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Mid−Day Forex Technical Report − Euro Dives Further after Trichet, $ Index above 80

Thu, Oct 2 2008, 13:27 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Mid-Day Report

Euro Dives Further after Trichet, $ Index above 80

Euro dives further in early US session after ECB Trichet left rates unchanged at 4.25% but delivered a much softer message in the following press conference. A few points to note. Firstly, the governing council did discussed two options, on hold and cut rates, even though the rate to hold rates was unanimous. Secondly, Trichet noted weakening of Eurozone economic activity has been "very visible" and recent data suggests there are "increased downside risks" to growth. Thirdly, Trichet acknowledged that upside inflation risks have diminished even though they didn't disappear yet. All in all, Trichet stressed that ECB is aware of the high level of uncertainty that has developed due to intensification of the financial market turmoil. After all, the markets generally believe that Trichet is paving the way for a rate cut, probably by year end and another cut early next year.

Technically speaking, note that EUR/USD and EUR/JPY both took out this year low's today which confirm that recent medium term down trend has resumed. USD/CHF is pressing 1.1416 high and should set to take this out to confirm resumption of medium term rise. Another pair to watch is USD/CAD, which surges sharply with support of falling oil prices and is now back pressing key medium term resistance at 1.8 level. Dollar index takes out 80 level today, confirming that rise from 71.31 has resumed. And after all, more upside is expected from the greenback.

Economic data released today saw US jobless claims remains elevated at 497k. Eurozone PPI dropped -0.5% mom in Aug, with yoy rated moderated to 8.5% as expected. UK nationwide house price dropped further by -12.4% yoy in Sep. Australia trade surplus came in wider than expected at 1364m in Aug.

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EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3922; (P) 1.4178; (R1) 1.4346; More

EUR/USD's break of 1.3851 key medium term support indicates that whole decline from 1.6038 should have resumed. At this point, intraday bias remains on the downside as long as 1.3936 minor resistance holds. Further decline is expected to 61.8% projection of 1.6038 to 1.3881 from 1.4867 at 1.3543 next. On the upside, above 1.3936 will indicate that a short term bottom might be formed and bring consolidation. But recovery should be limited well below 1.4574 resistance and bring fall resumption.

In the bigger picture, sustained trading below 1.3851 medium term support will confirm that whole decline from 1.6038 has resumed. Next medium term target will be 61.8% retracement of 1.1639 to 1.6038 at 1.3319. On the upside, above 1.4867 resistance is needed to indicate that a medium term bottom is formed. Otherwise, medium term outlook remains bearish even in case of strong rebound.

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Published on  Thu, Oct 2 2008, 13:32 GMT