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Daily Report: Risk Off as Week Starts, Euro Pressured ahead of Merkozy Meeting
Dollar opened the week higher as markets are back in a risk off mode. A couple of news are weighing on market sentiments in Asia. IMF's chief economist Olivier Blanchard said that the fund will make a "fairly substantial" cut to global growth forecast this year even though it has already lowered 2012 growth projection to 4% back in September. He expects growth to be "not very far" from 3-4% with Europe "very close to zero". The fund will publish the revised forecast later in January on 24 or 25. Meanwhile a German magazine reported over the weekend that IMF is losing confidence in Greece's ability to fix the public finances problems. The magazine said IMF saw three options for Greece, including enacting further austerity, private creditor write off, or increasing the Eurozone bailout. The magazine questioned whether the target of 120% debt to GDP ratio by 2020 is achievable. German finance minister Wolfgang Schedule noted that 50% write-down on Greek debts is insufficient.
German Chancellor Angela Merkel and French President Nicolas Sarkozy are set to meet in Berlin today on details of the fiscal compact agreed in December's EU summit. The will also be discussion on French promoted financial transaction tax, the "Tobin Tax". Such "Tobin Tax" would be applied across EU including UK. But British Prime Minister David Cameron has already expressed his opposition unless the tax is imposed globally. Italian Prime Minister Mario Monti said that no additional austerity measures are needed to meeting the goal of eliminating deficit in 2013. Italian 10 year yield breached the "unsustainable" 7% level last week and attention would be on whether yield would move farther higher in near term. Bond auction of Spain and Italy on Thursday and Friday will be closely watched, along with ECB meeting.
News from Asia saw India's Prime Minister Manmohan Singh lowered the growth expectation from 7.5% to 7% in the year ending March. Australian dollar was pressured by disappointing retail sales figure, which was flat mom in November. New Zealand trade deficit widened slightly more than expected to NZD -308m in November. China new loans increased to RMB 640.5B in December up from RMB 562.2B a month ago. The broad M2 money supply soared 13.6% from a year ago, compared with 12.7% in November. The outcome probably reflected the PBoC's move to reduce the reserve ratio for the first time in almost 3 years to encourage lending in December. In coming months, the government's monetary policy is expected to remain loose in order to stimulate growth and to pave the way for soft landing.
Looking ahead, Swiss unemployment, retail sales, Eurozone Sentix investor confidence, German trade balance and industrial production, Canada building permits will be released.
Dollar index edged higher to 81.47 today as recent rally continues. The medium term outlook remains bullish for the moment. As discussed before, medium term decline from 88.70 should be finished at 72.69 on a head and shoulder bottom pattern. Current rally should target 61.8% retracement from 88.70 to 72.69 at 82.58 and above. In any case, we'll stay near term bullish as long as last week's low of 79.51 holds.
EUR/USD Daily Outlook
Daily Pivots: (S1) 1.2673; (P) 1.2742 (R1) 1.2788
EUR/USD's fall continues today and reaches as low as 1.2666 so far. Intraday bias remains on the downside for next target of 100% projection of 1.4939 to 1.3145 from 1.4246 at 1.2452. On the upside, above 1.2814 will turn bias neutral and bring consolidation. But recovery should be limited below 1.3076 resistance and bring fall resumption.
In the bigger picture, price actions from 1.6039 are unfolding as a consolidation pattern in the long term and is still in progress. Fall from 1.4939 is a falling leg inside the pattern. It's hard to anticipate the length of a leg of any complex corrective pattern. The first line of defense would be on the above mentioned 1.2452 projection level. Strong break of this level would then likely send EUR/USD through 1.2 psychological level to 1.1875 and below. Meanwhile, we'd prefer to see sustained break of 1.3145 support turned resistance before considering near term reversal.
GBP/USD Daily Outlook
Daily Pivots: (S1) 1.5358; (P) 1.5442; (R1) 1.5508
Intraday bias in GBP/USD remains on the downside for 1.5361 support. Break will confirm resumption of whole fall from 1.6165 and should target 1.5271 next. On the upside, though, break of 1.5525 minor resistance will dampen this immediate bearish case and turn bias neutral for some more consolidations between 1.52361/5773 before decline resumption.
