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Daily Forex Technical Report

Mid−Day Forex Technical Report − Forex Markets in Tight Range Despite Surprises in US and UK Inflation Data

Tue, Nov 18 2008, 14:24 GMT
by ActionForex.com Team

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Action Insight Mid-Day Report

Forex Markets in Tight Range Despite Surprises in US and UK Inflation Data

The forex markets continue to stay in tight range today despite some big surprises from inflation data from US and UK. US PPI dropped sharply by 2.8% mom in Oct, biggest fall since the series began in 1947. Year over year rate was down from 8.7% to 5.2% versus consensus of 6.2%. Core PPI, though, rose 4.4% with yoy rate up to 4.4%. TIC capital flow rose to 66.2B in Sep. Focus will turn to testimony of Bernanke and Paulson.

UK consumer inflation had the steepest drop in at least 11 years in Oct. Headline CPI dropped -0.2% in mom, first decline since 2001. Year-over-year rate moderated more than expected from 16 year high of 5.2% to 4.5%. Core CPI dropped -0.7, steepest drop since records began in 1997. Year-over-year rate slowed from 2.2% to 1.9%. RPI dropped -0.3% mom, with yoy slowed to 4.2%. RPI-X dropped -0.3%, with yoy rate slowed to 4.7%. The sharp cooling of inflation marked a turn in the trend which is expected to carry on until next year. BoE has slashed rates by 200bps since early October and based on current inflation outlook, further rate cut is still expected in Dec, probably by another 50bps. Eventually, markets are expecting BoE to cut rates to 2% by mid 2009.

Other data today saw Swiss retail sales unexpectedly rose 6.4% mom in Sep. Japanese leading indicators was revised slightly higher to 89.4 in Sep.

Technically speaking, dollar index continues to stay in tight range below 87.98, possibly in triangle consolidation. Consolidation in most major pairs are still in progress and will probably extend further. Stocks are set to have a mixed open today and focus will be on whether Dow would extend this week's decline to test recent low of 7884. Crude oil dipped to 54.13 earlier today but recovers back to above 55 in early US session.

More Forex Technical Analysis Reports Here.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.2103; (P) 1.2261; (R1) 1.2413; More.

US/CAD continues to stay in established tight range below 1.2445 today and with an intraday top in place, further choppy sideway trading could be seen. But after all, since correction from 1.3015 should have completed at 1.1464, ahead of 50% retracement of 0.9823 to 1.3015 at 1.1419, further rise is still expected to retest this 1.3015 high. On the downside, however, break of 1.1658 will indicate that rise from 1.1464 has completed and more importantly, this will suggest that correction from 1.3015 is still in progress and is resuming to below 1.1464.

In the bigger picture, preferred interpretation of the up trend from 0.9056 is that first wave rally is completed at 1.0248. Subsequent second wave consolidation was in form of triangle and finished at 0.9823. Rise from 0.9823 is treated as third wave rally and should have completed at 1.3015 already. Hence, some medium scale consolidation might be seen now. However, note that firstly, downside of such consolidation should be contained by bottom of the fourth wave in a lower degree at 1.1304. Secondly, sustained break of 1.3015 will confirm that the medium term up trend has resumed, with the fifth wave started and should then target 61.8% retracement of 1.6196 to 0.9056 at 1.1783 at 1.3469.

Published on  Tue, Nov 18 2008, 14:31 GMT

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