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Mid−Day Forex Technical Report − Euro Surges on Ifo, Loonie Boosted by CPI

Wed, May 21 2008, 12:54 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Mid-Day Report

Euro Surges on Ifo, Loonie Boosted by CPI

Euro surges against dollar and Sterling after the release of better than expected Germany Ifo index. The business climate index improved to 103.5 in May comparing to consensus of further deterioration to 102.0. Improvements are also seen in the Current Situation Component as well as the Business Expectations Component, with the former rising to 110.1 from 108.4, and the latter rising to 97.3 from 96.8 in April. The overall report suggests that Germany economy is still doing well in spite of the strong Euro and ever climbing energy and commodity prices. Markets seem to have now ruled out the possibility of rate cut from ECB and instead, looking at the odds of rate hike down then road.

Canadian dollar is firm on another day of record oil price, now above $130 a barrel. The Loonie is further boosted by unexpected acceleration in consumer inflation. Headline CPI climbed to 1.7% yoy in Apr versus expectation of unchanged ar 1.4%. Core CPI also climbed to 1.5% versus expectation of being unchanged at 1.3%. While another 25bps could still be seen from BoC in Jun, markets are speculating that could be the last cut in the current easing cycle.

BoE minutes released today showed the bank opted to keep rates unchanged earlier this month by an 8-1 vote, same as market expectation. Just one member, David Blanchflower, voted for a cut to 4.75%. The pound is remains pressured in general, in particular in crosses. Swiss Franc, on the other hand, is boosted by better than expected ZEW which improved from -71.4 to -60.1.

Looking ahead, FOMC minutes will take center stage in the US afternoon. Markets are speculating that Fed is completed with it's most aggressive easing campaign in decades after the 25 bps cut in the Apr 29/30 meeting. The statement of that meeting was generally taken as less dovish than prior ones. The statement characterized economic activity as "weak" as opposed to having "weakened further", even though its description of financial markets was unchanged as being under "considerable stress." Also, Fed described the easing campaign since last summer as "substantial". The committee also vowed to "act as needed," but eliminated "in a timely manner." Markets will look into today's minutes for further clarifications of the messages from last statement as well as hints on whether Fed will really pause in June.

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USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 0.9878; (P) 0.9918; (R1) 0.9962; More.

USD/CAD's fall from 1.0242 resumes again and dives to as low as 0.9895 in early US session. At this point, intraday bias remains on the downside as long as 0.9882 minor support holds. Deeper fall could be seen to retest 0.9709 support. On the upside, above 0.9882 will turn intraday outlook consolidation first. But break of 0.9998 support turned resistance is needed to indicate fall from 1.0242 has completed. Otherwise, another decline could still be seen before completion.

In the bigger picture, the corrective nature of the fall from 1.0378 to 0.9709 indicates that it's merely a correction, or part of consolidation, to whole rise from 0.9056. Such rebound from 0.9056 is expected to extend further to to above 61.8% projection of 0.9056 to 1.0378 from 0.9709 at 1.0526 on resumption. Though, break of 0.9709 support will indicate that the correction from 0.9056 could have completed and short term bias will then be turned back to the downside for retesting this low.

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Published on  Wed, May 21 2008, 12:59 GMT