Euro continues to rise, here’s why
After keeping rate unchanged at 3%, ECB president Trichet signaled an October rate hike by saying that “strong vigilance” is needed on inflation risk. Also, the tightening cycle is not over yet as “progressive withdrawal of monetary accommodation will be warranted”. Projections by ECB staff on economic growth were revised upwards as expected. Growth is expected to be at between 2.2-2.8% (prev 1.8-2.4%) in 2006 and 1.6-2.6% (prev 1.3-2.3%) in 2007. Euro resumes rally against dollar as the press conference goes.
US data came it pretty much inline with consensus. Personal spending and income increased 0.8% and 0.5% in July. PCE core increased 2.4% yoy but mom increase of 0.1% is slightly below expectation of 0.2%. Jobless cliams came at 316k slightly above expectation of 315k. Next comes Chicago PMI, which is expected to drop slightly to 57.0 in Aug and July factory orders which is expected to drop 0.1%.
EUR/USD
Daily Pivots: (S1) 1.2810; (P) 1.2832; (R1) 1.2853;
More
EUR/USD rallies further to above 1.2870 level in early US session. At this point, as long as EUR/USD stays above 1.2816 minor support, further rally is expected to follow towards 1.2937 high or probably further towards 1.2978 key cluster resistance. Touching of 1.2861 will indicate a short term top has possibly formed.
As discussed before, on the upside, 1.2978 key cluster resistance (61.8% projection of 1.2457 to 1.1908 from 1.2695 at 1.2974) remains in focus. It will take a firm break above 1.2978 to confirm the whole medium term up trend from 1.1639 has resumed. In such case, rise from 1.2457, which represents the last advance in a five-wave sequence from 1.1639 should terminate somewhere between 1.3170 and 1.3234 (61.8% projection from 1.1825 to 1.2978 from 1.2457 at 1.3170 and 78.6% retracement of 1.3668 to 1.1639 at 1.3234) and bring larger consolidation.
Otherwise, risks remains for further choppy range trading below 1.2978 and a retest of 1.2695 cluster support (50% retracement of 1.2457 to 1.2937 at 1.2697) cannot be ruled out. Break below 1.2695 cluster support will shift favor back to the case that whole rise from 1.1639 has already ended with three waves up to 1.2978 already, after meeting 161.8% projection of 1.1639 to 1.2322 from 1.1825 at 1.2930. Corrective fall from 1.2978 is just part of a larger consolidation which should extend at least a few more weeks with a retest of 1.2457 low before completion.
Read full report (EUR/USD, GBP/USD, USD/CHF, USD/JPY) here.
Shing-Ip Tsui is the founder and CEO of
www.ActionForex.com. ActionForex is set up with the aim to empower individual forex traders by providing insightful contents. Analysis reports, live pivot points on majors and crosses, etc are provided with collection of carefully selected educational articles and free trading ebook downloads.