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Daily Forex Technical Report − Another Wave of Carry Trade Unwinding Pushes Yen and Franc Higher

Mon, Mar 5 2007, 07:20 GMT
by ActionForex.com Team

ActionForex.com

Forex Daily Technical Report

Another Wave of Carry Trade Unwinding Pushes Yen and Franc Higher

The Japanese yen and Swiss Franc surges across the board again as the week starts on another wave of carry trade unwinding. Asian stock markets tumbled, extending the global sell off what wiped $1.5T value of global equities. The Morgan Stanley Capital International Asia-Pacific Index fell 2.9% to 138.68, the lowest close since Jan. 11. The Emerging Markets Index fell 2.4% to 856.96, adding to a 4-day, 6.7% slump. The crash in emerging markets as triggered further covering of yen and franc short positions which were used to fund investments in high yield assets.

Technically speaking, note that today's extension in USD/JPY weakness has pushed it through the important medium term rising channel, confirming that the year long up trend from 108.99 has completed at 122.17 and further medium term weakness is to be seen. Meanwhile, EUR/JPY has dropped to 151 level with the also important medium term rising channel in danger. High yield commodity currencies including Aussie and Kiwi also tumbled. However, EUR/USD has a strong rebound after hitting 1.3118 earlier as Euro is also supported by strength in EUR/GBP cross.

Services data will be the main feature today with Feb Eurozone and Germany Service PMI remains steadily at expansionary levels. Sterling tumbled after disappointment in UK services PMI which fell more than expected to below 60 and is expected to dip slightly lower to 59.0 in Feb. ISM non-manufacturing index in US is also expected to drop slightly from 59.0 to 58.0. However, as the current sentiments remains on risk aversion and carry trades, these data will likely have little impact on the markets.

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

USD/CHF

Daily Pivots: (S1) 1.2117; (P) 1.2189; (R1) 1.2235; More.

USD/CHF's fall from 1.2260 extends to below 1.2142 low as expected and reaches as low as 1.2120 so far. At this point, intraday bias remains on the downside as long as 1.2206 and further decline is expected to follow towards 61.8% projection of 1.2436 to 1.2142 from 1.2260 at 1.2078 first. However, break above 1.2206 will indicate that recent decline should have made a short term low, possibly with bullish convergence condition in 4 hours MACD and RSI and should then bring strong rebound to 1.2260 resistance.

In the bigger picture, previous break of 1.2374 support should have completed a head and shoulder top formation (with ls: 1.2547, h: 1.2571, rs: 1.2550) and should be an important indication of reversal. Firm break of 1.2268 resistance turned support confirmed that the whole rally from 1.1878 has completed after failing to break through mentioned medium term falling trend line (1.3283 to 1.2760). Also, weekly MACD will still be kept negative with daily MACD staying below signal line. This favors the case that whole down trend from 1.3283 is still in force. In such case, deeper decline should be seen towards 78.6% retracement of 1.1878 to 1.2571 at 1.2211) and then 1.1878 (06 low).

On the upside, even though some lengthier consolidation should follow in case of a rebound to above 1.2260 resistance, sustained break above short term falling trend line (now at 1.2337) is needed to indicate whole fall from 1.2571 has completed. In such case, medium term outlook will turn mixed and USD/CHF could turn into prolonged sideway consolidation in a wider range between 1.21 and 1.25 levels before giving a clear signal on the next move. Otherwise, further fall is still in favor after the consolidation.

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Published on  Mon, Mar 5 2007, 07:20 GMT