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Daily Forex Technical Report

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Mid−Day Forex Technical Report − Euro Still in Range after "Vigilance" from Trichet

Thu, Feb 8 2007, 15:09 GMT
by ActionForex.com Team

ActionForex.com

Forex Mid-Day Technical Report

Euro Still in Range after "Vigilance" from Trichet

Both ECB and BOE kept rate unchanged today but market reactions were opposite. Sterling tumbled across the board after the announcement while, Euro was boosted after Trichet used "vigilance" to signal a March hike in the press conference following the announcement. However, that was not enough to push EUR/USD through 1.3052 resistance yet.

Regarding rumors that ECB will pause after March hikes, Trichet has knocked down the notion of the ECB communicating with the markets via anonymous pronouncements last week and stressed the extremely transparent communication policy of the ECB. On inflation, Trichet sees inflation dipping through spring and summer but will rise again later in 2007. But he also pointed out that ECB is taking a medium-term outlook on monetary policy decisions. So after all, the key question, that is, what will happen beyond March, a pause? Slower pace? hasn't been answered.

Russia announced that they have shifted the composition of its currency basket to 55% USD and 45% EUR, from 60% USD and 40% EUR previously. It is believed that Russia will continue to shift the basket towards EUR in the future majority of its trades are conducted with the EU.

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

EUR/USD

Daily Pivots: (S1) 1.2979; (P) 1.3001; (R1) 1.3030; More

EUR/USD retreated mildly earlier today but was contained by mentioned 1.2972 minor support. Subsequent rise has pushed EUR/USD to new day high and is now pressing falling trend line resistance (1.3296 to 1.3062, now at 1.3022) again. As discussed before, further rise cannot be ruled out as long as 1.2972 minor support holds. But after all, EUR/USD is still bounded in established range of 1.2865 and 1.3052. As long as 1.3052/57 cluster resistance (38.2% retracement of 1.3364 to 1.2867 at 1.3057) holds , price actions from 1.2865 will be treated as consolidation to decline from 1.3364 only. Hence, further fall is still in favor.

Below 1.2972 will suggest the recovery from 1.2911 has completed and should shift focus back to this support and then 1.2865 low. But a break there is needed to confirm recent decline from 1.3364 has resumed for downside target of 1.2760 support. Otherwise, choppy sideway consolidation may still continue.

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 (1.1639, 1.2483, 1.2978, now at 1.2766) 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, sustained break of 1.3052/57 cluster resistance will indicate the fall from 1.3364 has already completed at 1.2865, after drawing support from resistance line (1.2978 to 1.2937). 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 1.3173.) first. Also, it will 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 8 2007, 15:10 GMT