In the bigger picture, price actions from 1.3503 are treated as consolidations to long term down trend from 2.1161. At this point, we're favoring the case that such consolidation is either finished with three waves to 1.6746, or five waves as a triangle at 1.6165. Break of 1.5271 support will affirm either case and should target 1.4229 key support. Decisive break there should extend the long term down trend through 1.3503 low. Meanwhile, strong rebound ahead of 1.4229, or a break of 1.6165, will dampen the immediate bearish view and extend the consolidation from 1.3503 instead.
USD/CHF Daily Outlook
Daily Pivots: (S1) 0.9511; (P) 0.9544; (R1) 0.9584
Intraday bias in USD/CHF remains not he upside with 0.9505 minor support intact. Current fall from 0.7065 is expected to continue towards 0.9916 key resistance next. On the downside, break of 0.9505 minor support will turn bias neutral and bring consolidations. But retreat should be contained well above 0.9304 support and bring another rally.
In the bigger picture, at this point, we're treating rebound from 0.7065 medium term bottom as part of a consolidation pattern only. Hence, strong resistance is expected at next cluster level at 0.9916 (61.8% retracement of 1.1730 to 0.7065 at 0.9948, 61.8% projection of 0.7065 to 0.9315 from 0.8567 at 0.9958) to limit upside and bring reversal. Meanwhile, break of 0.8567 support should mark the completion of whole rebound form 0.7065 and turn near term outlook bearish.
USD/JPY Daily Outlook
Daily Pivots: (S1) 76.83; (P) 77.08; (R1) 77.21
Today's sharp fall and bring of 76.89 minor support mixes up the near term outlook and turns focus back to 76.57/60 support zone. Break there will confirm resumption of whole decline from 79.52 and would bring deeper fall towards 75.56 low. On the upside, above 77.33 will revive the case of near term bottoming and flip bias back to the upside for 78.22 resistance. Break of 78.22 will be the first sign of rise resumption for 79.52 and above.
In the bigger picture, note again that there is no sign of long term trend reversal in USD/JPY yet even though downside momentum is diminishing with bullish convergence condition in weekly MACD. USD/JPY is still trading inside the falling channel that started back in 2007 at 124.13, and below the falling 55 weeks EMA. Not to mention that it's far below the falling 55 months EMA. Rebound from 75.56 low could extend higher and beyond 80 psychological level. But it could turn out to be a corrective three wave rally in the end. So, we'd at least prefer to see sustained break of 55 weeks EMA (now at 79.70) before considering the case of reversal. And break of 85.51 resistance will need to confirm. Otherwise, anything happens now will be viewed as corrective and an eventual break of 75.56 low to 70 psychological level is still favored.
USD/CAD Daily Outlook
Daily Pivots: (S1) 1.0203; (P) 1.0245; (R1) 1.0319
USD/CAD rises further to as high as 1.0319 so far today and intraday bias remains on the upside for upper trend line resistance (now at 1.0417). After all, USD/CAD is still bounded inside converging range since 1.0656. Firstly, as long as 1.0051 support holds, we'd favor an eventual upside breakout. But secondly, break of 1.0422 is needed to be the first signal of breakout and target a test on 1.0656 high. Otherwise, near term outlook will remain neutral for more choppy sideway trading. Below 1.0224 minor support will turn bias neutral first.
In the bigger picture, a medium term bottom is in place at 0.9406 and price actions from there could either be consolidation to fall from 1.3063 or the third leg of the whole consolidation pattern from 2007 low of 0.9056. We're favoring neither case as USD/CAD is holding above 55 week EMA but limited below 55 month EMA. Having said, firstly, we'd expect 0.9406 to hold for a while at least. Secondly, the eventual pattern of the price actions from 1.0656 would decide whether rebound from 0.9406 is going to extend higher, or USD/CAD is just gyrating in range. We'll stay neutral first until the pattern from 1.0656 finishes.
AUD/USD Daily Outlook
Daily Pivots: (S1) 1.0195; (P) 1.0233; (R1) 1.0265
AUD/USD dips further today and retreat form 1.0385 extends. Intraday bias remains neutral for the moment for some more consolidations. Though, note that another rise will remain mildly in favor as long as 1.0043 minor support holds. Above 1.0385 will target upper trend line resistance (now at 1.0503) first). On the downside, though, break of 1.0043 will flip bias back to the downside for lower trend line support (now at 0.9896). After all, note that AUD/USD is still bounded inside converging range since 1.1079 and choppier sideway trading could be seen before an eventual upside breakout.
