUR/USD

Daily Pivots: (S1) 1.3762; (P) 1.3783; (R1) 1.3807; More

EUR/USD failed to take out 1.3833 and retreats again today. Outlook remains unchanged. With 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 towards support zone between 1.3567 and 1.3658. 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) 2.0426; (P) 2.0456; (R1) 2.0498; More

Cable continues to trade sideway below 2.0547 high. As discussed before, 4 hours MACD crossed below signal and RSI retreated 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, below 2.0456 will encourage deeper pull back for a retest of inner rising trend line (now at 2.0287).

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) 1.1957; (P) 1.1995; (R1) 1.2023; More.

USD/CHF's recovery from 1.1960 resumes today and is now pressing 4 hours 55 EMA as well as inner falling trend line. As discussed before, 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 still be seen, probably to 61.8% retracement of 1.2232 to 1.1960 at 1.2128.

On the downside, below 1.1987 will turn intraday bias back to the downside for retest of 1.1869 low. But 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 1.1960 low again 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) 121.54; (P) 121.77; (R1) 121.97; More

USD/JPY's break of the inner falling trendline indicates that consolidation from 122.60 has possibly resumed. Further rally should be seen to retest this resistance and break will confirm that rise 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, even though further consolidation cannot be ruled out, below 121.54 is needed to suggest 124.13is in progress for another test of 120.76 cluster support (38.2% retracement of 115.13 to 124.13 at 120.70) before completion. Otherwise, further rise is still in favor.

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) 167.71; (P) 168.06; (R1) 168.43; More

EUR/JPY's raise from 167.71 continues today and at this point, further rally is still 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

Yen Trades Near Record Low Against Euro as Rising Stocks Spur Risky Bets

Standard Chartered Raises Yuan Forecast, Sees 7 Per Dollar by End of 2008

Bernanke Breaks With Greenspan, Emphasizes Forecasts, Consumer Protection

U.K. Pound Set for Sixth Weekly Gain on Outlook for BOE, Fed Interest Rate

U.K. Economic Growth Probably Matched Pace in Second Quarter on Services

Australian Dollar Trades Near 18-Year High on Investor Appetite for Yield

Dollar higher at noon, nears US90c
Fri, 20 Jul 2007 04:35:00 GMT from Brisbane Courier-Mail

FOREX-Dollar slides, stays near record low vs euro
Fri, 20 Jul 2007 04:26:00 GMT from Reuters

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