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Daily Forex Technical Report

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Daily Forex Technical Report − Paulson's Comments Sent Dollar and Yen Lower

Wed, Feb 7 2007, 07:53 GMT
by ActionForex.com Team

ActionForex.com

Forex Daily Technical Report

Paulson's Comments Sent Dollar and Yen Lower

Overnight, the Japanese yen slipped across the board after US Treasury Paulson said that the yen's value is set in a competitive open market and is reflecting underlying fundamentals. He also commented that it's US's job to fight for free open markets. This was taken as an indication that US will not be backing European officials in criticizing yen's weakness in the upcoming G7 meeting. Other the other hand, dollar was sent lower by Paulson's comment that the US economy is "transitioning from a period of above-trend growth to a more sustained level of above 3.0 percent."

The RBA held interest rates steady at 6.25% following the conclusion of their two day policy setting meeting. The decision was widely expected after traders scaled back expectation for a near-term hike following the recent release of Q4 CPI inflation data, which indicated that inflationary pressures have cooled significantly.

Focus in the European session will be mainly on industrial production and manufacturing production data from UK which are both expected to slow in the month of December. Germany industrial production will also be featured. In US session, Q4 productivity and labor cost will be released. This will be closely watched, in particular with Fed's concern that tight labor market and high wage growth which will cause core inflation to pick up again. Paulson will speak again on Financial Plan at House Budget Panel too.

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

USD/JPY

Daily Pivots: (S1) 119.85; (P) 120.20; (R1) 120.44; More

Despite edging lower to 119.94, USD/JPY still lacks the decisive downside momentum to go further and struggles in tight range. But still, as discussed before, a short term top should be formed at 122.17, after subsequent fall has taken out short term rising channel and with bearish divergence condition remaining in 4 hours MACD and RSI. Hence at this point, further correction is still expected to follow as long as USD/JPY stays below 121.34 resistance. Downside target for such correction will be 119.21/24 cluster support (38.2% retracement of 114.41 to 122.17 at 119.21 and 100% projection of 122.17 to 120.07 from 121.34 at 119.24).

However, since the current price actions from 122.17 is treated as correction to rally from 114.41 only, we'd expect downside to be contained by 119.21/24 support and bring further rally. Above 121.34 will suggest that corrective fall from 122.17 has completed and should bring retest of this high. But still, break of 122.17 is needed to indicate rise from 114.41 has resumed.

In the bigger picture, with medium term up trend from 108.99 remains in force, favor is still on the case that rise from 108.99 represents resumption of long term up trend from 101.66. The preferred interpretation of the rise from 108.99 is that the first move has completed at 117.87. Subsequent price actions to 113.95, 119.86 and 114.41 is treated as interim consolidation that's skewed upward by the rise to 119.86. Rise from 114.41 is treated as resumption of the whole up trend. With this interpretation, next upside target will be 100% projection of 108.99 to 117.87 from 114.41 at 123.29.

However, decisive break of 117.96 support will rise some doubt about this interpretation In such case, a deeper decline should follow to retest medium term rising channel (now at 115.68) first. A break of this channel will swing favors back to the case that another medium term decline should be seen towards 108.99 low before completing the whole long term consolidation that started at 121.38.

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Published on  Wed, Feb 7 2007, 07:55 GMT