In the bigger picture, firstly, the up trend from 0.6008 (2008 low) is still intact. Current development argues that consolidation pattern from 1.1079 might extend further. But in any case, with 0.9387 support intact, an eventual upside break out is anticipated, for a new high above 1.1079. However, break of 0.9387 would possibly bring deeper pull back towards 0.8066 key support before the long term up trend finally resumes.
EUR/GBP Daily Outlook
Daily Pivots: (S1) 0.8232; (P) 0.8249; (R1) 0.8259
EUR/GBP's fall extends to as low as 0.8221 so far today and intraday bias remains on the downside for 0.8067 support. On the upside, though, above 0.8291 minor resistance will suggest that a short term bottom is in place, possibly with bullish convergence condition in 4 hours MACD. In such case, stronger rebound should be seen back to 0.8420 resistance before staging another decline.
In the bigger picture, price actions from 0.9799 are treated as a consolidation pattern in the long term up trend. Fall from 0.9083 is viewed as the third leg and is now heading to 61.8% projection of 0.9799 to 0.8067 from 0.9083 at 0.8013 (which is close to 0.8 psychological level). We'd still expect strong support inside 0.7693/8186 support zone, possibly near to 61.8% retracement of 0.6535 to 0.9799 at 0.7782) to contain downside to finish off the consolidation. On the upside, though, break of 0.9083 resistance is needed to indicate completion of the whole pattern from 0.9799. Otherwise, there will also be risk of another fall even in case of rebound.
EUR/AUD Daily Outlook
Daily Pivots: (S1) 1.2400; (P) 1.2454; (R1) 1.2488
EUR/AUD recovers strongly and with 4 hours MACD staying above signal line, a temporary low is in place at 1.2419. Intraday bias is turned neutral for some recovery. We'd expect strong resistance at around 4 hours 55 EMA (now at 1.2632) and bring another fall towards 100% projection of 1.3808 to 1.2962 from 1.3150 at 1.2304 next.
In the bigger picture, long term down trend from 2.1127 (2008 high) has just resumed and is still in progress. Deeper decline should now be seen towards 1.2 psychological level. On the upside, break of 1.3808 is needed to be the first signal of trend reversal while break of 1.4341 resistance is still needed to confirm. Or, outlook will continue to be bearish even in case of rebound.
GBP/JPY Daily Outlook
Daily Pivots: (S1) 118.27; (P) 119.00; (R1) 119.46
GBP/JPY drops further to as low as 118.25 as the week starts and intraday bias remains on the downside. Current decline is expected to continue to 61.8% projection of 127.30 to 119.37 from 122.76 at 117.85, and then 116.83 key support. On the upside, break of 120.19 resistance is needed to indicate short term bottoming. Otherwise, outlook will remain bearish even in case of recovery.
In the bigger picture, fall from 127.30 is tentatively treated as resuming of decline from 140.20, which is part of the medium term down trend from 163.05. Break of 116.83 will confirm such down trend resumption and should target 61.8% projection of 140.02 to 116.83 from 127.30 at 112.96. On the upside, break of 127.30 resistance is needed to be the first sign of medium term reversal. Otherwise, outlook will remain bearish.
EUR/JPY Daily Outlook
Daily Pivots: (S1) 98.27; (P) 98.81; (R1) 99.15
EUR/JPY drops further to as low as 97.27 so far today and met mentioned target of 61.8% projection of 123.31 to 100.74 from 111.57 at 97.62. Intraday bias remains on the downside for the moment. Sustained trading below 97.62 will pave the way to 100% projection at 89.00 next. On the upside, above 98.48 minor resistance will turn bias neutral and bring consolidation. But recovery is expected to be limited below 101.04 support turned resistance and bring decline resumption.
In the bigger picture, EUR/JPY's downside momentum is accelerating with a break of lower trend line in weekly chart and with weekly MACD staying below signal line Current fall from 123.31 is part of the down trend from 2008 high of 169.96 and should target 100% projection of 139.21 to 105.42 from 123.31 at 89.52. At this point, we'd anticipate strong support there to bring at least a rebound attempt, as it's close to 88.96 all time low as well as the above mentioned 100% near term projection target at 89.00. Though, a break of 111.57 resistance is needed to be the first signal of reversal. Otherwise, we'll continue to stay bearish in the cross even in case of rebound.
Disclaimer: Content of this article is for informational purposes only; they are based upon information gathered from various sources believed to be reliable, complete, and accurate. However, no guarantee can be made as to the validity of the believed sources. All statements and expressions in are opinions, and not meant as investment advice or solicitation. Forex Markets can be volatile and opinions may change without notice.
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