Mid-Day Report: Dollar Extends Weakness after PCE, CAD Sold off from New 30 Yr High

[xiepro]

Jun 29 07 13:21 GMT |
Forex Mid-Day Technical Report
Dollar Extends Weakness after PCE, CAD Sold off from New 30 Yr High
The greenback resumes recent decline against European majors earlier today and remains weak after May PCE data. Both personal income and spending missed expectation by rising 0.4% and 0.5% respectively, comparing to expectation of 0.6% and 0.7%. More importantly, core PCE deflator, the Fed's preferred gauge of inflation moderated further from 2.0% to 1.9% as markets expected, which is the first sub 2.0% reading since Feb 06. Though, overall inflation, as measured by the PCE deflator, rose 0.5%, fastest in 13 months. Chicago PMI and final University of Michigan consumer confidence will be released next in the US session but the greenback will likely remain weak unless we get really big surprise from these data.

USD/CAD spiked lower to new 30 year low of 1.0468 just before US session. However, the pair rebounds sharply higher for over 150 pts to above 1.0620 after disappointment from Canadian GDP which was flat in Apr comparing to expectation of 0.2% growth. The Loonie is also pressured on rumors of BoC checking rates.

EUR/USD
Daily Pivots: (S1) 1.3422; (P) 1.3450; (R1) 1.3479; More

EUR/USD's rally from 1.3262 finally resumes in early US session today by breaking through 1.3481 resistance, reaching as high as 1.3518 so far. At this point, intraday bias remains on the upside as long as 1.3481 resistance turned support holds. Next upside target will be 1.3553 resistance. Break will confirm underlying short term bullishness and bring retest of 1.3681 high. On the downside, touching of 1.3481 will turn intraday outlook consolidative first but Break of 1.3414 is needed to indicate rally from 1.3262 has finished. Otherwise, another rise is still expected after finishing consolidation.

In the bigger picture, strong rebound from 1.3262 has dampened the original bearish view, in particular with GBP/USD's break of 1.9968, which corresponds to EUR/USD's 1.3553, indicates some more dollar weakness should be seen in the short term. Note that with medium term rising channel remains intact, sustained break of 1.3553 will confirm fall from 1.3681 has completed and is merely a correction in the medium term up trend only, considering that it just met 100% projection of 1.3681 to 1.3391 from 1.3553 at 1.3263 with a 3 wave fall. A retest of 1.3681 would then be seen and the rebound from 1.3262 could extend further towards 61.8% projection of 1.2865 to 1.1.3681 from 1.3262 at 1.3766. But focus will remain on reversal signal as even in such case, the up trend from 1.1639 is still expected to conclude between 1.3668 and 1.3822.

On the downside, break of 1.3414 support will indicate the rebound from 1.3262 should have completed and put the immediate bearish scenarios back into focus. That is, rise from 1.2483 has completed at 1.3681, with bearish divergence condition in daily MACD and RSI. As discussed before, whole medium term up trend from 1.1639 is interpreted as having first move completed with three waves up to 1.2978, subsequent sideway consolidation completed at 1.2483. Rise from 1.2483, which is trended as resumption of up trend from 1.1639, is expected to terminate between 1.3668 and 100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822. With EUR/USD has already touched this resistance zone back in April, it's also likely that the whole up trend from 1.1639 has completed at 1.3681 too. Focus will then be on medium term rising channel support (now at 1.3118) and next key cluster support at 1.3070 (50% retracement of 1.2483 to 1.3681 at 1.3082, 55 weeks EMA at 1.3078). Sustained break of this support zone will confirm that whole up trend from 1.1639 has ended and turn medium term outlook bearish.



GBP/USD
Daily Pivots: (S1) 1.9986; (P) 2.0013; (R1) 2.0055; More

Cable's recent rally continues today by reaching as high as 2.0064 so far in early US session. At this point, intraday bias remains on the upside as long as 2.0002 minor support holds, further rally is expected to be seen to retest 2.0132 high. However, below 2.0002 will argue that a short term top is possibly formed, with bearish divergence conditions in 4 hours MACD and RSI and could bring retreat to 1.9928 support or below before staging another rally.

In the bigger picture, the completion of the fall from 2.0132 in a corrective 3 wave manner and the holding of the medium term rising channel indicates that rise from 1.8090 is still in progress, so is the whole up trend from 1.7047. There are various interpretation of the rally from 1.7047 but none is really convincing. Nevertheless, break of 2.0132 high will encourage further rise to near term target of 61.8% projection of 1.9183 to 2.0132 from 1.9621 at 2.0207 first.

