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Daily Forex Technical Report

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Daily Forex Technical Report − FOMC in Focus, 50bps Cut Expected

Wed, Oct 29 2008, 07:14 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Daily Report

FOMC in Focus, 50bps Cut Expected

Dollar and Yen recovers mildly today after Asian stock markets give back some earlier gains. DOW staged one of its best even rally of nearly 900 pts yesterday but after all, it's still kept well below the important near term resistance of 9,785 and there is no change in the view that it's merely in consolidations. Also, the key event risks of FOMC rate decision (today) and Q3 GDP release (tomorrow) haven't past yet. Though, the development in USD/JPY worths attention. Recent volatility in the forex markets are mainly caused by de-leveraging as well as carry trade unwinding and hence both dollar and yen are strong across the board. Recent talk of yen intervention may halt the yen rally for a while but likely have little impact on dollar's strength. Hence, after leading the forex markets for a while, the yen may pass the ball to dollar for taking lead. Technically speaking, USD/JPY has already taken out near term resistance of 97.91 in yesterday's rally. Focus will now turn to 103.06 on whether whole decline from 110.66 is still in progress, or has completed.

FOMC rate decision will take center stage today. Futures markets are pricing in full probability of a 50bps cut to 1.00%, with around 40% chance of 75bps cut. Note that since 1960s, the federal fund rate has been at 1% only once before, from late June 2003 to late June 2004. One of the focus is definitely on whether the Fed will affirm markets' expectation of another rate cut in Dec. Also, note that markets have been very sensitive to dovish comments from Bernanke on the economy recently. Hence, the paragraphs on economic outlook will be heavily scrutinized.

On the economic data front, New Zealand trade deficit came in wider than expected at -1183m. Japanese industrial production unexpectedly rose 1.2% mom, 0.4% yoy in Sep. US durable goods orders will be released too and is expected to show the second consecutive month of contraction by -1.2% in Sep. Germany HICP is expected to moderate sharply from 3% to 2.6% yoy in Oct.

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EUR/JPY Daily Outlook

Daily Pivots: (S1) 117.57; (P) 121.09; (R1) 127.81; More.

EUR/JPY's rebound from 113.63 extended further to as high as 127.29, touching mentioned 4 hours 55 EMA. At this point, intraday bias remains on the upside as long as 118.13 minor support holds and further rebound could not be ruled out. Though, upside is still expected to be limited below 132.18 resistance and bring down trend resumption again. On the downside, below 118.13 will flip intraday bias back to the downside for retesting 113.63 low. Break will indicate recent fall has resumed for 200% projection of 169.96 to 147.03 from 156.84 at 110.98 next.

In the bigger picture, the steep down trend from 169.96 is still in progress and has taken out long term fibonacci level of 61.8% retracement of 88.97 to 169.96 at 119.90. The development so far suggests that fall from 169.96 is developing into a five wave decline and EUR/JPY is probably in the middle of it only. Medium term outlook will remain bearish as long as 132.18 resistance holds and another fall is still expected even in case of rebound. Medium term focus is now on 100 psychological level. However, break of 132.18 will dampen the above view and indicate that a medium term bottom might be formed. Touching of next resistance of 141.73 will confirm this case and EUR/JPY should then turn into large scale consolidation in such case.

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Published on  Wed, Oct 29 2008, 07:29 GMT