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Daily Forex Technical Report

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Daily Forex Technical Report − Risk Aversion Back ahead of ECB and BoE Meetings

Thu, Nov 6 2008, 06:55 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Daily Report

Risk Aversion Back ahead of ECB and BoE Meetings

Risk aversion is back to the market following 486 pts fall in DOW and broadly lower Asian stock markets. The Japanese yen and dollar fight back with the usual candidate, the Aussie, hit most in spite of a better than expected job report from Australia. Dollar index climbs back to above 85, oil weakens to below $65 while gold also drops below $738. Markets' focus now turns to two of the biggest events of the week, ECB and BoE meeting and much volatility is anticipated throughout the day.

ECB is widely expected to cut the benchmark rates by 50bps from 3.75% to 3.25%. Eurozone CPI peaked at 16 year high of 4% in July and moderated steeply to 3.2% yoy in Oct since then. With falling commodity prices, inflation is believed to be a much lesser threat now, giving room for ECB to cut rates to revive growth in the Eurozone and avoid a recession. Due to recent sharp deterioration in growth outlook, there are some speculations on a wider than expected cut by 75bps today. Also, markets are pricing in as much as 125bps cut in the coming nine months. Hence, be it a 50bps cut or more, Trichet will likely sound dovish and signal further rate cuts in the near term in the post meeting conference.

BoE is also expected to cut rates by 50bps from 4.50% to 4.0% today but there are even more speculations of a larger than expected cut of 100bps. It's no doubt that UK is entering a recession with sharp deterioration in growth data and confidence in consumers and businesses. Markets are speculating that UK will be the next to follow US to get itself close to near Zero Interest Rate Policy. This is reflected in the fact that Sterling was the weakest European major currency in Oct and it's even weaker than Aussie and Kiwi this month.

On the technical side of the story, a few things to note. Firstly, AUD/USD and USD/CAD are showing sign of momentum loss and the correction might be completing. Secondly, similar situation is seen in USD/JPY which argues that the rebound might have completed. Though, EUR/JPY and GBP/JPY remains relatively steady in range so far. Thirdly, Dollar Index's rebound left the fall from 86.98 to 83.9 in three wave corrective structure which suggests upside potential in near term. But after all, note that the major pairs and crosses are mostly still bounded in established range and the current choppy consolidation could extend further in unpredictable path as long as the range holds.

On the data front, New Zealand unemployment rate rose less than expected from 3.9% to 4.2% in Q3. Australian unemployment rate was unchanged at 4.3% in Oct, better than expected 4.4%. Japan leading indicator rose 0.2% to 89.2% in Sep. Germany factory orders is expected to drop -0.2% mom, 3.2% yoy in Sep. US jobless claims is expected to edge higher to 480k. Q3 labor cost is expected to rise 2.8% with productivity up 0.8%. Canadian building permits and Ivey PMI will also be released.

More Forex Technical Analysis Reports Here.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.5700; (P) 1.5949; (R1) 1.6147; More

GBP/USD's rebound from 1.5603 was limited by 4 hours 55 EMA (now at 1.6144) and weakens again. Intraday outlook is turned neutral again. Short term outlook is mixed with consolidation that started at 1.5269 still in progress. Nevertheless, below 1.5603 will encourage a retest of 1.5269 low. On the upside, above 1.6198 will encourage a retest of 1.6671 resistance. But after all, note that the path of consolidation will remain un predictable as long as 1.5269 low remains intact.

In the bigger picture, while rebound from 1.5269 is strong, there is no confirmation of a medium term bottom yet. There are some different interpretations of the structure of the whole down trend from 2.1161, with different projection targets. The most bearish case is that fall from 2.0158 is the third wave in whole fall from 2.1161 while fall from 1.8668 is the third wave of the fall from 2.0158. In other words, GBP/USD is just in the middle of the whole down trend from 2.1161. The least bearish case is that the fall from 1.8668 is the fifth wave of the whole five wave decline from 2.1161 and is nearing an end. Nevertheless, in any case, the fall from 1.8668 needs to complete a five wave structure before considering that a medium term bottom is formed.

Having said that, medium term outlook will remain bearish as long as 1.6786 support turned resistance holds and a new low should be made before making a medium term bottom. However, above 1.6786 will indicate that fall from 1.8668 has possibly completed. It will also be the first alert that a medium term bottom is in place and break of 1.7630 will confirm. In such case, some large scale consolidations will follow.

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Published on  Thu, Nov 6 2008, 07:12 GMT