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Mid−Day Forex Technical Report − Euro Boosted by Possibility of a Jul Hike from ECB

Thu, Jun 5 2008, 13:53 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Mid-Day Report

Euro Boosted by Possibility of a Jul Hike from ECB

Euro soars strongly in US session today after hawkish comments from ECB Trichet after the central bank left rates unchanged at 4.00% prompted speculation that ECB may raise rate as soon as next month. Indeed, in the Q&A session, Trichet said that an interest-rate hike in Jul in "possible". ECB is is state of "heightened alertness regarding the current upside risks to inflation due to rising energy and food prices. Indeed, the council members had different views this time and a number of members considered the case for hiking rates. Despite recent data showed slowing growth in the Eurozone economy, Trichet still describe the fundamentals as "sound".

Revised staff projections were also provided by ECB today. 2008 HICP is seen at 3.2% - 3.6% versus prior projection of 2.6% - 3.2%. 2009 HICP is seen at 1.8% - 3.0% versus prior 1.5% - 2.7%. Real GDP growth is projected to be 1.5% - 2.1% in 2008, 1.0% - 2.0% in 2009. After all, today's press conference ruled out the possibly of rate cuts from ECB and triggered speculations that ECB could hike again in the near future if inflation outlook continues to worsen.

BoE left rates unchanged at 5.00% today. Focus will turn to meeting minutes to be released on June 18. Other data released today saw jobless claims improved from to 57k. Canadian building permits climbed 14.5 % in Apr but provides no support to the Loonie so far. Germany Factory orders unexpectedly dropped -1.78% mom in Apr. Australian trade deficit was narrowed than expected at -957m in Apr. RBNZ left rates unchanged at 8.25% overnight. Kiwi was sold off immediately after a rather dovish statement that signals the central bank may cut rates for the first time since 2003.

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EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.5410; (P) 1.5447; (R1) 1.5474; More

EUR/USD's strong rebound from 1.5365 indicates that an intraday low is in place and outlook is turned neutral for the moment. More recovery could be seen but further decline is still in favor as long as 1.5628 resistance holds. As discussed before, fall from 1.5818 is treated as resumption of the whole fall from 1.6019. Break of 1.5284 will confirm this case and bring deeper decline to 100% projection of 1.6019 to 1.5284 from 1.5818 at 1.5083 first.

However note mild bearish divergence in 4 hours MACD and RSI. Break of 1.5628 resistance will indicate the whole decline form 1.5818 has completed already. Bias will the be shifted back to the upside for this resistance first. Break will encourage a retest of 1.6019 record high.

In the bigger picture, EUR/USD's rise from 1.4309 should have completed at 1.6019. Break of 1.5486 support indicate that rebound from 1.5284 has completed and correction from 1.6019 is going to go deeper and probably test 1.4966 cluster support (61.8% retracement of 1.4309 to 1.6019 at 1.4962). Though, above 1.5628 resistance will dampen this view and argues that rebound from 1.5284 is still in progress for retest of 1.6019 record high.

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Published on  Thu, Jun 5 2008, 13:58 GMT