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Daily Forex Technical Report

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Mid−Day Forex Technical Report − Markets Stabilize into Consolidation

Wed, Sep 17 2008, 12:52 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Mid-Day Report

Markets Stabilize into Consolidation

Markets stabilized a lot after Fed's $85b bailout announcement for AIG overnight. Economic data across the Atlantic are generally bad but markets remain steady so far. Building permits in US dropped much more than expected by -8.9% to 0.85m in Aug, housing starts dropped -6.2% to 0.89m. Current account deficit widened to -183.1b in Q2. After all there is still not change in the outlook in major forex pairs. Dollar's pull back is still expected to extend further. The Japanese yen may be facing some resistance for the moment, but yen crosses are still in favor to head lower with near term resistance levels remain intact.

Sterling spiked lower after BoE minutes and employment report but quickly settles back into established range. BoE minutes surprised the markets by revealing a two way split of votes, with ultradove Blanchflower voted for a 50bps cut and no one voted for a hike. In his letter to Chancellor Darling, BoE Governor King explained why the bank fails to bring down inflation and noted that "muted economic growth is necessary to dampen pressures on price and wages". He expects CPI to "peak soon at around 5%". In Aug, claimant count climbed further to 2.8%, jumped sharply to 32.5K versus expectation of 22.3k. Unemployment rate in Jul also rose to 5.5% versus consensus of 5.4%. CBI industrial trend survey came in much worse than expected at -26.

Other data saw Swiss ZEW improved from -79.6 to -44.4 in Sep. Eurozone trade deficit widened to -2.3b in Jul.

BoJ left rates unchanged at 0.5% as widely expected. In the accompanying statement, BoJ noted that energy prices and weak experts is keeping the economy sluggish but growth will return to a moderate path once commodity price stabilize and global economies improve. Inflation will remain high for months before moderating. In the press conference, BoJ Governor Shirakwa noted both upside risks on inflation and downside risks to growth but he stressed that downside risks had not worsened.

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GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.7708; (P) 1.7858; (R1) 1.7983; More

Some volatility is seen in cable today but after all it's still holding in tight range above 1.7634 minor support. Outlook is unchanged. A short term bottom is in place at 1.7445 after drawing support from long term fibonacci level of 50% retracement of 1.3680 to 2.1161 at 1.7421. Further rally should still be seen to correct the fall from 2.0158. Above 1.8042 will indicate such rebound has possibly resumed, targeting 1.8512/8794 resistance zone. Nevertheless, upside is expected to be limited by key near term cluster resistance at 1.8794 (50% retracement of 2.0158 to 1.7445 at 1.8802) and bring down trend resumption. On the downside, however, below 1.7634 minor support will indicate that rebound from 1.7445 has completed and will flip intraday bias back to the downside for retesting this low.

In the bigger picture, medium term fall from 2.1161 (07 high) is still in progress. The whole fall from 2.1161 should be impulsive in nature. In other words, While a short term bottom is in place and corrective rebound should be seen, at least one more fall should be seen before making a medium term bottom. Hence, further decline is still expected after completing the current rebound from 1.7445, targeting 61.8% retracement of 1.3680 to 2.1161 at 1.6538 first. Break of 1.9337 support turned resistance is needed to invalidate this view.

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Published on  Wed, Sep 17 2008, 12:54 GMT