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Daily Forex Technical Report

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Daily Forex Technical Report − Dollar Faces Tough Tests from NFP, Core PCE and ISM Manufacturing

Fri, Jun 1 2007, 07:56 GMT
by ActionForex.com Team

ActionForex.com

Forex Daily Technical Report

Dollar Faces Tough Tests from NFP, Core PCE and ISM Manufacturing

Traders have been indecisive ahead of today's key data from the US for some time. After all the volatility, the greenback is near flat against Euro comparing to last week's close and will certainly need some catalysts to take our recent range. Markets are taking a view that the slowdown in the US economy is bottoming and businesses will regather some momentum after Q2 and thus, with core inflation still staying above Fed's comfort zone, there isn't any urgent need to cut rates in near term to boost the economy. However, recent mixed data is not clearly support this view yet. And should the both NFP and ISM disappoints, there will be revived speculation of a near term cut from Fed. In addition, faster moderation in core PCE will continue to ease Fed members' 'predominant' concern and give them more room to shift focus from inflation to growth.

Markets have some positive expectation on the May's Non-Farm Payroll report and expect job growth to rebound from Apr's 88k to 130k. Lower initial jobless claim numbers, in particular the below 300k figures in early May is supporting this view. However, economists are more cautious after Wed's disappointing ADP report which showed 97k growth only. Adding average deviation of 20k, that could yield and NFP of just 120k which is on the low side of the range of expectations. Fed's preferred gauge of inflation, the core PCE deflator dropped sharply from 2.4% to 2.1% in Mar and is expected to stay there in Apr. Meanwhile, ISM manufacturing index is expected to drop slightly from 54.7 to 54.0 in May.

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

USD/CHF

Daily Pivots: (S1) 1.2232; (P) 1.2251; (R1) 1.2271; More.

USD/CHF is still supported by short term rising trend line (now at 1.2236) and recovers mildly in early European session. However, it will still take a break above 1.2306 resistance to confirm rebound from 1.1993 has resumed for 61.8% retracement of 1.2571 to 1.1993 at 1.2350. Otherwise, further retreat could still be seen and below 1.2229 minor support will encourage another fall to 1.2198 low and then towards 1.2124 cluster support (61.8% retracement of 1.1993 to 1.2331 at 1.2122).

In the bigger picture, previous break of 1.2282 cluster resistance (50% retracement of 1.2571 to 1.1993 at 1.2282) confirms that fall from 1.2571 has already completed at 1.1993 with bullish convergence condition in daily MACD and RSI. More importantly, this will increase the chance that USD/CHF is about to complete a medium term head and shoulder bottom formation (ls: 1.1919, h: 1.1878, rs: 1.1993). Sustained break of 61.8% retracement at 1.2350 and neckline resistance (1.2768 to 1.2571, now at 1.2347) will add more weight to this case. Stronger rally should then be seen to 1.2571 first and then 1.2768.

However, below 1.2124 cluster support (61.8% retracement of 1.1993 to 1.2331 at 1.2122) will indicate that rebound from 1.1993 has possible completed and save the case that recent choppy price actions could merely be part of a medium term triangle consolidation. And, down trend from 1.3283 should still resume after completing such consolidation in such case.

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Published on  Fri, Jun 1 2007, 08:03 GMT