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Daily Forex Technical Report

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Daily Forex Technical Report − Dollar Pressured in a Busy Day with FOMC, US CPI, EZ PMIs and UK CPI

Tue, Dec 16 2008, 07:19 GMT
by ActionForex.com Team

ActionForex.com

Dollar's sharp decline continues ahead of a busy day that features FOMC rate decision and release of consumer inflation as well as new residential construction data from the US. Fed is widely expected to cut rates by at least 50 bps to bring the federal funds rate to lowest levels in decades of 0.50%. There are some speculations that Fed will indeed opt for a deeper cut with interest rate futures pricing in more than 60% chance of a 75bps cut. But whether it's 50bps or 75bps, it shouldn't matter much as it's just a matter of time when Fed will adopt Zero Interest Rate Policy. The focus is indeed on any details that the Fed would outline in the accompanying statement on the plan for "qualitative easing".

On the data front, building permits in November should have further reduced to 0.7M from 0.73M last month while November's housing start should have also lowered to 0.5M from 0.79M. Headline CPI is expected to moderate sharply from 3.7% yoy to 1.5% yoy in Nov while core CPI is expected to drop from 2.2% yoy to 2.1% yoy.

Technically speaking, dollar index's sharp decline from 88.46 is still in progress. Medium term rise from 71.31 is viewed as completed with five waves up to 88.46 (80.38, 75.89, 87.87, 83.11, 88.46). Head and shoulder reversal pattern there (ls:87.87, h: 88.46, rs: 87.68) confirmed that 88.46 is a medium term top. Deeper correction is now expected to 50% retracement of 71.31 to 88.46 at 79.88 which is close to 80 psychological level. On the upside, though a break above 84.03 minor resistance will suggest that a short term bottom is possibly formed and bring recovery as consolidation continues. Also, note that so far, dollar's weakness is mainly seen against European majors, in particular the broadly strong Euro. Commodity currencies and yen remains steady against the greenback this week so far.

Euro is still the strongest major currencies so far with EUR/USD taking out 1.37 level to as high as 1.3736 so far. EUR/GBP reached new record high of 0.9020 before retreating mildly. EUR/AUD should have completed triangle consolidation that started at 2.1161 and is set to retest this high. EUR/CAD, on the other hand, surged to as high as 1.6977 as expected and is just inch before long term resistance at 1.6984 and 1.7 psychological resistance.

Flash PMIs will be the main focus from the EUrozone today. After big disappointments in November as well as further economic deterioration, economists expect Eurozone's December manufacturing and service PMIs to come in at 34.3 (November: 35.6) and 41.2 (November: 42.5) respectively. Moreover, December PMI in Germany is also expected to have lowered to 34.5 from 35.7 for manufacturing component and 44 from 45.1 for services component. Eurozone will also report employment for the third quarter.

Due to decline in commodity prices and sluggish demand, UK's CPI should have plunged 0.3% in November after falling 0.2% in October. On annual basis, the gauge is expected to have risen to 3.9%, lower than 4.5% in the previous month. The nation's RPI is anticipated to come in at -0.7% and 3.1% on monthly and yearly basis. Both readings indicated continuous decline in price levels.

Switzerland's Q3 industrial production is expected to have dropped 2.3% after rising 8.9% in second quarter.

In the monetary policy minutes released overnight, the RBA lowered its forecast on inflation to 2.5% from 3% in the 12 months through Jun 09. As the RBA's target lies between 2-3%, the reduced forecast may lead the central bank to take a less aggressive approach in cutting interest rates in coming meetings. Japan's tertiary industry index in October surprisingly rose to 0.4% (consensus: -0.2%) from the revised -0.7% in September.

More Forex Technical Analysis Reports Here.

USD/CHF Daily Outlook

Daily Pivots: (S1) 1.1516; (P) 1.1641; (R1) 1.1718; More

USD/CHF's sharp decline from 1.2248 is still in progress and reaches as low as 1.1547 so far. At this point, intraday bias remains on the downside as long as 1.1688 minor resistance holds. Further fall should be seen towards next key medium term cluster support at 1.1416. On the upside, above 1.1688 will turn intraday outlook neutral first but break of 1.1874 is needed to indicate that fall from 1.2248 has completed. Otherwise, risks remain on the downside,

In the bigger picture, break of 1.1746 cluster support is an early alert that medium term rise in USD/CHF has topped out. Though, there is no confirmation yet. Focus now turns to 1.1416 cluster support (38.2% retracement of 1.0010 to 1.2296 at 1.1423). As long as this cluster support holds, medium term rise from 0.9634 is still in favor to resume. Break of 1.2248/2296 will target long term resistance zone of 38.2% retracement of 1.8305 to 0.9634 at 1.2946 and 1.3283 resistance (05 high). However, note that upside momentum is seen diminishing with bearish divergence condition in daily RSI. Firm break of 1.1416 cluster support will argue that rise from 0.9634 is over and bring deeper correction towards next medium term support at 1.0693.

For Crude Oil and Gold analysis, click here

Published on  Tue, Dec 16 2008, 07:21 GMT