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Daily Forex Technical Report − Yen Strengthens on Risk Aversion ahead of G7

Fri, Oct 19 2007, 07:07 GMT
by ActionForex.com Team

ActionForex.com

Forex Daily Technical Report

Yen Strengthens on Risk Aversion ahead of G7

The short term outlook remains unchanged in the forex markets. dollar continued to be pressured by the majors and dips to another record low against Euro today. Meanwhile, the Japanese yen is lifted by carry trade unwinding as Japan stock markets, in particular the banking stocks are hit by disappointing earnings from Bank of America released overnight. However, strength of yen in crosses is so far less apparent than against the greenback as markets are cautious ahead of the G7 statement. Commodity currencies are generally pressured in yen crosses though.

Sterling had a brief break of recent range yesterday, riding on stronger than expected retail sales and dollar's weakness. But the move is indecisive so far. Traders will looking to today's Q3 GDP report for the catalyst of stronger move. Q3 GDP in UK is expected to maintain 3.1% yoy growth though the qoq rate is expected to slow slightly from 0.8% to 0.7%. If the data comes in as markets expect, it will indicate that the impact of recent credit market turmoil is limited and will solidify the expectation that BoE won't need to cut rates in near term.

Another major focus today will be Canadian inflation which is expected to show mixed outlook. Headline CPI is expected to accelerate sharply from 1.7% yoy to 2.5% yoy in Sep while core CPI is expected to moderate from 2.2% yoy to 2.0% yoy. BoC kept rates unchanged at 4.50% earlier this week as widely expected. Monetary Policy Report released overnight forecasts headline CPI in Canada to peak at about 3% in Q4 and then drift lower in 2008. Core CPI is expected to peak in next Q2. Both are expected to move down to the Bank's 2% target in second half of 08, earlier than prior forecast of early 09.

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

USD/JPY

Daily Pivots: (S1) 115.00; (P) 115.84; (R1) 116.44; More.

USD/JPY's fall from 117.93 extends further to as low as 114.83 today. At this point, intraday bias remains on the downside as long as 115.60 minor resistance holds. Further fall is expected to 114.01 cluster support (61.8% retracement of 111.59 to 117.93 at 114.01). As discussed before, current fall from 117.93 is tentatively treated as resumption of the sharp decline from 124.13. Decisive break of 114.01 cluster support will add more credence to such case and bring retest of 111.59 low. On the upside above 115.60 will turn intraday outlook consolidative first but upside is expected to be limited by 116.61 resistance and bring another fall.

In the bigger picture, note that prior break of long term rising trend line (101.65, 108.99) indicates the the whole up trend from 101.65 has completed at 124.13 already, with bearish divergence condition in weekly MACD and RSI. Subsequent sharp fall from 124.13 has made a short term low at 111.59 and rebound from there is treated as correction to this fall only. Current fall from 117.93 is tentatively treated as resumption of whole fall from 124.13. Firm break of 111.59 low will confirm this case and bring decline to next downside target of 108.99 medium term support.

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Published on  Fri, Oct 19 2007, 07:05 GMT