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Sep 27, 2007

Yen Lower on Increasing Risk Appetite, Sterling Boosted by House Prices

Markets' renewed risk appetite continues to increase as global stock markets surge. Yen is sent lower across the board which also pushed most currencies higher against dollar. Germany unemployment and Eurozone M3 money supply will be the main focus in the European session today. Unemployment rate is expected to drop further to 8.9% in Sep while money supply growth is expected to remain extremely strong at 11.7% yoy. Such data will reinforce the tightening bias of ECB and provide the fuel for further rally in EUR/USD and EUR/JPY.

On the other hand, Sterling is boosted across the board by higher than expected reading in Nationwide house prices index which should 0.7% mom, 9.0% yoy growth comparing to consensus of 0.3% mom, 8.7% yoy. This suggest that housing demand remains strong and is reducing odds for a near term rate cut from BoE even though the bank should remain on hold for a while.

In the US session, main focus will likely be on new home sales data which is expected to drop further by -4.6% in Aug to 0.83m annualized rate. Jobless claims and final print of Q2 GDP data will be featured too. Bernanke and Mishkin are both scheduled to speak in the late US session.

EUR/USD


Daily Pivots: (S1) 1.4105; (P) 1.4133; (R1) 1.4155; More

EUR/USD edges higher to new record high of 1.4165. At this point, outlook remains unchanged. Upside momentum continues to diminish as seen in mild bearish divergence condition in 4 hours MACD and RSI. A short term top could be around the corner. But nonetheless, further rally is still mildly in favor as long as 1.4058 support holds. Sustained trading above 61.8% projection of 1.3360 to 1.3719 from 1.3550 at 1.4131 will encourage further rise towards 200% projection at 1.4268 first.

However, below 1.4058 will indicate that a short term top is formed and bring pull back to inner channel support (now at 1.4022). But downside should be contained by support zone of 1.3828 and 1.3926 and bring another rise.

In the bigger picture, medium term trend line resistance that limited EUR/USD's rally at 1.3364, 1.3681 and 1.3851 before was taken out. Also, daily MACD has broken its own trend line resistance too. Such development confirmed medium term bullishness is still in play. The up trend from 1.1639 is still in progress for 1.4523 (95 high). However, break of 1.3282 cluster support will suggest that rise from 1.3360 has completed and another deep correction should be seen before resuming the rally.




GBP/USD

Daily Pivots: (S1) 2.0102; (P) 2.0159; (R1) 2.0214; More

Cable strengthens sharply to 2.0245 into European session today. But after all, short term outlook remains unchanged. Rebound from 1.9879 was limited by falling trend line resistance (now at 2.0279). With 2.0365 high remains intact, the rise from 1.9652 is still treated as a correction to fall from 2.0652 only and is regarded as completed at 2.0365. Further downside should be seen towards 1.9951 support and break will confirm that short term bias is turned back to the downside for 1.9879 low and then 1.9652.

However, above 2.0365 high will revive the case that price actions from 2.0652 is probably developing into sideway consolidation only. In such case, further rally should be seen to retest of 2.0652 high. But still, 61.8% projection of 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05 low) at 2.0677 remains a key resistance. Decisive break of this resistance is needed to confirm rally from 1.7047 has resumed for 100% projection of 1.3680 to 1.9554 from 1.7047 at 2.2901. Otherwise, another fall could still be seen before completing the consolidation.

In the bigger picture, with cable staying above 1.9621 support as well as 55 weeks EMA (now at 1.9624), there is no confirmation of long term reversal yet. But still, a medium term top is in place at 2.0652 with bearish divergence condition and daily and weekly MACD. Break of 1.9652 low will confirm that correction from 2.0652 has resumed for 1.9365/71 cluster support (100% projection of 2.0652 to 1.9652 from 2.0365 at 1.9365, 50% retracement of 1.8090 to 2.0652 at 1.9371). Also, sustained trading below 1.9621 support will add more weight to the case that whole rally from 1.7047 has indeed completed after failing 61.8% projection of 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05 low) at 2.0677 and bring deeper decline to next support zone of 1.9183 and 38.2% retracement of 1.7047 to 2.0652 at 1.9275 first.




