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Mid−Day Forex Technical Report − Markets Reverse after Fed's Emergency 75bps cut.

Tue, Jan 22 2008, 14:55 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Mid-Day Report

Markets Reverse after Fed's Emergency 75bps cut.

Dollar and Japanese yen are sold off in early US session after Fed's announcement of an emergency cut in federal funds rate by 75bps to 3.50%. The discount rate is also reduced by 75bps to 4.00%. The rate cut is the biggest one-day rate move by Fed since it cuts its discount rate by 1% in Dec 1991. Also, it's a rare intermeeting move by the Fed with next meeting scheduled next week on Jan 29/30. Stated in the accompanying statement, the committee took the rate cut action in view of a "weakening of the economic outlook and increasing downside risks to growth." Broader financial markets conditions are noted to have continued to "deteriorate" and credit has "tightened further". Housing contraction and softening in labor markets are also indicated by recent data. The Fed does not rule out further rate cut as it will "act in a timely manner" to address downside risks to growth.

St. Louis Fed President Poole voted against the emergency rate cut. The statement says that Poole “did not believe that current conditions justified policy action before the regularly scheduled meeting next week.” Fed Governor Mishkin was absent and did not vote.

While Fed's surprised rate cut is welcomed by the markets, it's not enough to save the US stock markets from a sharp lower open.

Bank of Canada also cut rates by 25bps to 4.00% as widely expected.

More Technical Analysis Reporst Here

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.4382; (P) 1.4493; (R1) 1.4565; More

EUR/USD rebounds strongly in US session and break of 1.4508 minor resistance indicates that an intraday low is at least formed. Bias is flipped back to the upside for 4 hours 55 EMA (now at 1.4648). But note that as long as 1.4715 cluster resistance holds (61.8% retracement of 1.4921 to 1.4365 at 1.4709) holds, short term outlook is neutral at best. Further decline could still be seen. Below 1.4469 will flip intraday bias back to the downside for 1.4309 low.

In the bigger picture, with 1.3581 resistance turned support remains intact, medium term up trend from 1.1639 is still in force. Regardless of internal structure, it is treated as resumption of long term up trend from 0.8223 (00 low) to 1.3668 (04 high) and has just failed 61.8% projection of 0.8223 to 1.3668 from 1.1639 at 1.5004 target which overlaps with 1.5 psychological resistance. Having said that, the current price actions from 1.4966 is treated as consolidation to this long term rally. That is current fall from 1.4921 should be contained by 1.4309 and bring up trend resumption. Though, above 1.4715 resistance is first needed to signal that fall from 1.4921 has completed. Secondly, sustained trading above 1.5 key resistance is needed to confirm the medium term up trend has resumed and bring rally to next projection target of 100% projection at 1.7048. Otherwise, more choppy consolidation could be seen inside established range of 1.4309 and 1.4966.

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Published on  Tue, Jan 22 2008, 15:00 GMT