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Daily Forex Technical Report

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Daily Forex Technical Report − Dollar and Yen Rebound Despite BoJ Cut

Fri, Oct 31 2008, 07:43 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Daily Report

Dollar and Yen Rebound Despite BoJ Cut

Dollar and yen rebound strongly today as Asian stock markets ignore the first rate cut from BoJ in seven years and fall sharply. Japanese Nikkei is down over 5%. BoJ cut benchmark interest rate by 20bps to 0.3% in a split decision. Board members Miyako Suda, Atsushi Mizuno, Seiji Nakamura and Hidetoshi Kamezaki, all of whom have private sector backgrounds, voted against the decision. BoJ Governor Masaaki Shirakawa was required to cast the deciding vote. BoJ also downgraded their economic assessment, saying the economy will remain sluggish over the next several quarter and downside risks to growth are increasing. Though, the upside risks to inflation are on their way down.

Technically speaking, the current rebound in dollar and yen indicates that correction has already completed and both currencies should be targeting to retest recent high against other majors. Admittedly, the rebound in Euro, Aussie and Canadian dollar against the greenback was stronger than we expected but after all, there is still no change in the overall medium term up trend in the greenback yet. While the current consolidation may extend further, more upside is still expected after completing the consolidation.

A number of economic data were released from Japan earlier today. Sep national CPI moderated to 2.3% yoy as expected and economists are expecting inflation to moderate in a steeper path in the near future. Unemployment rate unexpectedly dropped to 4.0% in Sep but economists generally expect it to bounce up again as Japan enters into recession.

From UK, Gfk consumer confidence dropped more than expected to -36 in Oct, hitting the lowest level since at least 1974. Germany retail sales contracted more than expected by -2.3% mom in Sep.

Looking ahead, Eurozone Oct HICP flash and unemployment rate, Swiss KOF leading indicator, US personal spending and income, Chicago PMI and Canadian GDP will be featured later today.

More Forex Technical Analysis Reports Here.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 124.36; (P) 127.68; (R1) 130.59; More.

EUR/JPY's sharp fall from 131.02 with 4 hours MACD dragged below signal line indicates that an intraday top is in place. Outlook is turned neutral for the moment. As discussed before, break of 121.38 support will indicate that rebound has completed and flip intraday bias back to the downside for retesting 113.63 low. On the upside, while some more recovery cannot be ruled out, we'd still expect upside to be limited by 132.18 resistance.

In the bigger picture, while the rebound from 113.63 is strong, there is no indication of a medium term reversal yet. Medium term outlook will remain bearish as long as 141.73 cluster resistance holds (50% retracement of 169.96 to 113.63 at 141.79). Whole decline from 169.96 is still expected to extend further before making a medium term bottom. However, touching of 141.73 will indicate that EUR/JPY has already completed a five wave sequence at 113.63 and large scale consolidation should then follow before resuming the down trend.

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Published on  Fri, Oct 31 2008, 07:55 GMT