USD/CHF

Daily Pivots: (S1) 1.1659; (P) 1.1689; (R1) 1.1734; More.

USD/CHF continues to consolidate above 1.1638 today. As discussed before, downside momentum is seen diminishing as indicated by mild bullish convergence conditions in 4 hours MACD and RSI. A short term bottom could be around the corner if not already in place at 1.1638. But nonetheless, further downside is still mildly in favor as long as 1.1745 resistance holds. Next downside target will be 100% projection of 1.2467 to 1.1816 from 1.2214 at 1.1590.

However, above 1.1745 will indicate that a short term bottom is formed and bring stronger recovery towards 1.1800 support turned resistance or above. But upside should be limited below 1.1922 resistance and bring another fall.

In the bigger picture, sustained trading below the lower trend line support (1.1919, 1.1878, 1.1816) confirm medium term bearishness. Current fall from 1.2214 is treated as resumption of decline from 1.2467 and is expected to head towards mentioned 1.1590 projection target first. Also, this will be tentatively treated as resumption of medium term down trend that started at 1.3283 which could extend further to retest 1.1288 (04 low).

On the upside, even though stronger rebound could be seen in case of a break of 1.1922 resistance, break of 1.2214 resistance is still needed to confirm a medium term bottom is formed. Otherwise, further decline is still in favor, just after lengthier consolidation.




USD/JPY

Daily Pivots: (S1) 114.80; (P) 115.26; (R1) 116.00; More.

USD/JPY remains firm today but after all, it's still bounded inside established range of 111.59 and 117.11 as consolidation continues. Short term outlook remains neutral and price actions inside such consolidation will continue to be choppy. Though, on the upside, above 116.36 will suggest rebound from 111.59 has resumed for 100% projection of 111.59 to 117.11 from 112.58 at 118.10 before completing such corrective rise. On the downside, break of 112.58 support will be the first alert that consolidation has possibly completed and encourage a retest of 111.59 low.

In the bigger picture, as discussed before, daily MACD's stay above signal line suggests that the whole decline from 124.12 could have already completed at 111.59. Hence, further break of this low is needed to confirm that sharp fall from 124.13 has resumed. Otherwise, USD/JPY could still develop into lengthier consolidation.

Prior break of long term rising trend line (101.65, 108.99) indicates the the whole up trend from 101.65 could also have completed at 124.13 already, with bearish divergence condition in weekly MACD and RSI.. Break of 111.59 will indicate fall from 124.13 has resumed for support zone between 108.99 and 61.8% retracement of 101.65 to 124.13 at 110.23.




EUR/JPY

Daily Pivots: (S1) 162.41; (P) 162.91; (R1) 163.74; More

EUR/JPY's rally extends further to as high as 163.71 today. At this point, further rally is still expected as long as 160.94 support holds. Next upside target will be165.39 cluster resistance (100% projection of 149.27 to 159.67 from 155.15 at 165.55). On the downside, however, below 160.94 will indicate that rise from 155.15 has possibly completed and turn focus to 158.76 support first. But still, below 155.15 support is needed to confirm rebound from 149.27 has completed. Otherwise, another rise is still expected after pull back.

In the bigger picture, firstly the break of trend line support (137.16, 150.75) confirmed that rally from 130.60 has already completed at 168.93, with bearish divergence condition in weekly RSI. Hence, an important medium term top is in place at 168.93 already. However, secondly, since EUR/JPY is still supported within the rising channel shown in the monthly chart. the whole up trend from 88.9 could still be in force and price actions from 168.93 is probably just developing into consolidation to this long term up trend. Also, the three wave structure of the fall from 168.93 to 149.27 suggests that it's probably developing into sideway consolidation instead of deeper correction.

So, further rise to retest 168.93 high cannot be ruled out. But firm break of 168.93 is needed to confirm long term up trend has resumed, otherwise, another fall could still be seen before completing the consolidation that started from 168.93. On the downside, a firm break of 149.27 low will have the long term channel support taken out too. This will add much favor to the case that up trend from 88.9 has indeed completed and bring much deeper decline.








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