• Home ::
• Technical ::
• Analysis Reports ::
• Daily Forex Technical Report

• Send
• Print
• Add To
• Rss

Daily Forex Technical Report

433f9e1a-b35c-415d-b6fb-3ce65cd04366

0

0

Forex Weekly Review and Outlook − Yen to Extend Weakness after G7, Dollar to Break Out Against Euro?

Sun, Feb 11 2007, 06:21 GMT
by ActionForex.com Team

ActionForex.com

Forex Weekly Review and Outlook

Yen to Extend Weakness after G7, Dollar to Break Out Against Euro?

While dollar strengthens against most majors last week, it's still kept in range against Euro after ECB signaled a March hike. Focus is now on whether Bernanke's semi-annual testimony and a string of important economic data could get dollar out of the range. Finally, yen's weakness was not particularly mentioned in the G7 communique and the Japanese yen, which is already pressing record low against Euro, could extend further weakness as the week starts. Sterling tumbled across the board after BoE's decision to kept rate unchanged. The upcoming inflation, employment and retail sales data will be make or break for Sterling.

Before G7 meeting, Yen is already pressing record low against euro as it weakened across the board last week. Further weakness could be seen in the coming week as the G7 communique hasn't mentioned yen's weakness explicitly. The statement from G7 meeting only urged investors to recognize that Japan's economic recovery is "on track" and warned that market shouldn't make "one-way" bets. This somehow showed that US, Europe and Japan didn't reach a consensus regarding the issue as US Treasury Paulson has also emphasized last week that US's position is to fight for "free open market". The statement was sort of a compromise.

And, as long as BoJ is still on hold, as BoJ member Haru stated last week that a weak yen had a beneficial impact on the economy which reinforced the yen's negative yield structure, further weakness in the Japanese is still likely.

The economic calendar in was light last week with ISM non-manufacturing index rose more than expected to 59.0 in Jan. Q4 productivity increased more than expected by 3.0% but was countered by a slower than expected growth in labor cost by 1.7% only. Fed officials retained a firm stance on interest rates. Plosser said that the risks for the economy and shifted to the upside while he also warned that interest rates might need to rise again.

ECB kept rates unchanged at 3.5% last week as widely expected. Trichet signaled a March hike by mentioning the magical word "vigilance" in the press conference. Trichet downplayed the fact that inflation outlook has improved in recent months. Even though, trichet sees inflation dipping through spring and summer he expects inflation will rise again later in 2007. And he also pointed out that ECB is taking a medium-term outlook on monetary policy decisions. Markets are still expecting more rate hikes from ECB beyond March based on current strong growth of money supply but we're skeptical about the pace, in particular, if M3 growth slows in the coming months.

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.

BoE left rates unchanged at 5.25% and it was a disappointment to some of the markets that expected a back-to-back hike. But based on the current inflation outlook, further tightening is still likely down the road but it's a matter of when. Markets seems not having reached a consensus expectation on the timing yet, nor did the BoE MPC members and Sterling could remain volatile as the expectation shifts. Data from UK were slightly weaker than expected with PMI services dropping to below 60 at 59.2 and trade deficit widened to 7.14b. Industrial and manufacturing production data were mixed with IP dropping 0.1% in dec, dragging yoy growth to 0.4% while MP rose 0.2%, pushing yoy growth to 2.3%.

The Swiss Franc was pressured, in particular against Euro, after weaker than expected inflation data which showed CPI dropping 0.7% in Jan, dragging yoy inflation to 0.1% only. Canadian dollar rebounded strongly against dollar after stronger than expected employment report that showed 88,000 increase in jobs in Jan. RBA kept rate unchanged at 6.25% and Aussie was generally kept in range.

The Week Ahead

While there are a string of important data to be focused in the upcoming US economic calendar, the main feature will be Bernanke's semi-annual testimony to Congress on Wednesday and Thursday. Even though Bernanke will likely stay with the tone of the latest FOMC minutes, markets focus will be on whether clarifications on Fed's expectation on inflation and growth so as to adjust their own expectation on future changes in monetary policy.

Other market moving economic data from US include Dec Trade Balance on Tue, Retail sales on Wed, Empire state and Philly Fed survey, TICs and import/export price indices on Thu, as well as PPI and housing data on Fri.

Focus in the Eurozone will main be on German Zew Business confidence which is expected to drop off on account of VAT increase. Q4 GDP and HICP inflation from Germany will also be featured with Eurozone trade balance.

Data from UK in the coming week will be critical to determine whether BoE will have another rate hike in the near term. PPI inflation and CPI inflation data will be featured on Mon and Tue, with employment data and retail sales on Thu and Fri.

Yen's reaction to G7 meeting with also be closely watched, in particular in crosses. On the other hand, focus will also be particularly on Tue's inflation data and Thu's Q4 GDP.

RBA Quarterly Monetary Policy Statement will be released on Mon. Markets expect RBA to soften their stance on inflation that could set a weak tone for Aussie as the week starts.

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

GBP/USD

Cable attempted a rebound early last week but upside was once again limited below 1.9475 cluster resistance (61.8% retracement of 1.9913 to 1.9480 at 1.9478). Sharp fall on Thursday and Friday has pushed cable to below 1.9480 low, confirming that whole decline from 1.9913 has resumed. More importantly, rising trend line support (1.8517 to 1.8834, now at 1.9570) was taken out, confirming that the rally from 1.8517 has already completed at 1.9913. Hence, as long as cable stays below 1.9731 resistance, the fall from 1.9913 should still be in force towards 1.9237/61 cluster support (23.6% retracement of 1.7047 to 1.9913 at 1.9237).

In the bigger picture, as discussed before, bearish divergence conditions are being displayed in weekly RSI, daily MACD and RSI already, suggesting that the whole up trend from 1.7047 might have completed before reaching our upside target of 2.0106 cluster resistance (1992 high, 100% projection of 17047 to 1.9024 from 1.8090 at 2.0067). Focus is now on 1.9237/61 cluster support.

Strong rebound from or above 1.9237/61 cluster support will indicate that the current fall from 1.9913 is merely correction to the rise from 1.8517 only and cable could make another high above 1.9913 and attempt to meeting 2.0106 cluster resistance before having a medium term reversal.

However, sustained break of 1.9237/61 cluster support will add much weight to the case that whole medium term up trend from 1.7047 has already completed much deeper decline should be seen towards next cluster support at 1.8834 (38.2% retracement of 1.7047 to 1.9913 at 1.8818) first.

In the longer term picture, the break above 1.9554 resistance (04 high) is favoring the case that long term up trend from 1.3680 has resumed after correction from 1.9554 was supported by 55 months EMA. However the structure of the medium term rise from 1.7047 is not clearly supporting this yet. And, we're still skeptical on it. The structure of the fall after finishing the current rally should reveal more information.

Stay tuned with our Forex Newsletters

ActionForex is set up with the aim to empower individual forex traders by providing insightful contents. Analysis reports, live pivot points on majors and crosses, etc are provided with collection of carefully selected educational articles and free trading ebook downloads.

Published on  Sun, Feb 11 2007, 06:27 GMT