It’s clearly a data driven day. Dollar remains pressured at fresh 26 years low against Sterling in US session, but steadies against Euro. Even though headline PPI in US slowed more than expected to 3.3% yoy, dollar is supported by stronger than expected core PPI which accelerated to 1.8% vs exp of 1.6% which core PPI stayed there for 3 months. In addition, dollar is indeed driven higher against the Japanese after TIC capital flow rose to fresh record high of $126.1b, much higher than expectation of $70b.
Sterling was boosted higher earlier today on higher than expected consumer inflation data. In Jun, CPI moderated to from 2.5% yoy to 2.4%. However, that was higher than consensus of 2.3%. Meanwhile, RPI, retail price index, indeed accelerated from 4.3% yoy to 4.4% even though core RPI stayed at 3.3%. The data clearly indicates that there is no solid support by BoE to relax its tightening bias yet as inflation may not moderate as fast as BoE members would like to see. And, should inflation stabilizes above the 2% target, or even worse, re-accelerates, BoE will be forced to have another hike. The MPC meeting minutes will be released tomorrow and will then be closely watched on how nervous the members were and thus provide a more accurate assessment on the possibility of another near term hike.
On the other hand, Germany’s ZEW was a big disappointment today, nose-diving from 20.3 to 10.4, much worse than expectation of 21. The index peaked in May at 24.7 and has been deteriorating since then. The drop in business confidence highlighted the risk that current rise in the Euro, in particular against dollar and yen, are starting to weigh on export driven manufacturing economy and domestic demand to import. Euro is still steady against dollar but is under tremendous pressure against Sterling. EUR/USD
Daily Pivots: (S1) 1.3753; (P) 1.3778; (R1) 1.3796; «www.actionforex.com»
Not much to add. EUR/USD continues to trade in tight range below key medium term resistance of 100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822. Though mild bearish divergence conditions in 4 hours MACD and RSI suggest upside momentum is diminishing, a break below 1.3729 minor support is needed to indicate a short term top is formed. Otherwise, further rally is still in favor. Below 1.3729 will bring deeper pull back to 4 hours 55 EMA (now at 1.3706 first).
In the bigger picture, the current development is dampening the original view that rise from 1.3262 is the last advance in a five wave structure that started at 1.2483. Firstly, the current momentum of the rise from 1.3262 is seen stronger than the prior rally from 1.2865 to 1.3681. Secondly, the falling trend line in both daily MACD and RSI were broken, negating the bearish divergence conditions. In other words, the underlying bullishness in EUR/USD could be much stronger than we originally thought.
Focus remains on 1.3822 resistance. Sustained trading above this level will add much weight to the case that whole medium term rally from 1.1639 is indeed resumption of multi-year up trend from 0.8223 (00 low). That is, further rise should be seen in medium term towards 95 high of 1.4523 with much chance to extend further to 61.8% projection of 0.8223 to 1.3668 from 1.1639 at 1.5004.
On the downside, failure to take out 1.3822 decisively, followed by a break of 1.3262 support, will retain the original case. That is, medium term rally from 1.1639 has likely completed after being limited by 1.3822 resistance as expected. Deeper decline should then be seen to 1.2978 cluster support first (38.2% retracement of 1.1639 to 1.3813 at 1.2983) and then next cluster support at 1.2483 (61.8% retracement of 1.1639 to 1.3813 at 1.2469). Also, since in such case, rise from 1.1639 is likely merely part of a larger scale consolidation that started at 1.3668 there will be much chance of extending the fall to retest 1.1639 low before completing the consolidation.
GBP/USD
Daily Pivots: (S1) 2.0320; (P) 2.0361; (R1) 2.0400; «www.actionforex.com»
Sterling powers through 2.04 level today and surges to as high as 2.0474 so far. Rally from 1.9621 is still in force and at this point, as long as 2.0348 support holds, further rise is expected to be seen towards next upside target of 100% projection of 1.9183 to 2.0132 from 1.9621 at 2.0570. However, as bearish divergence could continue to stay in 4 hours MACD and RSI, a break below 2.0348 support will argue that a short term top is possibly formed and bring pull back to 4 hours 55 EMA (now at 2.0262) first. But downside should be contained by 2.0056 support and bring another rise.
In the bigger picture, the sustained break of 2.0207 projection target confirms underlying upside momentum is still strong. Also, it added much credence to the case that whole up trend from 1.7047 is resumption of multi-year up trend from 1.3680. In such case, further rally should then be seen to 61.8% projection of 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05 low) at 2.0677 first.
