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Daily Forex Technical Report

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Daily Forex Technical Report − Dollar to Borrow Support from ISM Manufacturing

Thu, Feb 1 2007, 07:48 GMT
by ActionForex.com Team

ActionForex.com

Forex Daily Technical Report

Dollar to Borrow Support from ISM Manufacturing

Dollar continues to trade with an undertone in Asia today after yesterday's sell off steadies. Signs of topping out has appeared in some major pairs and risk has now increased for a near term reversal in the greenback. Dollar will look forward to today's ISM manufacturing index and tomorrow's Non-farm payroll for drawing support for a rebound. But the lack thereof could trigger further downside in dollar.

Despite stronger than expected GDP and a rather optimistic FOMC statement, dollar's weakness was triggered and fueled by a couple of factors. Firstly, the much weaker than expected Chicago PMI, which fell to contractionary level of 48.8 in Jan, first time since Apr 03, has raised the downside risk of a disappointing ISM Manufacturing index today.

Secondly, the Japanese yen was boosted by Treasury Paulson's comments that US is watching the yen "very, very carefully" and raised speculation that US officials might back Eurozone officials in criticizing yen's weakness in the upcoming G7 meeting next weekend.

Thirdly the unanimous FOMC's decision to keep rates unchanged, was the first unanimous vote since last hike in Jun 06. Even Richmond Fed's Lacker, who dissented in all of Fed's last four meetings voted for no change. This suggest that Fed officials are generally more comfortable with inflation as also noted in Fed's statement saying "readings on core inflation have improved modestly in recent months".

From Europe, Manufacturing PMI in Germany, Eurozone and UK will be featured today which are all expected to fall slightly from prior readings. Jan Swiss PMI will also be closely watched, in particular, after yesterday's upside surprise in KoF leading indicator.

Read full report (EUR/USD, GBP/USD, USD/CHF, USD/JPY) here.

USD/JPY

Daily Pivots: (S1) 120.28; (P) 121.00; (R1) 121.40; More

USD/JPY's fall from 122.17 extends further to as low as 120.43 so far. At this point, further decline is expected to follow towards 120.16 low as long as USD/JPY stays below 121.10 minor resistance. Above 121.10 will turn intraday outlook consolidative first but break of 122.17 is needed to indicate recent rally has resumed. Otherwise, risk of another fall remains.

Also, note that the current fall has taken out short term rising channel (lower channel line at 121.09 now). This indicate a short term top is likely formed at 122.17 already. With bearish divergence condition in 4 hours MACD and RSI as background, the whole rally from 114.41 could have already completed. And hence,. deeper decline is expected to be seen towards 117.96 support.

In the bigger picture, as medium term rally from 108.99 is still in force, such rally is treated as resumption of whole up trend from 101.65 for the moment. With price actions from 117.87 to 114.41 treated as interim consolidation, next upside target will be 123.23/29 cluster projection level (100% projection of 114.41 to 119.68 from 117.96 at 123.23. 100% projection of 108.99 to 117.87 from 114.41 at 123.29). However, sustained break of 117.96 will dampen such case and put focus back to medium term rising channel (now at 115.95).

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Published on  Thu, Feb 1 2007, 07:50 GMT