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Daily Forex Technical Report

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Daily Forex Technical Report − Yen Retreats as Stock Rebounds, Dollar to Follow?

Tue, Oct 28 2008, 07:16 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Daily Report

Yen Retreats as Stock Rebounds, Dollar to Follow?

The Japanese yen retreats further today following rebound in Asian stock markets as well as increased speculation of intervention. Nikkei is up more than 6% after hitting a 26 years low yesterday. MSCI Asia Pacific Index is up over 2% after closing at the lowest level since Aug 2003 yesterday. There are also increased speculations of intervention after G7 issued a statement over the weekend expressing it's concern on the strength of yen's exchange rate. Though, the possibility of coordinated intervention is not likely at this moment after French Finance Minister Lagarde said this will be a "pure Japanese" intervention.

Technically speaking, as discussed before, USD/JPY has made a short term bottom at 90.92 last week. Development in other yen crosses indicates that short term bottom should be formed there too. Though, there is still no change in the medium term bearish outlook and the down trend is still expected to extend further after completing the current rebound.

Focus should now turns to the whether the greenback has topped out in short term too. Intraday momentum of dollar index is seen diminishing with mild bearish divergence conditions in 4 hours MACD. A break below 86.65 minor support will argue that a short term top is in place at 87.87 after the index fails below 100% projection of 75.89 to 83.18 from 80.75 at 88.04.

In the financial stability report, BoE said that global financial system is facing the "most severe" instability in living memory and remains under strain as global economic downturn is underway.

On the data front, Japanese retail sales dropped more than expected by -0.5% mom, 09.4% yoy in Sep. Germany Gfk consumer sentiment unexpectedly improved to 1.9 in Nov. The focus later today will be on S&P/Case-Shiller house price index which is expected to show -16.6% yoy decline. Conference board consumer confidence is expected to deteriorate from 59.8 to 52 in Oct.

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USD/JPY Daily Outlook

Daily Pivots: (S1) 91.60; (P) 93.04; (R1) 94.21; More.

USD/JPY's rebound from 90.92 extends further to as high as 96.18 today and at this point, intraday bias remains mildly on the upside as long as 92.48 minor support holds. As discussed before, a short term bottom is in place at 90.92 and some further consolidation and recovery could still be seen. However, upside is expected to be limited below 97.91 resistance and bring down trend resumption. Below 92.48 will flip intraday bias back to the downside for retesting 90.92 low. Break will set the stage for 100% projection of 124.13 to 95.77 from 110.66 at 82.3.

In the bigger picture, last week's decisive break of 95.77 low confirms that whole down trend from 124.13 has resumed. Also, note that the current development clears out the long term picture too. Price actions that started from 79.75 (95 low) has completed in form of a triangle that needed with five waves to 124.13. In other words fall from 124.13 is just part of an even larger scale down trend which could extend further to retest 79.75 low. On the upside, break of 103.06 resistance is at least 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  Tue, Oct 28 2008, 07:27 GMT