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Daily Forex Technical Report

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Weekly Review and Outlook − FOMC and US GDP in Focus after a Historical Week

Sun, Oct 26 2008, 16:56 GMT
by ActionForex.com Team

ActionForex.com

Weekly Review and Outlook

FOMC and US GDP in Focus after a Historical Week

Without a doubt, the current financial market crisis will go down into history. De-leveraging, capitulation, fear of recession, or for whatever reason, investor rushed out of the financial markets causing crashes in the global stock markets which in turned triggered unprecedented rally in the Japanese yen and to a lesser extent the dollar. The moves in most markets were historical as readers should have heard hundred times from TV news already. The question in everyone's mind, though, is when this will end but no one can really provide an answer.

However, one thing for sure is that we're not near to end of the market panic yet. Some people might be relieved that DOW only dropped 312 pts on Friday even though all three major stock index futures were limit down in pre-market trading. We have opposite view on it since it suggests that there would be at last another round of stock selling before markets stabilize. Why? Technically speaking, DOW the development in DOW is still inline with our view that price actions from 7,884 is developing into triangle consolidation. We must emphasize again that the most major financial markets, including the forex, are doing something of a large degree which means that the moves will be big. A few hundred points swing in the DOW is indeed rather normal if we're talking consolidation to a 4,000 pts decline. So, "at least" one more fall is expected from the DOW before taking a medium term bottom which should extend the moves in other financial markets further.

Fundamentally speaking, we're just beginning to receive the series of bad economy data. Q3 GDP from US will be released next week and is expected to show the biggest drop in almost two decades. Non-Farm Payroll report will be released the week after and will start to show how the job markets in the US deteriorates after the financial market crisis intensify. It's just the beginning.

Currency Heat Map Weekly View

The Week Ahead

The economic calendar of the last week of October is extremely busy, with a number of market moving events, in particular from the US. One of the highlights of the week is FOMC meeting. Markets expect Fed to cut rates by another 50 bps to 1% on Wednesday but there are some speculations of a 75bps cut. Q3 GDP will definitely be another highlight and is expected to show -0.3% annualized contraction with personal consumption dropping -1.9%. Other economic data includes New Home Sales, Durable Goods, Consumer Confidence, Sep PCE and Chicago PMI.

From Eurozone, Germany IFO business climate will catch most attention on Monday, together with M3 Money supply growth. Other important data includes Germany retail sales and unemployment, Eurozone unemployment, sentiment indicators and Oct flash HICP.

BoJ is widely expected to keep rates unchanged at 0.5% this week. A number of data including retail sales, CPI, unemployment, housing, will also be released from Japan. Other important data to watch include Swiss KOF, UK Gfk, Canadian GDP, New Zealand Trade Balance.

More Forex Technical Analysis Reports Here.

GBP/JPY Weekly Outlook

GBP/JPY's down trend resumed last week and extended sharply lower to 139.02 before recovering strongly. Nevertheless, short term outlook remains bearish as long as 154.53 minor resistance holds. Further decline is still expected to 200% projection of 215.87 to 184.47 from 197.42 at 134.62. On the upside, touching of 154.53 will indicate that a short term bottom is in place and bring consolidation. But upside should be limited below 165.97 support turned resistance and bring down trend resumption.

In the bigger picture, regardless of the interpretation of the whole fall from 251.09, the current decline from 215.87 should develop into a five wave decline. Current interpretation is that first wave completed at 184.47, second at 197.42. Fall from 197.42 is treated as the third wave decline only and is still in progress. Any interim rebound should be limited below 165.97 resistance and bring fall resumption. Hence, medium term outlook will remain bearish as long as 165.97 holds and break of which is needed to indicate a medium term bottom is formed.

In the longer term picture, as discussed before, whole rise from 129.32 (95 low) has completed with three waves up to 251.09 already. The corrective structure suggests that it's merely a consolidation in the longer term down trend. Focus now turns to 129.32 low after 148.19 is taken out already.

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Published on  Sun, Oct 26 2008, 17:00 GMT