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Daily Forex Technical Report − EUR/USD at Key Trend Line Support ahead of ECB Meeting

Thu, Sep 4 2008, 07:39 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Daily Report

EUR/USD at Key Trend Line Support ahead of ECB Meeting

EUR/USD recovers mildly from a key medium term trend line support just ahead of the highly anticipated ECB announcement. While ECB is widely expected to leave rates unchanged at 4.25%., the are a couple of things that could move the markets as Trichet's tone and messages will again be the main focus. Firstly, Trichet maintained that ECB has 'no bias' since the rate hike in Sep and markets could react violently if there's any change in the bias. Secondly, while medium term inflation risks remain on the upside, it will be interested to see how Trichet comments on recent sharp fall in oil and commodity prices and thus if Trichet will soften the tone in guarding inflations. Thirdly, Trichet has downplayed the weakness in Eurozone's economy in Q2 and Q3 as a 'technical correction' and markets will look at whether Trichet will sound more concerned if such 'correction' will extend further than originally expected. Fourthly, ECB will publish updated staff projections and is expected to downgrade GDP forecasts and up grade inflation forecasts.

Technically speaking, EUR/USD is now sitting on an important trend line support just above 1.4309 key medium term support. Recent developments are building up the case that at least the rise from 05 low of 1.1639 has completed, with increasing odds that whole multi year up trend from 01 low of 0.8223 has completed too. However, whether this is true or not, a rebound, should be due as the EUR/USD is losing some downside momentum this week. Also, 1.43/44 level is a perfect technical level to stage such rebound whether it's a correction or a reversal. Hence, traders are advised to tighten up the stops and re-enter short only if 1.4309 if firmly taken out.

EUR/USD Weekly Chart

In addition to the ECB rate decisions, markets will also focus on ADP employment report and ISM non-manufacturing report from US today. The private ADP report is expected to show -30k contraction in the US job market in Aug. The ISM non-manufacturing index is expected to stay contractionary for the third consecutive month at 49.4. Q2 labor costs and productivity revision will also be released. BoE is widely expected to leave rates unchanged at 5.00% today and should be a non-event.

More on ECB:

• EU Preview: Revisions Expected to the ECB Staff Projections for 2008, 2009
• EU Preview: Economists Foresee Hawkish Tone During ECB Press Conference
• ECB to Downplay Decline in Headline Inflation
• EU Market Preview: FX and Bonds Very Much Expecting a Hawkish Trichet
• ECB: Preview of Meeting on September 4
• ECB: "Downside Risks Have Materialised"
• (ECB) Press Conference Introductory Statement 7 August 2008

More Technical Analysis Reports Here

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.4410; (P) 1.4471; (R1) 1.4557; More

EUR/USD continues to recover after drawing support from medium term rising trend line. With 4 hours MACD crossed above signal line, intraday outlook is turned neutral for the moment and some more recovery could be seen. Nevertheless, another fall is still in favor as long as 1.4811 resistance holds, to key medium term support at 1.4309. However, note bullish convergence condition in 4 hours MACD and RSI, break of 1.4811 will indicate that a short term bottom is finally in place and bring stronger rebound to test 1.5284 double top neckline resistance before staging another fall.

In the bigger picture, the double top reversal pattern (1.6019, 1.6038) serves as an important signal of completion of medium term rise from 1.1639 (05 low), which is supported by the decisive break of 55 weeks EMA. Weekly MACD turned negative last week, adding another bullet for this case. Though focus will still be on a) whether key support level of 1.4309, (38.2% retracement of 1.1639 (05 low) to 1.6038 at 1.4358, 61.8% retracement of 1.3262 to 1.6038 at 1.4322) will hold; b) whether next trend line support (1.1825, 1.2483, now at 1.4404) will hold; c) whether monthly MACD will cross below signal line for confirmation. On the upside, sustained break of double top neckline resistance is needed before considering that decline from 1.6038 has completely finished. Otherwise, another fall is still expected in case of rebound.

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Published on  Thu, Sep 4 2008, 07:45 GMT