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Daily Forex Technical Report − Dollar Mildly High ahead of PCE, Yen on Risk Aversion

Mon, Apr 30 2007, 07:33 GMT
by ActionForex.com Team

ActionForex.com

Forex Daily Technical Report

Dollar Mildly High ahead of PCE, Yen on Risk Aversion

Euro edges lower today on the back of pressure in EUR/JPY as well as disappointing German retail sales data. China's central bank increased reserve requirements by 50 basis points to 11% to cool economy. Such move has prompted fear of further tightening from PBoC and in turn triggered some carry trade unwinding in the Japanese yen. However, the move from China is actually not that unexpected and the rise in yen is exaggerated by the lack of liquidity in thin holiday markets. After all, most pairs are still in range awaiting major data from the US.

M3 money supply and CPI estimate will be the main focus in the European session. Money supply growth continued to defy expectation by accelerating to 17 years high of 10% in Feb. Such strong growth in M3 strengthened the case for further tightening from ECB as it's used as an indication of future inflation. M3 is again expected to retreat slightly to 9.7% in Mar but even in case the growth does moderate, a mild pullback won't change the expectation that ECB's cycle is not over yet. Eurozone CPI CPI is expected to drop slightly from 1.9% to 1.8% in Apr. Other data include EUrozone consumer sentiments and business climate, as well as Gfk consumer confidence from UK.

Main focus in the US session will be on Mar personal income and spending. While income is expected to steadily grow at 0.6%, consumption is expected to slow slightly from 0.6% to 0.5%. The Fed's preferred gauge of inflation, the core PCE deflator is expected to increase 0.1% mom only, dragging the yoy rate from 2.4% to 2.2%. Even though this reading, if comes in as expected, is still above Fed's comfort zone of 1-2%, if could ease Fed member's fear that inflation is back accelerating after Core PCE deflator rebounded from 2.2% to 2.4% in Feb. Coupled with resumed moderation in core CPI released earlier this month, there will be some evidence that Fed's prior rate hikes are still playing the effect in moderating inflation. If such trend continues, Fed members's focus will start to lean more towards concern on slowing growth and could prompt increased speculation of a rate cut in Q4.

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

EUR/JPY

Daily Pivots: (S1) 162.55; (P) 162.90; (R1) 163.61; More

EUR/JPY retreats mildly from record high of 163.29 today. Mild bearish divergence condition in 4 hours MACD and RSI suggest that upside momentum is diminishing. Below 162.18 minor support will indicate an intraday top is formed and bring further pull back. However, note that rise from 150.75 should still be in progress as long as EUR/JPY remains comfortably inside the short term rising channel (support at 161.35) and further rally is still in favor towards 61.8% projection of 137.16 to 159.63 from 150.75 at 164.64. But, sustained break of this channel support will warn that the whole rise from 150.75 has completed and bring deeper correction 159.60 support first.

In the bigger picture, EUR/JPY's strong close above medium term rising channel resistance (now at 162.03 suggests that strength of the current rise from 150.75 could be much stronger than we thought. But still, with the interpretation of the rise from 130.60 remains unchanged with first wave ended at 143.60, subsequent correction ended at 137.167. The third wave up ended at 159.63 while fourth wave correction has ended at 150.75. Rise from there represents the final advance in this structure, targeting 61.8% projection of 137.16 to 159.63 from 150.75 at 164.64 and could terminate there.

On the downside, break of the short term channel support will indicate that rise from 150.75 has completed and deeper correction should then be seen towards 55 days EMA (now at 158.52). Also, this will give a serious warning signal that the whole rise rise from 130.60 has ended. EUR/JPY should set to channel the medium channel support (now at 152.83) in case this EMA is taken out decisively.

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Published on  Mon, Apr 30 2007, 07:35 GMT