[xiepro]

On the other hand, medium term up side momentum remains unconvincing with bearish divergence conditions staying in weekly MACD and RSI as well as daily MACD and RSI. But still, sustained break of the medium term rising channel (now at 1.9687) is needed to confirm completion of the rise from 1.8090 and turn medium term outlook bearish. Otherwise, such rally is still treated as in progress and another rise should be seen even in case of pull back.



USD/CHF
Daily Pivots: (S1) 1.2270; (P) 1.2305; (R1) 1.2347; More.

USD/CHF's recovery was limited at 1.2339 and fall from 1.2467 resumes after failing to take out 4 hours 55 EMA. USD/CHF is now pressing mentioned short term rising trend line (now at 1.2231). At this point, intraday bias remains on the downside as long as 1.2274 minor resistance holds. Sustained break of the trend line will argue that who rebound from 1.1993 has completed and will put key near term support of 1.2146 in focus. Above 1.2274 will turn intraday outlook consolidative first. But strong rebound to above 1.2339 is needed to indicate fall from 1.2467 has finished. Otherwise, another decline is still expected after completing brief consolidation.

In the bigger picture, sustained weakness from 1.2467 turns short term outlook a bit mixed. On the one hand, USD/CHF should have completed a medium term head and shoulder bottom formation (ls: 1.1919, h: 1.1878, rs: 1.1993) after taking out the neckline resistance. However, this is not confirmed by breaking of 1.2571 resistance yet. Choppy price actions from 1.1919 could still be merely part of a medium term triangle consolidation.

Nevertheless, favor is still in the former case as long as 1.2146 support holds. Above 1.2427 will indicate rise from 1.1993 has likely resumed for 1.2571 resistance first. Break will confirm the head and shoulder bottom and have medium term outlook turned bullish for 1.2768 resistance and then 1.3283 high. However, break of 1.2146 support will indicate the rally from 1.1993 support has completed. In such case, favor will be switched back to the case that choppy price actions from 1.1919 is merely part of a medium term triangle consolidation. And, down trend from 1.3283 should still resume after completing such consolidation in such case.



USD/JPY
Daily Pivots: (S1) 122.83; (P) 123.10; (R1) 123.43; More

USD/JPY turns into sideway consolidation after rebound from 122.22 meets mentioned 123.53 resistance. At this point, intraday bias remains on the upside as long as 122.80 minor support holds. Above 123.53 will confirm that correction from 124.13 has completed with USD/JPY staying comfortably above short term rising trend line. Retest of 124.13 should then be seen and break will confirm recent really has resumed. However, below 122.80 will suggest that correction from 124.13 is still in progress. But still, downside is expected to be contained by 122.13 clusters support (61.8% retracement of 120.78 to 124.13 at 122.06) and bring another rally.

In the bigger picture break of 122.17 key resistance and 123.28 projection target cleared doubts on the medium term picture. Rise from 108.99 is still in progress after correction 122.17 completed at 115.13. Also, the whole up trend from 101.65, with interim correction from 121.38 completed at 108.99, is still in force. Next 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. On the downside, break of 120.76 low is needed to raise the possibility that rally from 115.13 has completed and put focus back to this low.

Also, note that USD/JPY is staying comfortably above the long term falling trend line (147.68 to 135.20). Multi-year consolidation pattern that started from 147.60 should have already completed. But, whether current rise from 101.65 represents the resumption of whole up trend from 79.75 remains to be seen. Note that above mentioned medium term projection target of 100% projection of 108.99 to 122.17 from 115.13 at 128.31 and 100% projection of 101.65 to 121.38 from 108.99 at 128.72 are in proximity to 78.6% of 135.20 to 101.65 at 127.95. This cluster resistance zone will be important to determine the long term trend.



EUR/JPY
Daily Pivots: (S1) 165.21; (P) 165.58; (R1) 166.03; More

EUR/JPY's rally from 164.23 extends further to as high as 166.75 so far in early US session. Break of 166.34 resistance confirms that corrective fall from 166.94 has completed. Retest of this high should now be seen. Break will confirm rally from 161.49 has resumed for 61.8% projection of 161.49 to 166.94 from 164.23 at 167.60 first. Touching of 166.38 minor support will turn intraday outlook consolidative first but downside should be contained above 165.39 support and bring another rally.

In the bigger picture, strong break of 61.8% projection of 137.16 to 159.63 from 150.75 at 164.64 was a significant development that indicates the underlying bullishness of EUR/JPY is stronger than we originally thought. Though, interpretation of the rise from 130.60 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. Hence next upside target will be 100% projection of 137.16 to 159.63 from 150.75 at 173.22.

On the downside, break of short term rising trend line (now at it 163.32) will warn that rise from 150.75 has completed. But break of 161.49 support is needed to confirm. Otherwise, further rally is still in favor even in case of pull back.