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Mid−Day Forex Technical Report − Dollar Edges Lower after Contractionary ISM Manufacturing Index

Thu, Feb 1 2007, 15:45 GMT
by ActionForex.com Team

ActionForex.com

Forex Mid-Day Technical Report

Dollar Edges Lower after Contractionary ISM Manufacturing Index

Dollar edges lower in early US session as ISM Manufacturing index fell back to sub 50 contractionary level and reached 49.3 in Jan, lowest reading since Apr 03. This matches yesterday's weakness in Chicago PMI which triggered the dollar sell off. The sub-indices are mostly lower with new orders fell to 50.3 from 51.9; employment rose marginally to 49.5 from 49.4, inventories fell to 39.9 from 48.5, order backlog index 43.5 after 45.0, production index fell to 49.6 from 52.4. However, prices paid index rose to 53.0 from 47.5.

December personal income report was released earlier today. The quarter figures were already released in the advance GDP report yesterday and there is nothing special on growth or inflation revealed by today's release. Personal income in US rose 0.5% Dec while spending rose 0.3%. PCE index rose 2.4% yoy while core PCE rose 2.2%. In separate report, jobless claims dropped to 307k, below expectation of 315k.

Manufacturing PMI was the main focus in European session. Eurozone manufacturing PMI dropped more than expected to 55.5 in Jan, from 56.5 and below expectation of 56.2. On the other hand, UK manufacturing PMI posted an upside surprise by rising from 51.9 to 52.8 versus expectation of a fall to 51.7. Sterling drew some strength from this report and extended the rally against dollar. Also, EUR/GBP retreats on comparative strength in the pound.

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

EUR/USD

Daily Pivots: (S1) 1.2957; (P) 1.2997; (R1) 1.3069; More

EUR/USD strengthens further to 1.3055 in early US session but is still limited by mentioned 1.3052/57 cluster resistance (38.2% retracement of 1.3364 to 1.2867 at 1.3057). At this point, intraday bias remains on the upside as long as EUR/USD stays above 1.3001 minor support. Focus remains on this 1.3052/57 cluster resistance. The fall from 1.3364 is still treated as in progress as long as this cluster resistance holds. Below 1.2923 support will indicate the consolidation from 1.2865 has completed and should bring retest of this low and trend line support at 1.2845. Break will confirm that whole fall from 1.3364 has resumed for next downside target of 1.2760 support.

However, sustained break of 1.3052 cluster resistance will indicate the fall from 1.3364 has possibly completed after drawing support from resistance line (1.2978 to 1.2937, now at 1.2845). Further rally should then be seen towards next resistance zone of 61.8% retracement of 1.3364 to 1.2865 at 1.3173 and falling trend line resistance (1.3364 to 1.3296, now at 1.3193.).

In the bigger picture, an important medium term top could be in place at 1.3364 already, with bearish divergence condition in weekly MACD and RSI. Sustained break of 1.2760 support, which will also have medium term rising channel line (now at 1.2748) taken out too, will add much weight to the case that whole medium term up trend from 1.1639 has completed. Focus will then be on 1.2483 cluster support (50% retracement of 1.1639 to 1.3364 at 1.2502). Decisive break of 1.2483 cluster support will confirm this case and have medium term outlook turned bearish.

However, decisive break of 1.3052 cluster resistance will also save the case that medium term up trend from 1.1639 is still in progress with EUR/USD kept inside the rising channel. Break of 1.3296 resistance will suggest the rise from 1.2483 has possibly resumed and EUR/USD could make a new high above 1.3364 before finally making a top on above mentioned bearish divergence condition in weekly chart.

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Published on  Thu, Feb 1 2007, 15:46 GMT