EUR/USD: Will or will not?

by Valeria Bednarik | FXstreet.com

At this point, we are all wondering if the EUR/USD will or will not be able to finally break below the 1.3000 level. Despite some short term spikes below the strong psychological support, a huge battle is going on in between bulls and bears, and the pair holds barely above, as the first half of the year comes to an end. Indeed that’s a worrisome scenario for buyers, as we have not seen this Friday the usual profit taking and position adjustment, meaning that despite the level holds, bears are for now winning.

As for the technical stance, the daily chart shows a strong bearish momentum coming from technical readings, with price capped by the 61.8% retracement of its latest bullish run around 1.3050. Exposed to the downside on a break the weekly low of 1.2983, the pair has a 100 pips clean path towards 1.2880 next strong midterm support. Once below this last, next target comes at 1.2975, May 20th low converging with a daily ascendant trend line coming from September last year.

A change in direction  will be dependent on upcoming fundamental data from both economies, the ECB monthly meeting and US employment figures. Draghi needs to provide and outstandingly positive outlook and US data miss expectations, to revert the   downward momentum in the pair. Something in the middle won’t be enough and just produce short term noise. Key resistances for this week come at 1.3050, and 1.3105, being this last, the 50% retracement of the above mentioned rally. Only above this last the pair will be poised to revert the downward tone.

View Live Chart for EUR/USD

Forex Weekly Analysis | Written by FXTechstrategy | Sep 23 07 13:54 GMT |

Weekly Technical Strategist

• EURUSD: Hits 1.4119 High, Eyes Further Upside Gains
• GBPUSD: Looks To Test 2.0304/65 Levels
• USDJPY: Trades In A symmetrical Triange

EURUSD

EUR followed through to the upside on its recent rally the past week, breaking through its psychological resistance at 1.4000 and testing its 1992 high at 1.4104 before a slight pullback to close the week at 1.4090.As long as the pair continues to trade above its psychological resistance turned support, odds are for a run at and a possible break of the 1.4104 level. On such a break,its 1.272 Ext at 1.4250(monthly chart) will be targeted ahead of its 1995 high at 1.4535.The weekly RSI remains positive and trending higher suggesting further strength.Alternatively,if weakness is seen as a result of over extension of its daily studies, the first place to aim at on the downside lies at its psychological level at 1.4000,which should now revert to support. This is followed by the 1.3928 level, marking its Sept 13'07 high and then its July 24'07 high/its .382 Ret (1.3551-1.4119 rally) at 1.3838/52.Below here exposes its rising trendline drawn off the 1.3551 low currently at 1.3769.On the whole, EUR looks to push higher in continuation of its medium and long term uptrend with the only nearer term risk being the overbought condition now a factor on the daily time frame.

Directional Bias:

• Nearer Term -Bullish
• Short Term -Bullish
• Medium Term -Bullish

Performance in %:

• Past Week: +1.54%
• Past Month: -0.33%
• Past Quarter: +1.39%
• Year-To-Date: +6.77%

Weekly Range:

• High -1.4119
• Low -1.3828

Weekly Chart: EURUSD

GBPUSD

After a failure at the 2.0365 level, its Sept 12'07 high saw GBP tumble to a low of 1.9877 on Tuesday, the managed to bounce off that low as well as ahead of weekly rising channel base to put in a positive close at 2.0201 on Friday. With this development, the pair is now up against its falling trendline at 2.0304 which dates back to July 24'07 followed by its Sept 12'07 swing high at 2.0365.Breaking and maintaining above these levels are required to reduce short term downside pressure and bring upside strength towards the 2.0461 level, its Aug 06 high and ultimately the 2.0652 level, its 2007 peak. A clean violation of here is needed to resume its medium term uptrend on hold since late July'07.The daily studies remain in alignment with this view. However, if the pair stalls at 1.0304/65 resistance zones and turns lower, its July 30'07 low/Aug 27'07 high at 2.0191/81 will be aimed at as the immediate support followed by the 2.0132 level, its .50 Ret (1.9632-2.0652)/April 18'07 high and the next at the 2.0059/72 area, its April 25/26'07/May 01'07 high. A clearance of here will set the stage for further downside weakness towards the 1.9966 area, its Jun 05'07/ high and even lower at the 1.9880/77 zone, which is the location of its weekly channel base/weekly 200 ema/Sept 21'07 low. All in all, GBP requires a sustained penetration of 2.0304/65 zone, which is the trigger to further upside gains.

