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Daily Forex Technical Report

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Daily Forex Technical Report − Focus on Fed Speakers after Dovish FOMC, UK Retail Sales Watched

Thu, Mar 22 2007, 07:38 GMT
by ActionForex.com Team

ActionForex.com

Forex Daily Technical Report

Focus on Fed Speakers after Dovish FOMC, UK Retail Sales Watched

Dollar remains weak today and edges further lower against euro, sterling and aussie. Though oversold condition may keep dollar in tight range for a while, but sentiments remains fragile after FOMC's dovish statement yesterday and further downside is still expected to be seen in the near term. With a rather light economic calendar in the US today, markets' focus will mainly be on speeches from Bernanke, Kroszner and Kohn from Fed on any further elaboration on Fed's stance. Meanwhile, focus in the European session will mainly be on retail sales from UK.

To recap, Fed left rates unchanged at 5.25% yesterday as widely expected. The most important change in the accompanying statement is that the tightening bias is now abandoned. In the Jan 31 statement, Fed said that "the extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information." This was changed to " Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information." This is taken as a sign that a rate cut is now possible. Assessment of economy was changed from "somewhat firmer economic growth" to recent indicators have been "mixed". "Some tentative signs of stabilization have appeared" was changed to "the adjustment in the housing sector is ongoing". Regarding inflation, the "risk that inflation will fail to moderate as expected" is still fed's predominant concern.

Recent rally in Sterling was based on solid PPI inflation and stronger than expected CPI inflation that prompted speculation that BoE will raise rate sooner in Q2 and could probably continue beyond. However, yesterday's dovish MPC minutes that revealed an 8-1 vote instead of a 7-2 vote, with Blanchflower surprisingly voted for a cut, has triggered some traders to reposition themselves. Today's retail sales data will be important and a strong number will shift expectation back to an Apr hike. Retails sales is expected to bounce back from Jan's -1.8% fall to 0.7% rise in Feb, pushing yoy rate higher from 3.3% to 3.9%.

Released earlier today, Japan's trade surplus for Feb came in slightly higher than expected at ¥980 billion. Exports surprised on the upside by rising 9.7% while imports remained solid by rising 10.1% yoy.

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

GBP/USD

Daily Pivots: (S1) 1.9590; (P) 1.9640; (R1) 1.9725; More

Cable's rally extends further to as high as 1.9695 today, break marginally above 1.9672 resistance. At this point, further rise is still expected to follow as long as cable stays above 1.9552 support. As discussed before, sustained break of 1.9672 resistance. will encourage a retest of 1.9913 high. Meanwhile, touching of 1.9552 will indicate that a short term top is likely formed and further consolidation will follow with risk of pull back to 4 hours 55 EMA (now at 1.9471). But still, a break below 1.9395 support is needed to indicate rise from 1.9213 has completed. Otherwise, further rally is still in favor.

In the bigger picture, strong rebound from mentioned 23.6% retracement of 1.7047 to 1.9913 at 1.9237 favors the case that cable corrective fall from 1.9913 is merely correction to the rise from 1.8517 only. Sustained break of 1.9672 resistance will add more weight to this view and should bring another high above 1.9913 and attempt to meet 2.0106 cluster resistance before having a medium term reversal.

However, note that bearish divergence conditions remains in weekly RSI and daily MACD, suggesting a medium term top is around the corner and the up trend from 1.7047 might complete at 2.0106 cluster resistance (1992 high, 100% projection of 17047 to 1.9024 from 1.8090 at 2.0067). On the downside, break of 1.9395 will turn focus back to 1.9183/9237 support zone again.

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Published on  Thu, Mar 22 2007, 07:37 GMT