Having said that, even in case of a short term correction, downside should be contained above 1.9783 resistance turned support and bring medium term rally resumption. Also, break of 1.9862 low is needed to indicate a medium term top is formed and turn outlook neutral. Otherwise, medium term outlook will remain bullish.
USD/CHF
Daily Pivots: (S1) 1.2006; (P) 1.2021; (R1) 1.2049; «www.actionforex.com».
Once again, USD/CHF fails to take out 1.1993 cluster support (61.8% projection of 1.2467 to 1.2089 from 1.2232 at 1.1998) decisively and recovers back to established range. Nevertheless, intraday bias remains ont he downside as long as 1.2038 resistance holds. Further decline is still in favor towards next downside target of 1.1878 (06 low). However, above 1.2038 will indicate that a short term bottom is likely formed with bullish convergence condition in 4 hours MACD and RSI. This should bring stronger rebound to 4 hours 55 EMA (now at 1.2081) and above.
In the bigger picture, USD/CHF has likely completed a medium term triangle consolidation already, which started at 1.1919 with five waves to 1.2467. Firm break of 1.1993 will confirm this case. 1.1878 (06 low) will be the initial target. And since, in such case, fall from 1.2467 is viewed as resumption of medium term down trend from 1.3283, further weakness should be seen to 100% projection of 1.3283 to 1.1919 from 1.2768 at 1.1404, with much chance to extend to retest 1.1288 (04 low).
On the upside, break of 1.2232 resistance will mess up the short term picture a little bit. In such case, chance is swung to the case that the triangle consolidation indeed started at 1.1878. In other words, the overall outlook didn’t change and just that another rally should be seen before completion. Hence, even in such case, upside should be limited below 1.2467 high and bring another medium term decline.
USD/JPY
Daily Pivots: (S1) 121.56; (P) 121.87; (R1) 122.19; «www.actionforex.com»
USD/JPY rebounds strongly on broad based yen weakness. Break of 122.18 minor resistance shifts intraday bias back to the upside and further rise should be seen to 122.60 resistance. Break will indicates the rally from 120.96 has resumed. In other words, this will also add much weight that correction from 124.13 has completed at 120.96. Further rise should then be seen to 123.66 resistance. Break will bring retest of 124.13 high.
On the downside, below 121.54 will turn short term outlook mixed again. In such case, correction from 124.13 could still be in progress for another test of 120.76 cluster support (38.2% retracement of 115.13 to 124.13 at 120.70) before completion.
In the bigger picture, rise from 115.13 has made a top at 124.13 and turned into consolidation since then. But still, rally from 108.99, which is treated as resumption of whole up trend from 101.66, is still in progress. Even in case of a deeper correction, downside is expected to be contained by 118.35/57 cluster support zone (38.2% retracement of 108.99 to 124.13 at 118.35 and 61.8% retracement of 115.13 to 124.13 at 118.57) and bring rally resumption. Next medium term upside target will be resistance zone of 100% projection of 101.65 to 121.38 from 108.99 at 128.72 and 100% projection of 108.99 to 122.17 from 115.13 at 128.31. However, break of 118.35/57 cluster support argue that rise from 108.99 has possibly completed and put 115.13 low into focus.
EUR/JPY
Daily Pivots: (S1) 167.60; (P) 167.97; (R1) 168.22; «www.actionforex.com»
EUR/JPY’s strong rebound and break of 168.41 minor resistance suggests that retreat from 168.93 has completed after drawing support from 4 hours 55 EMA. Intraday bias is turned back to the upside for retest of 168.93 high. Break will indicate recent rally from 161.49 has resumed for next upside target of 100% projection of 161.49 to 166.94 from 164.23 at 169.68. However, a break below 167.71 again will indicate that a short term top has likely completed, possibly with bearish divergence conditions in 4 hours MACD and RSI. In such case, deeper decline should be see to166.69 support first.
In the bigger picture, whole medium term rally from 130.60 is still in progress and the interpretation remains unchanged. First wave up ended at 143.60, subsequent correction ended at 137.167. The third wave up ended at 159.63 while fourth wave correction has ended at 150.75. Rise from there represents the final advance in this structure. With 61.8% projection of 137.16 to 159.63 from 150.75 at 164.64 taken out decisively, next medium term upside target will be 100% projection of 137.16 to 159.63 from 150.75 at 173.22.
However, break of the short term rising trend line support (now at 165.22) will dampen this view and indicate that the rise from 150.75 has possibly completed earlier then we thought.In such case, deeper decline should be seen to test 161.49 low first.
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