Forex News and Events:
The dollar rose in late European trading yesterday as Fed Chairman Bernanke and U.S Treasury secretary Paulson testified in front of a senate panel. They came under harsh criticism as the Fed’s decision to buy $700Bn worth of “toxic” assets from ailing U.S and foreign banks was explained, defended and scrutinized.
The specifics of the testimony were already on the newswires but one important revelation to come out of yesterday’s session was that Mr. Bernanke demanded the FED buy these illiquid assets at “hold to maturity” values. This was a stark contrast to“fire-sale” prices that most would expect. Bernanke defended his comments by saying that the shock of the low values would hurt already-jittery investor confidence. Risk aversion remains a major concern in the markets given the approximately 1.5% percent declines in the DJIA and S&P 500, the robust demand for treasuries and the jump on the CBOE’s VIX Volatility. Yesterday’s rise in the dollar has been labeled a purely technical retracement rather than a true rally as the majors failed to confirm any significant directional moves.
The Euro declined during the day on Tuesday, closing down at 1.4636 from Monday’s three-week high of 1.4867 – a 1.14% move in the dollar’s favor. The GBPUSD traded range bound in Tuesday’s session. The Sterling cross was bound between 1.8485 – 1.8636, consolidating and up 3% from last week’s 1.7915 lows. The US Dollar recovered significantly yesterday against the Japanese Yen from Tuesday's bottom 105.16 to today's top 106.31, which are the first support and resistance levels respectively for the currency pair today. USDCHF has by far been the most volatile of the majors, rising to 1.0857 from the 1.0726 opening, then retracing to 1.076 before reaching the day high of 1.0887.
EURUSD 10 year chart shows that we tested the trend line commencing in 2002, coinciding with the 23.60% Fibonacci retracement on the same trend. A break of this trend support line will see the dollar head below the 1.39 levels as 7 years of dollar weakness would end in 5 wave structure. Continued trend would have EURUSD move towards 1.60 levels and above.
Today's Key Issues (time in GMT):
14:00 USD Exisiting Home Sales
22:45 NZD Account Deficit-GDP Ratio
23:50 JPY Merchendise Trade Balance Total
23:50 JPY Adjusted Merchendise Trade Balance
The Risk Today:
EurUsd An intraday top in place at 1.4865 with 4 hours MACD crossed below signal line. Rise from 1.3880 is treated as correction to decline from 1.6040 only and has already met initial target of 1.4630 and 1.4910 resistance zone. Break of 1.4540 will be the first sign that such rebound has completed. Further break of 1.4150 support will confirm this case and revive retest of 1.3880 low and key medium term support at 1.3850. On the upside, however, sustained break of 1.4910 resistance will dampen this view and bring stronger rally towards 1.5285 resistance.
GbpUsd recovers mildly from 105.15 but the overall daily outlook is mixed. The corrective structure of the fall from 110.65 to 103.55 argues that this move is merely a correction in the medium term rebound from 95.75. However, the three wave structure of the rise from 103.55 to 108.00 also argues that it's merely a correction to the fall from 110.65. A break of the range of 103.55 and 108.00 is needed to clear up the picture. Short term outlook in USD/JPY remains mixed with the pair still trading inside established range and failed to take out either 108.00 resistance and 103.75 support decisively.
UsdJpy Cable remains bounded in tight range below 1.8640 today and intraday outlook is turned neutral with 4 hours MACD crossed below signal line. Considering that rebound from 1.7445 has met upside target of 1.8512/8794 resistance zone already. A rebound from 1.7445 might be near completion. Below 1.8260 will turn intraday bias back to the downside. Break of 1.7915 will confirm rebound from 1.7445 has finished and bring retest of this low and long term fibonacci level of 50% retracement of 1.3680 to 2.1160 at 1.7420.
UsdChf An intraday low should be in place at 1.0690 with 4 hours MACD recovered above signal line, after USD/CHF drew support from 50% retracement of 1.0010 to 1.1415 at 1.0710. Also, break of 1.0899 support turned resistance will be the first alert that correction from 1.1416 has completed. Further break of 1.1279 will confirm this case and bring retest of 1.1415 high. However, below 1.0690 will indicate that fall from 1.1415 is still in progress for 1.0620 resistance turned support.
Resistance and Support:
|1.5280 K||2.0100 K||110.67 T||1.1593 S|
|1.4910 S||1.9363 S||109.18 M||1.1418 T|
|1.4860 M||1.8795 S||108.02 M||1.1280 M|
|1.4150 P||1.7735 M||105.00 P||1.0734 S|
|1.3880 S||1.7422 S||103.54 S||1.0500 K|
|1.3550 T||1.7251 S||100.00 P||1.0113 P|
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot