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Daily Forex Technical Report

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Daily Forex Technical Report − Dollar and Yen Weakened after Fed Cut, Focus Turns to Q3 GDP

Thu, Oct 30 2008, 07:36 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Daily Report

Dollar and Yen Weakened after Fed Cut, Focus Turns to Q3 GDP

Markets' turnaround continues after Fed's expected 50bps cut to 1.00% yesterday. Dollar and yen continue to give back the gains earlier this month. There were some hesitations on the last minute sell off in DOW but the forex markets gather momentum again following another day of strong rebound in the Asian stock markets. Dollar index's break of the short term trend line support confirms that at least a short term top is in place at 87.87. Commodity yen crosses are the top gainers today with support of rebound in commodity prices. Crude oil also rides on improved investment sentiments and climbs back to above 70 level.

Technically speaking, development in EUR/USD, USD/CHF, USD/CAD and AUD/USD indicates that the greenback has topped out in short term. Some more downside would be seen in the greenback and yen as stops are triggered. Short term bias in dollar and yen will likely remain bearish for a while but after all, the current pull back in dollar and yen is treated as a correction, or part of the correction, in a larger down trend even though such correction could extend longer and deeper.

FOMC cut the federal funds rate by 50bps to 1.00% as widely expected. Discount rate was also cut by 50bps to 1.25%. The vote was unanimous. The wordings in the statement showed additional concern on downside risks to growth. Fed acknowledged that "the pace of economic activity appears to have slowed markedly" owing to weakened consumer spending, business spending, industrial production and foreign economies, with extra restraints from "intensifications of financial market turmoil." Fed continue to adopt an easing bias as it pledged to "act as needed to promote sustainable economic growth and price stability". Inflation is not much of a concern for the moment since recent decline in energy and commodity prices and weaker economy will moderate inflation in the coming quarters. In addition, Fed set $120b swap lines in emerging markets including the creation of temporary swap with central banks of of Brazil, Mexico, Korea and Singapore.

Australian dollar is additionally boosted by comments from RBA Deputy Governor Ric Battellino that inflation levels in Australia could restrict the bank's ability to cut interest rates further. He said that "there is still a big task ahead to bring inflation down and this could limit room for manoeuvre on monetary policy."

Markets' main focus will now turn to advanced Q3 GDP report from US. Annualized GDP is expected to contract -0.5%. A negative GDP report would mark the second quarterly decline in the 14-month credit crunch, after a -0.2% contraction in Q4 2007 in the finalized print. Personal consumption growth is set to be negative for the time in nearly 18 years, at -1.9%. Other data to be released today include Germany unemployment, Eurozone sentiment indicators, US jobless claims and Canadian PPI.

More Forex Technical Analysis Reports Here.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.2727; (P) 1.2860; (R1) 1.3094; More

EUR/USD's rebound extended further to as high as 1.3290 before retreating mildly. Break of near term falling channel resistance as well as 1.3258 support turned resistance indicates that decline from 1.4867 has completed at 1.2329 already. Short term outlook is turned bullish for the moment. At this point, further rally is still expected as long as 1.2819 minor support holds, towards 1.3768 cluster resistance. On the downside, below 1.2819 will indicate that rebound from 1.2329 has possibly completed and will put focus back to this low.

In the bigger picture, the rebound from 1.2329 is stronger than expected and break of 1.3258 resistance indicates that fall from 1.4867 has completed. Nevertheless, there is no change in the medium term outlook yet as long as 1.3768 cluster resistance (38.2% retracement of 1.6038 to 1.2329 at 1.3746) holds. Whole decline from 1.6038 is still expected to develop into a five wave impulsive fall, with the third wave completed at 1.2329. In other words, there should at least be one more fall before making a medium term bottom. Such fifth wave should after after completing the current correction/consolidation to make a new low. However, sustained break of 1.3768 will invalidate this view suggest that the whole fall from 1.6038 has finished too and in such case, stronger rally should be seen at least to test 61.8% retracement at 1.4621.

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Published on  Thu, Oct 30 2008, 07:45 GMT