Forex Mid-Day Technical Report

Markets Stay in Tight Range

With an empty economic calendar in Europe and US, markets continue to stay in tight range. Though dollar remains weak as subprime mortgage still weighs. The more noticeable movements is indeed Swiss Franc's weakness in crosses. Return carry trade could be one of the reasons to the current weakness in Swissy, but believe that the main cause is recent fading of speculations of an aggressive 50bps hike from SNB in Sep. Traders will look into reactions to Friday's KOF leading indicator for hints on how markets are positioning themselves before next SNB meeting.

Elsewhere, both USD/JPY and EUR/JPY were supported by near term cluster support levels and recovers mildly as the day goes. Dollar is mixed in tight range. More sideway trading is likely, probably until Wed's Existing Home sales. Meanwhile, USD/CAD is still soft as traders are looking forward to solid retail sales data from Canada tomorrow.

EUR/USD

Daily Pivots: (S1) 1.3789; (P) 1.3816; (R1) 1.3852; More

Despite edging to new record high of 1.3843 earlier today, EUR/USD is not able to take out mentioned 1.3822 projection level decisively yet and retreats back to established range. As discussed before, further rally is still in favor as long as 1.3778 support holds. However, we'd like to emphasize that a short term top should be around the corner with overbought condition in both daily and weekly RSI, as well as mild bearish divergence condition in 4 hours MACD and RSI. Break of 1.3778 support, will indicate confirm a short term top is formed and encourage pull back to 4 hours 55 EMA (now at 1.3764) and then support zone of 1.3567 to 1.3658.

In the bigger picture, the current development dampened 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,as long as 1.3481 support holds, any pull back will still be treated as correction to rally from 1.3262 only and another rise is still in expected 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) 2.0498; (P) 2.0542; (R1) 2.0605; More

Cable remains firm and extends rally to as high as 2.0602 earlier today. Further rally is still in favor as long as 2.0481 support holds. Next will be medium term target of 61.8% projection of 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05 low) at 2.0677. However, a short term top could be around the corner with overbought condition being displayed in both daily and weekly RSI. Upside of the current rally could be limited between 2.0570 and 2.0677. Below 2.0481 support will indicate that a short term top is likely formed and bring pull back to inner rising trend line (now at 2.0325) or lower.

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 2.0677 will target 2.1 psychological resistance.

On the downside, in case of a pull back, downside should be contained by support zone between 2.0056 and 2.0206 and bring another rally. Break of 2.0056 will suggest that lengthier consolidation will come first with the prospect of another test the medium term rising trend line (now at 1.9807) But medium term outlook will be neutral at worst at long as 1.9621 support remains intact.

USD/CHF

Daily Pivots: (S1) 1.1970; (P) 1.2017; (R1) 1.2054; More.

USD/CHF's rebound today indicates that consolidation from 1.1960 is still in progress. Intraday bias is flipped to the upside and further rebound could be seen towards 61.8% retracement of 1.2232 to 1.1960 at 1.2128. On the downside, below 1.1982 will turn intraday bias back to the downside for retest of 1.1960 low. But still, since a short term bottom is possibly in place at 1.1960 with bullish convergence conditions in 4 hours MACD and RSI, firm break of 1.1960 is needed to confirm fall from 1.2467 has resumed. Otherwise, consolidation could still extend further.

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) 120.62; (P) 121.52; (R1) 122.19; More

USD/JPY's fall is so far contained at 120.77, supported by mentioned 120.76 cluster support (38.2% retracement of 115.13 to 124.13 at 120.70) and recovers mildly again. But still, further decline is in favor as long as 122.40 resistance holds even in case of recovery. On the upside, a strong rebound to above 122.40 is needed to indicate correction from 124.13 has completed. In such case, retest of 123.66 should be seen and break will suggest that recent rally from 108.99 has resumed.

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 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) 166.96; (P) 167.91; (R1) 168.63; More

Despite edging lower to 167.07 earlier today, EUR/JPY is still supported by mentioned 167.13/17 (23.6% retracement of 161.49 to 168.93 at 167.17 and 38.2% retracement of 164.23 to 168.93 at 167.13) and recovers mildly today. As discussed before, prior break of inner rising trend line indicates that a short term top should be in place at 168.93 on bearish divergence condition in 4 hours MACD and RSI. So further fall as long as EUR/JPY stays below 168.86 resistance. Break of 167.13/17 will encourage a retest of short term rising trend line (now at 166.09).

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 166.09) will dampen this view and indicate that the rise from 150.75 has possibly completed earlier then we thought, with bearish divergence condition in daily MACD and RSI. Medium term trend line support (now at 155.67) will then be put into focus.

Forex News Digest

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U.K. Pound Rises to Highest Since May 1981 on Rate Differential With U.S.

Swiss Franc Declines Versus Euro, Dollar as Investors Resume Carry Trades

Australian Dollar Set for Record Winning Streak as Commodities Prices Rise

New Zealand Dollar Advances Above 80 U.S. Cents on Rate Rise Speculation

Euro strikes another record dollar high
Mon, 23 Jul 2007 11:32:00 GMT from Yahoo! Singapore

UPDATE 3-Dollar losses keep gold near 10-week high
Mon, 23 Jul 2007 11:02:00 GMT from Reuters UK

REFILE-FOREX-Dollar hits new low vs euro but recovers in Europe
Mon, 23 Jul 2007 11:01:00 GMT from Reuters UK

Dollar Rebounds Against Euro, Yen as Technical Chart Shows Gains Too Fast
Mon, 23 Jul 2007 10:50:00 GMT from Bloomberg

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