Directional Bias:

• Nearer Term -Bullish
• Short Term -Bearish
• Medium Term -Bullish

Performance in %:

• Past Week: +0.62%
• Past Month: -0.59%
• Past Quarter: +2.09 %
• Year-To-Date: +3.12%

Weekly Range:

• High -2.0212
• Low -1.9877

Weekly Chart: GBPUSD

USDJPY

After its recent fall off the 124.12 level (June 22'07 high), which was followed with a corrective recovery to as high as 117.11 in late Aug'07, USDJPY is now trading in a symmetrical triangle which is a convergence of a rising trendline and a falling trendline.In USDJPY's case, the 117.11 and 116.37 highs and the 111.58 and 112.59 lows converge to form the said pattern which is more often than not a continuation pattern but sometimes may resolve against the direction of the underlying trend. Although a break out of this pattern is required to create directional moves in this pair, while the 113.98 level, its Sept 20'07 low holds, the pattern top at 116.21 is likely to be tested where a break if seen, will target a stronger resistance area at the 117.11/17 zone, which represents its Aug 23'07 high/Aug 05'07 low. Above there will turn focus to its .50 Ret (124.12-111.58 decline) at 117.83 before its .618 Ret at 119.30 and then its Aug 08'07 at 119.82.Both the daily and weekly RSI are pointing higher implying further upside gains. On the downside, its Sept 20'07 low at 113.98 is seen as the initial support accompanied by the 112.39 level, its Sept 09'07 low. Surpassing this level will open the door for additional downside weakness towards its year-to-date low at 111.58 with a loss of there resuming its decline off the 124.12 high. On the whole, USDJPY requires a break out of its symmetrical triangle followed with an invalidation of the 117.11 level to resume its recovery effort off the 111.58 low.

Directional Bias:

• Nearer Term -Bullish
• Short Term -Bearish
• Medium Term -Bearish

Performance in %:

• Past Week: +0.11%
• Past Month: -2.32%
• Past Quarter: +4.56%
• Year-To-Date: -3.04%

Weekly Range:

• High -116.37
• Low -113.98

Daily Chart: USDJPY

Mohammed Isah
Market Analyst
FxTechstrategy

This report is prepared solely for information and data purposes. Opinions, estimates and projections contained herein are the author's own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the information nor the forecast shall be taken as a representation for which the author incur any responsibility. The does not accept any liability whatsoever for any loss arising from any use of this report or its contents. This report is not construed as an offer to sell or solicitation of any offer to buy any of the currencies referred to in this report

Forex Weekly Analysis | Written by FX Solutions | Sep 23 07 06:48 GMT |

Market Directions

Sunday, September 23, 2007

• The Fed, the Fed, the Fed and the 0.5% cut
• The ECB pulls its rate punches
• The worldwide rate reduction cycle begins?

United States

It would be hard to overstate the effect that the Federal Reserve decision to cut the base American interest rate, the Fed Funds, had on market perceptions this week. The Fed move instantly shifted the economic focus from inflation to growth and from confidence to concern. No central bank in the industrial world can afford to discount Fed policy and by the end of the week recognition of that fact was heard in statements from the European Central Bank (ECB) and the Bank of England (BOE). In the aftermath of the Fed the Dollar reached a new low against the Euro, surpassing even the nadir of its trading against the old German Deutsche Mark , and the Yen crosses returned to popularity. The speculative Dollar Index also sank to a record level.

In his appearance before Congress on Thursday, Ben Bernanke offered no elaboration on the terse policy statement issued by the Fed on Tuesday accompanying the rate announcement. He did, however, warn Congress against the 'moral hazard' of legislating a bail out for parties in the sub-prime debacle. That warning must hold as well for Fed policy. Inflation readings have helped give the Fed the leeway to cut rates, though it is likely Mr. Bernanke would have cut at least 0.25% even if inflation was considerably higher. But commodity prices are rising and gold traded at a 27 year high during the week.

