US Dollar daily report

Thursday, 20 August 2009 15:34

Forex Research - Daily US Dollar Report

Yen Lifted Mildly as China Tightens Bank Rule, But Lacks Follow Through Momentum
Yen was lifted higher in Asian session today by news that China is setting rules to tighten bank capital requirements and made a new higher against dollar, but lacks follow through buying so far. Indeed, yen crosses are generally kept above this week's low and it looks like some more consolidation would be seen. Similar situation is found in dollar as the recovery earlier today lacks sustainable momentum so far and recent consolidation is likely still in progress. One thing to note is that Sterling is still the biggest loser this week. Today's break of 0.8652 resistance in EUR/GBP suggests that another round of selling in the pound might be underway which will make sterling crosses vulnerable.

Eurozone PMI data will be the main focus today as both Manufacturing and services PMIs are expected to improve further in Aug. Nevertheless, both data are expected to be kept below 50 level, suggesting that the manufacturing and services sectors are still in mild contraction. From US, Existing home sales is expected to rise slightly to 5.00M in July. Main focus will be on Bernanke's speech at the Jackson Hole Conference.

Looking at the dollar index, despite edging lower to 78.30, downside momentum in the index is diminishing and the index quickly settles back into prior tight range. With 78.23 cluster support (61.8% retracement of 77.43 to 79.51) intact, there is no change in the near term bullish view that rise from 77.43 is still in progress. Above 78.82 will flip intraday bias back to the upside and break of 79.51 will confirm rally resumption. Also, note that break of 79.66 resistance will have the index sustaining above medium term falling channel and in turn will solidify the case that whole fall from March's high of 89.62 has finished at 77.43 already. Focus will then be shifted to 81.47 resistance for confirmation. However, note that sustained break of 78.23 support will seriously dampen this view and open up the case that down trend from 89.62 is still in progress for another low below 77.43 before completion.

USD/JPY
USD/JPY's fall resumes and edges lower to 93.47 earlier today. At this point, intraday bias remains on the downside as long as 94.54 minor resistance holds. The break of 61.8% retracement of 91.73 to 97.77 at 94.03 suggests that whole rebound from 91.73 has completed at 97.77 already and further fall could now be seen to retest 91.73 low next. On the upside, above 94.54 will turn intraday outlook neutral and bring consolidation. But risk will remain on the downside as long as 97.77 resistance holds.

In the bigger picture, the break of mentioned 94.03 fibo support suggests that rebound from 91.73 has completed already. Also, it indicates that prior break of falling channel resistance was a false break. The failure below 98.87 resistance also keeps the lower high pattern since 101.43 and thus argue that such down trend is possibly still in progress. A break of 91.73 will confirm this case and bring deeper fall towards 87.12 key low. On the upside, break of 97.77 resistance, though, will revive the case that USD/JPY has bottomed out at 91.73 and will turn outlook bullish again.

GBP/USD
GBP/USD's consolidation from 1.6274 is still in progress and another rise cannot be ruled out. But after all, upside is expected to be limited by 1.6663 resistance and bring fall resumption. Below 1.6375 minor support will flip intraday bias back to the downside and further break of 1.6274 will indicate that decline from 1.7043 has resumed. Prior break of 1.6338 support serves as an important alert that a medium term top is in place at 1.7043. Below 1.6274 will target 1.5983 support to confirm the bearish case. However, note that sustained break of 1.6663 will firstly suggest that whole fall from 1.7043 has completed and will open up the case for stronger rally to retest this high.

In the bigger picture, the sharp reversal from 1.7043 argues that whole rise from 1.3654 has possibly completed with five waves up already, on bearish divergence condition in daily MACD and RSI. Break of 1.6338 support affirms this case and turns focus to 1.5983 support for confirmation. Also, note that, whole rise from 1.3503 is treated as correction to down trend from 2.1161 only is expected to conclude inside resistance zone of 1.6428/7332 (38.2% and 50% retracement of 2.1161 to 1.3503). Completion of rise from 1.3654 will also indicate that such correction from 1.3503 has completed too. In such case, deep decline should be seen to send GBP/USD through 1.3503 low eventually. On the upside, in case of another rise, we'd continue to monitor for reversal signal as GBP/USD approaches 1.7332 fibo resistance.

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