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Daily Forex Technical Report − Euro and Sterling Consolidates ahead of ECB and BoE

Thu, Nov 8 2007, 08:04 GMT
by ActionForex.com Team

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Forex Daily Technical Report

Euro and Sterling Consolidates ahead of ECB and BoE

Markets stabilize from yesterday's selloff in dollar and remain in tight range, waiting for ECB and BoE rate decisions today. ECB is widely expected to keep rates unchanged at 4.00%. Note that Eurozone CPI accelerated to 2.6% yoy in Oct, which is significantly above the bank's inflation target of 2%. Also, M3 money supply growth, though slowed slightly is still at double digit level, which is much stronger than reference rate of 4.5%. However, ECB could likely continue to watch for the effects of recent credit and financial markets problems as well as the effect of the strong Euro that could slow the economic growth in the Eurozone. So while Trichet is expected to remain hawkish in the post meeting press conference and the language will likely be similar to before, emphasizing "risks to inflation remain on the upside" and ECB is ready to "act in a firm and timely manner", there could be nothing more.

BoE is also widely expected to keep rates unchanged at 5.75% today. Last MPC meeting minutes showed the committee voted 8-1 to keep rates unchanged with Blanchflower opted for a cut. Headline inflation remained unchanged at 1.8% in Sep but risk of inflation is on the upside with continuously surging energy prices. On the other hand, even though GDP growth maintained strong pace of 3.3% yoy in Q3, there are still uncertainties on the damage of recent credit market problems. However, since the bank usually won't release a statement if rates are left on hold, more information will only be obtained from the meeting minutes and inflation report published later this month.

Another major focus of today will be Bernanke's testimony before Joint Economic Committee. Recent Fedspeak has been quite contradicting. Yesterday' Poole said that he's prepared to take further action (another rate cut) it it helps the economy's "healing process" but warned Fed not to overshoot. Lockhart said that is evidence that business pending is retrenching. Warsh said that such retrenchment in the economy may "continue for many months". Though, Fed officials generally agree that higher energy prices and a weak dollar could boost inflation. So markets will be looking to Bernanke for a clear message on both growth and inflation, dollar's weakness, housing downturn and financial markets volatility for adjusting the expectation for further rate cut from Fed, which is now priced at 75% change at the Dec FOMC meeting.

On the data front, released overnight, New Zealand unemployment rate dropped to record low of 3.5% in Q3 though employment change was disappointing by dropping -0.3%. Australia unemployment rate edged higher fro 4.2% to 4.3% in Oct. Both commodity currencies retreated sharply as pressured in yen crosses on risk aversion. Japanese machine orders unexpectedly dropped -7.6% mom in Sep, suggesting that strength in corporate activity may be losing momentum. Germany trade surplus widened to 15.4b due to unexpected contraction of -2.6% in imports in Sep. Canadian dollar retreats from record high against dollar, following pullback in oil prices as well as risk aversion too. Canada housing starts and new house price index will also be released today.

Suggested Readings on ECB and BoE

• ECB's Trichet Stuck Between Euro And Inflation Increases
• The ECB Stuck between a Rock and a Hard Place
• How To Trade The ECB Rate Decision, News Conference
• ECB: Preview of Meeting November 8
• EUR/USD: ECB To Leave Rates Steady, Trichet's Bias May Be More Hawkish
• Economics Weekly: Expect No Surprises from the BoE or ECB
• Close Bank of England Rate decision Will Be Crucial For Sterling

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

EUR/USD

Daily Pivots: (S1) 1.4550; (P) 1.4640; (R1) 1.4727; More

EUR/USD retreats mildly from 1.4728 record high but is still staying above 1.4613 minor support. Intraday bias remains on the upside and further rally is still in favor towards next medium term target of 1.5. However, below 1.4613 will turn intraday outlook consolidative first and probably bring pull back to 4 hours 55 EMA (now at 1.4483) but downside should be contained above 1.4348 resistance turned support and bring another rise.

In the bigger picture, medium term rally from 1.1639 is still in force and is being treated as resumption of long term up trend from 0.8223 (00 low) to 1.3668 (04 high), with subsequent correction ended at 1.1639. Such rise is expected to extend further to 61.8% projection of 0.8223 to 1.3668 from 1.1639 at 1.5004 which will overlap with 1.5 psychological resistance. One the downside, below 1.4348 will indicates that rise from 1.3360 has made a top will turn into lengthier consolidation with further correction into support zone between 1.4014 and 1.4281. But EUR/USD is expected to be supported there and bring rally resumption.

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Published on  Thu, Nov 8 2007, 08:09 GMT

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