By surprising the markets with a large reduction Mr. Bernanke has purchased time for the financial system to return to normal. The next Fed policy meeting is not until October 31st and by then many of the unknowns in the asset backed market should have been vetted and refunded. Inflation has not vanished from the American or the world economy. The US economy is growing as is the EMU, and the financial picture may well look very different in six weeks. The Fed has not changed its opinion that the financial turmoil of the last weeks is not an economic collapse, it has simply given the market time to discover that fact for itself.

Eurozone

The European Central Bank began the post Fed week on Wednesday with brave words about inflation and price stability. Klaus Liebscher, head of the Austrian National Bank and governing council member, said that the ECB "must do what is necessary " to preserve price stability. He implied that the Federal Reserve rate cut did not prevent the ECB from hiking again.

The next ECB policy meeting is October 4th in Vienna. By then the board members will have the August money supply and credit supply figures. Noting that worldwide energy and commodity prices have risen sharply, Mr. Liebscher said "I would not be surprised if in the next few months we see higher inflation rates than we have seen in the past". He was repeating the standard ECB analysis on inflation. It is not necessarily wrong, even though the HICP inflation rate in the EMU zone has now been at or below the 2.0% target for 12 straight months. During the same period the money supply figures have been between 9% and 11%, well beyond the ostensible ECB target of 8.0%. His view on the market turbulence of the past six weeks echoes the original reaction of Ben Bernanke, the Federal Reserve Chairman. The financial market problems are for the banks themselves to settle. "I don't see now that you can solve the problem if the banks and the financial intermediaries do not react immediately…we can only give advice to the industry". Mr. Liebscher also predicted that the market turmoil "will continue for a certain period of time", and that "surprises should not be excluded". That was on Wednesday, one day after the Fed surprise.

On Thursday French President Nicholas Sarkozy called for the ECB to lower rates. "When the US central bank lowers its rates, everything picks up; when we don't lower rates we go down. I'm telling Mr. Trichet look what others are doing". This is not a new position for the French President. He made the same criticism during the election campaign and his ministers have voiced similar sentiments since they came to power.

On Friday, Lorenzo Smaghi, ECB Executive Board member, spoke in approving tones of the long time United States "strong Dollar policy ". He characterized the oft repeated US Treasury official mantra not as an attempt to manipulate the exchange rate but as a recognition of a basic economic fact, that a strong American currency is good for the United States and the US economy. Among other uses of a strong currency is the check it provides on domestic inflation.

And lastly, also on Friday, Jean Claude Trichet the ECB President said that the bank has been successful in "very solidly" anchoring price stability in the EMU. If inflationary expectations are 'anchored', then why does the bank need to continue to raise rates? This question will be asked across Europe and in all public forums as the next ECB meeting approaches. If the Euro is "a currency that inspires confidence" surely it no longer requires the support of an aggressive monetary policy.

European economic growth appears to have peaked in the 4th quarter of last year. The EMU Purchasing Managers Index (PMI) for September fell in all categories. The manufacturing index slid to 53.2, much less than the median forecast of 53.9 and more than a full point below the August figure of 54.3. The services sector scored only 54.0, well behind the 57.5 prediction and the August return of 58.0. It was the lowest result for the services measure in two years and the largest monthly drop in the history of the series which began in 1998.

If the Fed and then the Bank of England are cutting rates, if EMU economic growth is slowing and inflation is under control and if EMU exports are suffering from the pains of an expensive currency, can the ECB remain stationary for long? The real question is when will the currency markets begin pricing the almost inevitable ECB rate cut?

Japan

The Bank of Japan (BOJ) declined to raise the overnight call rate beyond its current 0.5%. The vote was 8 to 1. Board member Atsushi Mizuno voted against leaving rates unchanged as he had at the previous two policy meetings. The BOJ last increased its base rate in February when it hiked 0.25%. The bank launched its "flexible and gradual" series of rate hikes in July 2006, when it boosted rates for the first time in six years. BOJ Governor Toshihiko Fukui has made public his desire to 'normalize' the Japanese rate structure but he has been thwarted by political opposition from the ruling Liberal Democratic Party (LDP). The BOJ is worried that low interest rates could encourage artificial additions to Japan's manufacturing capacity which would add to the potential for price deflation. Governor Fukui has also stated that inflation expectations are "the biggest enemy" for a central bank. However, inflation in Japan is very tame. The July national core CPI was actually 0.1% lower than a year earlier and down for the sixth month in a row. Second quarter GDP was revised lower to -1.2% from the initial +0.5% reading. Industrial Output and Household Spending were both negative in July as well, though the Japanese government has said that they expect a substantial rise in output in August. Despite BOJ intentions and inflation concerns the chance for further rate increases this cycle is vanishing.

