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Daily Forex Technical Report

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Mid−Day Forex Technical Report − Dollar and Yen Rallies Continue, BoC Cut 25bps Only

Tue, Oct 21 2008, 13:27 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Mid-Day Report

Dollar and Yen Rallies Continue, BoC Cut 25bps Only

Dollar extends rally is early US session with dollar heading closer to 84 level. EUR/USD's break of 1.3258 low earlier today triggered some stop orders on long positions which aided dollar's rally. In addition, Euro is pressured by renewed speculations that ECB will cut rates again as the downturn in Eurozone economy is intensifying. The greenback is also boosted by weakness in commodity prices which see gold breaches $770 level while crude oil weakens to below $73. Dollar demand for settlement of Lehman Brothers CDS as well as hope for second stimulus package from US government continue to support the greenback too. On the other hand, the Japanese also strengthens further after FTSE 100 and DAX turned negative follow a brief rally earlier today. US stocks also opened mildly lower.

Bank of Canada cut overnight target rate by 25bps only to 2.25%. Markets expected a 50bps cut. The bank said in the statement that together with the 50bps cut on Oct 8, there are already 75 bps cut and should provide timely and significant support to the Canadian economy. The bank also noted that policy rate was lowered by accumulative 225bps since last December. Though, easing bias is still maintained as "some further monetary stimulus will likely be required." The less that expected rate cut provided little support to the Loonie as USD/CAD is set to retest 1.2129 high.

Elsewhere, Sterling also softens in general today after CBI reported that balance of UK firms who had seen total order book levels deteriorate over the third quarter fell to -39%, the lowest level since October 2003. Swiss Trade surplus was unchanged at 1.44b in Sep. RBA Governor Stevens said earlier today that the aggressive rate cut and fiscal stimulus will "lessen the extent of the likely slowdown in Australian's economy". Measures by central banks to improve liquidly seemed to be working well and there risk of a "global catastrophe" has improved. New Zealand CPI rose 1.15% qoq in Q3, pushing yoy rate to 18 year high of 5.1% as expected.

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USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.1771; (P) 1.1875; (R1) 1.2011; More.

USD/CAD's rally resumes and is back pressing 1.2129 high in early US session. At this point, intraday bias remains on the upside as long as 1.1940 minor support holds. Break of 1.2129 will confirm that medium term up trend from 0.9056 has resumed. Next short term target will then be 200% projection of 0.9823 to 1.0819 from 1.0297 at 1.2289. On the downside, below 1.1940 will turn intraday outlook neutral first.

In the bigger picture, preferred interpretation of the up trend from 0.9056 is that first wave rally is completed at 1.0248. Subsequent second wave consolidation was in form of triangle and finished at 0.9823. Rise from there is treated as third wave rally and is still in the acceleration phase. In other words, USD/CAD is just in the middle of a long term up trend which should extend beyond 1.2737 resistance to 261.8% projection of 0.9056 to 1.0248 from 0.9823 at 1.2944. Also, while interim consolidation could be seen, downside should be contained above 1.0819 resistance turned support and bring up trend resumption. Break of 1.0819 is needed to invalidate this view.

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Published on  Tue, Oct 21 2008, 13:41 GMT