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Daily Forex Technical Report

Mid−Day Forex Technical Report − Dollar's Free Fall Continues, EUR/USD Hits 1.47, GBP/USD Hits 2.1

Wed, Nov 7 2007, 13:55 GMT
by ActionForex.com Team

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Forex Mid-Day Technical Report

Dollar's Free Fall Continues, EUR/USD Hits 1.47, GBP/USD Hits 2.1

Dollar's free fall continues today as talk of China's reserve diversification dominates the market. Cheng Siwei, vice chairman of China's National People's Congress, said that China will "readjust" the $1.43 trillion of foreign-exchange reserves, favoring "stronger currencies over weaker ones". This suggest that China may diversify further away from the dollar. Also, not that the largest holder of US treasures, China and Japan, has already reduced their treasury holdings this year, with China's holding down 5% to $400b while Japan's down 15% to $586b. The news triggered concern that dollar could continue to lose its status as the world currency and other central banks may follow to move away from it.

In addition, other dollar bearish theme continue to play, including concern on extended housing market downturn, further rate cut from Fed on credit market problems, record oil prices, new the century mark of $100 a barrel and commodity prices as well as expectation for either further rate hike or no move from other major central banks in the near term.

Technically speaking, EUR/USD, making new record high, has now taken out 1.45 level decisively and is set to challenge next important psychological resistance of 1.5. GBP/USD has also made 26 years high and touched 2.1 level. Tentatively, USD/JPY's sharp fall from 124.13 is treated as resumed and is set to test 111.59 low and then 110. USD/CHF took out 04 low of 1.1288 and is set to challenge 95 low of 1.1. USD/CAD remains extremely weak and is heading to 0.9, just 3 months after it breached parity. Aussie continues to make new 23 year high

Meanwhile, note that the overall outlook in the Japanese yen is less clear as carry trade is still a major factor in yen's movements. Yen crosses surges initially today, boosted by strength in major currencies other then dollar and yen, even though USD/JPY dipped sharply. However, as yen crosses quickly reversed following decline in European stock markets.

Overnight, RBA hiked by 25bps as expected, raising the overnight cash rate to an 11 year high of 6.75%. The accompanying statement maintained a hawkish tone and expect inflation to climb above 3% in Q1 08. Recent credit crunch in the global economy is expected to have little impact in Australia. Markets' attention is turning to employment report from Australia and New Zealand in the coming Asian session, before BoE and ECB rate decision later tomorrow.

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

GBP/USD

Daily Pivots: (S1) 2.0817; (P) 2.0861; (R1) 2.0920; More

Cable's rally continues today and reaches as high as 2.1050 so far, meeting mentioned target of resistance zone of 2.1 psychological resistance and 161.8% projection of 1.9652 to 2.0365 from 1.9879 at 2.1033. At this point, intraday bias remains on the upside as long as 2.0928 minor support holds. Sustained trading above 2.1033 will encourage further rally to next short term target of 200% projection of 1.9652 to 2.0365 from 1.9879 at 2.1305. Below 2.0928 will turn intraday outlook consolidative first and probably bring pull back to 4 hours 55 EMA (now at 2.0743). But downside should be contained above 2.0538 resistance turned support and bring another rise.

In the bigger picture, rise from 1.7047 is treated as resumption of long term up trend from 1.3680. Sustained break of 2.0677 now encourage further medium term rally to next projection target of 100% projection 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05 low) at 2.2921. On the downside, a break below 2.0538 support will indicate deeper correction is underway. But still, the rise from 1.7047 should still be in progress as long as 1.9652 medium term support holds.

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Published on  Wed, Nov 7 2007, 13:57 GMT

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