The LDP will choose it new leader on Sunday to replace Shinzo Abe, the former prime minister who resigned earlier this month. In Japans' parliamentary system the leader of the party with control of the lower house of the Diet, the legislature, automatically becomes Prime Minister. The two leading candidates are former chief cabinet secretary Yasuo Fukuda and the LDP's current secretary-general, Taro Aso. Fukuda is ahead in opinion polls and among LDP members. Both are long time LDP politicians and will offer few new ideas or initiatives. The Japanese public is already tired of the economic reforms of Junichiro Koizumi and concerned about the widening rift between the wealthy and the rest of the populace.

Economic Releases

September 17 - September 21

United States

Tuesday: the Producer Price Index (PPI) for August was much lower than forecasts at -1.4%, with the core reading as predicted at +0.2%. The year on year rate for both measures is now 2.2%. Falling energy prices in the month lowered the overall number without affecting the core result. The National Association of Home Builders Housing Market Index fell to 20 in September down two from August, its seventh monthly fall in a row since it scored 39 in February of this year. The September reading equaled the record low from January 1991; the series has been kept since 1985. Net Long Term Securities transactions as reported by the Treasury International Capital system of the Treasury Department listed a very modest inflow of $19.2 billion in July. A total of $24.7 billion were purchased by overseas buyers, $20.3 billion from private sources and $4.4 billon by official sources. American bought $5.5 billion of foreign securities.

Tuesday: the Producer Price Index (PPI) for August was much lower than forecasts at -1.4%, with the core reading as predicted at +0.2%. The year on year rate for both measures is now 2.2%. Falling energy prices in the month lowered the overall number without affecting the core result. The National Association of Home Builders Housing Market Index fell to 20 in September down two from August, its seventh monthly fall in a row since it scored 39 in February of this year. The September reading equaled the record low from January 1991; the series has been kept since 1985. Net Long Term Securities transactions as reported by the Treasury International Capital system of the Treasury Department listed a very modest inflow of $19.2 billion in July. A total of $24.7 billion were purchased by overseas buyers, $20.3 billion from private sources and $4.4 billon by official sources. American bought $5.5 billion of foreign securities.

Wednesday: the Consumer Price Index (CPI) fell slightly in August 0.1%, bringing the year on year rate to 2.0%.; a flat number had been predicted. The core rate rose 0.2%, a year early rate of 2.1%. The core annualized rate for July and August based on the unrounded monthly results is now 2.32%, the three month rate is 2.48%. Energy prices fell 3.2% in the month, mostly on gasoline and natural gas price declines which made the overall rate less than the core. But with crude oil at more than $80 a barrel and commodity prices rising, the string of lower core results going back to January are probably at an end. Housing Starts in August shrank 2.6% from July to 1.331 million units, a twelve year low. The July figure was adjusted down to 1.367 million from 1.381 million. Single family house starts skidded 7.1%, but multi-family starts jumped 12.8%. Building Permits plunged 5.9% to 1.307 million with single family permits falling 8.1% to their lowest level since June 1995.

Eurozone

Thursday: European Monetary Union (EMU) construction Output in July was flat, the elapsed yearly rate was at +1.7%. The June number was revised down to +0.5% from +0.6%, the yearly to +2.6% from +2.7%.

Germany

Tuesday: the ZEW Survey of financial experts for September's 'economic expectations' dropped for the fourth month in a row coming in at -18.1 below the expected16.0. The August reading was -6.9. The 'current conditions' number was short of the median prediction of 75.0, reaching only 74.0. August had registered 80.2. It is the third monthly drop in succession. "The second considerable decline of business expectations since the beginning of the sub-prime crisis makes clear that the financial experts do not rule out the possibility that the crisis could spill over to the German economy", the ZEW statement said.

United Kingdom

Tuesday: the Consumer Price Index (CPI) for August was up 0.4% and elevated by 1.8% for the year, the same as the monthly estimate and very close to the prediction for the yearly number of +1.6%. July's results were was -0.6% and +1.9%.

