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Daily Forex Technical Report

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Daily Forex Technical Report − Triangle Breakout in EUR/USD Due?

Tue, Nov 11 2008, 06:29 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Daily Report

Triangle Breakout in EUR/USD Due?

The main question in traders' mind now is, after more than two weeks of consolidation, is the forex markets due for a breakout? Technically speaking, we've pointed out that the consolidation pattern in dollar index as well as EUR/USD are likely in form of triangles. In that sense, the five wave structure of the price actions in both the dollar index and the EUR/USD argues that such consolidation might have already completed yesterday. Hence, all eyes will be on whether 86.35 (DXY) and 1.2653 (EUR/USD) will be taken out decisively and if that happens, strong powerful moves will likely be seen that in turn trigger broad based rally in the greenback. However, one must note that triangle consolidations are usually quite complex and unpredictable. Lack of followthrough momentum and any setback will indicate that that such consolidation is not completed. Hence, stops must be tight in trading triangle breakouts.

Elsewhere, note that yen crosses are basically still staying in established range on market indecisiveness. So is the Aussie. USD/CHF continues to lead the way by taking out 1.1800 resistance and reaches 1.1835 so far even though upside momentum remains unconvincing.

Looking at the economic calendar today, German ZEW could be the trigger for the breakout mentioned above. The ZEW economic sentiment indicator reached a record low of -63.9 in Jul. Subsequent improvement was short-lived and confidence deteriorated again to as low as -63 in Oct as financial market crisis intensified. Though, ECB's massive rate cut and the European bailout packages are expected to stabilize the markets a bit. The Germany ZEW is expected to stay unchanged at -63 in Nov. Eurozone ZEW, on the other hand, is expected to improve mildly from -62.7 to -60.5. However, any downside surprises, in particular in case of new record lows, will add further pressure to the common currency. Other data to be watched from Eurozone today include Germany wholesale price index, which is expected to ease from 5.8% yoy to 4.2% in Oct.

Released overnight, UK BRC retail sales fell an annual -2.2% in Oct, worst decline in three years, because increasing unemployment rate and collapsing housing market discouraged consumer spending. RICS house price balance unexpectedly improved from revised -85% to -82% in Nov, indicating that slightly less agents reported falling house prices. Nevertheless, the overall housing markets remains poor with the index remaining negative since Aug 07. Real-estate agents and surveyors sold an average of 10.9 homes in the quarter through October, the lowest number since the series began in 1978. . Recent aggressive rate cuts by BOE will somehow help the property market as borrowing cost has been lowered. However, as banks remained reluctant to lend, lack of mortgage financing will delay recovery of the market and housing prices. DCLG house prices is expected to show -5.4% yoy decline in Sep. UK will also released trade balance which is expected to show -8b deficit in Sep.

Released from Japan, current account surplus dropped 48.8% to 1.49T yen ($15.3B) in September from a year ago. Imports rose 32.7% yoy with 62% jump in oil imports. Even though oil prices slumped by more than 50% from July, it was still 70% up from last year. Exports rose a modest 2.1% yoy due to slower demand from the US and Europe as well as recent strength in Yen. Export growth to China also slowed to 1.7% in September as slowdowns are spreading over to emerging markets. Economy Watchers Index fell to 22.6 In October

Also released today, Australia's NAB business confidence for October fell sharply to -29, the lowest level since the beginning of the measure in 1989, from -8 last month, signaling Australia was by no means immune from recession. It's the 10th successive month that the index posted negative number, which means the number of companies expecting worse economic outlook is higher than the those expecting improvement. Sentiments remains fragile and corporate earning results are weak. It won't be a surprise to see the gauge slips further in the coming months. And the success of the $586B stimulus plan of China is important for the outlook of Australian economy which relies heavily on exports of raw materials such as iron ore and coal.

More Forex Technical Analysis Reports Here.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.2668; (P) 1.2797; (R1) 1.2877; More

EUR/USD weakens again after recovering to 1.2927 yesterday and is now pressing an inner trend line support. While EUR/USD is still staying in range, it's possible to interpret the mentioned triangle consolidation as completed at 1.2927. Hence, we're cautiously bearish on EUR/USD as long as 1.2927 minor resistance holds. Break of 1.2653 support will add more credence to the case that recent down trend is resuming and will bring retest of 1.2329 low first. On the upside, however, above 1.2927 will indicate that the consolidation is not completed yet and more choppy sideway trading would be seen. Though, even in case of another rise, upside should be limited by 1.3768 cluster resistance.

In the bigger picture, as discussed before, the strength of the fall from 1.6038 reinforces the case that whole decline from 1.6038 is developing into a five wave impulsive fall. The completed decline from 1.4867 to 1.2329 might represent the third wave decline in the five wave sequence. Consolidation from 1.2329 might represent the fourth wave consolidation. Hence, another decline is still expected before making a medium term bottom. Below 1.2329 will target next long term fibonacci level of 50% retracement of 0.8223 to 1.6038 at 1.2131 or even further to 1.1639 key medium term support. On the upside, sustained break of 1.3768 cluster resistance (38.2% retracement of 1.6038 to 1.2329 at 1.3746) is needed to invalidate this view and indicate that whole decline from 1.6038 has made a medium term bottom.

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Published on  Tue, Nov 11 2008, 06:40 GMT