Thursday: Retail Sales in August performed better than expected rising 0.6% for the month, 4.9% better than a year ago. A flat monthly had been the median prediction with +4.0% for the year. In July sales rose 0.7% and 4.4% on the year. Confederation of British Industry (CBI) monthly Industrial Trends Survey reported a 0.6% gain in 'total orders' for September; in August it rose 0.9%.

The Week Ahead

September 24 - September 28

United States

• Tuesday: Case-Shiller Home Price Index for July at 9:00 ET; June 217.07. Conference board Consumer Confidence for September at 10:00 ET; August 105.0. National Association of Realtors (NAR) Existing Home Sales for August at 10:00 ET; July 5.75 million.
• Wednesday: Durable Goods Orders for August at 8:30 ET; July +5.9%, 'excluding defense' +4.9%, 'excluding transport' +3.7%.
• Thursday: final GDP for the second quarter at 8:30 ET; preliminary +4.0%. New Home Sales for August at 10:00 ET; July 870,000.
• Friday: Personal Income for August at 8:30 ET; July +0.5%. Personal Expenditures for August at 8:30 ET; +0.4%. Chicago Purchasers Index for September at 9:45 ET; August 53.8. Final University of Michigan Consumer Sentiment for September at 10:00 ET; preliminary 83.8. Construction Spending for August at 10:00 ET; July -0.4%.

Eurozone

• Monday: Industrial New Orders for July at 9:00 GMT; June +4.4% m/m, +13.8% y/y.
• Thursday: Money Supply (M3) for August at 8:00 GMT; July +11.7% y/y, +11.1% three month moving average y/y.
• Friday: Initial 'Flash' Harmonized Index of Consumer Prices (HICP) for September at 9:00 GMT; August +1.8% y/y. EMU Economic Sentiment Index for September at 9:00 GMT; August 'Economic Sentiment' +110.0, 'Industry Confidence' +5, 'Consumer Confidence' -3, 'Business Climate Indicator' 1.41.

Germany

• Tuesday: IFO Survey for September at 8:00 GMT; August 'Business Sentiment' 105.8, 'Current Assessment' 111.5, 'Business Expectations' 100.4.
  Wednesday: GfK consumer Confidence for October at 6:00 GMT; September 7.6.
• Thursday: Unemployment Rate for September at 7:55 GMT; August 9.0%. Preliminary CPI for September-release time unannounced; August -0.1% m/m, +1.9% y/y. Preliminary HICP for September-release time unannounced; August -0.1% m/m, +2.0% y/y.
• Friday: Import Prices for July at 6:00 GMT; June +0.3% m/m, +0.4% y/y. Export Prices for July at 6:00 GMT; June 0.0% m/m, +1.6% y/y.

United Kingdom

• Monday-Friday (date unannounced) Nationwide House Prices for September at 6:00 GMT; august +0.6% m/m, +9.6% y/y.
• Wednesday: second quarter GDP 3rd release at 8:30 GMT; prior +0.8% q/q, +3.0% y/y.
• Thursday: CBI distributive Trades survey for September at 10:00 GMT; August 17.
• Friday: GfK Consumer Confidence for September at 9:30 GMT; August -4. Land Registry House Prices for August at 10:00 GMT; July +0.1% m/m, +8.8% y/y.

China

No significant releases

Japan

• Monday: markets closed for Autumnal Equinox holiday.
• Friday: National core CPI for August at 23:30 GMT (August 27); July -0.1% y/y. Central Tokyo CPI for September at 23:30 GMT (August 27); July 0.0% y/y. Unemployment Rate for August at 23:30 GMT (August 27); July 3.6%. Household Spending for August at 23:30 GMT (August 27); July -0.1%. Industrial Output for August at 23:30 GMT (August 27); July -0.4% m/m. Retail Sales for August at 23:30 GMT (August 27); July -2.2% y/y.

Joseph Trevisani
Chief Market Analyst
FX Solutions

IMPORTANT NOTICE: These comments are for information purposes only. Past results are not necessarily indicative of future results. Trading Futures, Options on Futures, and Foreign Exchange involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time. The information contained on this email does not constitute a solicitation to buy or sell by FX Solutions,LLC., and/or its affiliates, and is not to be available to individuals in a jurisdiction where such availability would be contrary to local regulation or law.