Dollar firm ahead of FOMC minutes
Dollar remains firm after better than expected NY State manufacturing index which gained from 22.9 to 26.7 in Nov, much better than expectation of 15.
Traders are awaiting FOMC meeting minutes for Oct 24/25 meeting. The minutes will be closely watched for Fed’s assessment of the economic growth and inflationary development. Market expectation is that Fed will likely keep rates unchanged till mid 07 but opinion is still divided on whether next move will be a raise or a cut.
Sterling tumbles further today on weaker than expected employment data as well as a rather dovish BoE quarterly inflation report. In particular, the inflation report forecasts that BoE may not need to rise rate as high as markets expect in order to keep inflation on track to hit the 2.0 percent target even though it remains bullish on growth outlook. Inflation is expected to slow to BoE’s 2% target of mid, 2007, 6 months sooner than previous estimates. This has dampened the hope that BoE will continue rate hike next year.
EUR/USD
Daily Pivots: (S1) 1.2778; (P) 1.2823; (R1) 1.2856;
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EUR/USD’s fall from 1.2899 continues today and reaches as low as 1.2772 so far. As discussed before, with bearish divergence condition in 4 hours MACD as background, a short term top should be formed at 1.2899 already. Now, as long as EUR/USD stays below 1.2833 resistance, current consolidation will likely extend. Further decline to 1.2744 cluster support (38.2% retracement of 1.2483 to 1.2899 at 1.1.2740) should be seen.
On the upside, a break above 1.2833 will suggest that consolidation from 1.2899 has possibly completed and bring retest of this high. Break will indicate recent rally has resumed for next upside target of 1.2937 first.
In the bigger picture, current rally from 1.2483 might represent the start of resumption of medium term up trend from 1.1639. Hence, further rise is expected to follow towards 1.2978 resistance (this year’s high). Decisive break of 1.2978 will be the confirmation that medium term up trend has resumed for next upside target of 78.6% retracement of 1.3668 (04 high) to 1.1639 (05 low) at 1.3234.
On the downside, a break below 1.2641 cluster support (61.8% retracement of 1.2483 to 1.2899 at 1.2642) is needed to indicate rise from 1.2483 has completed and shift favor back to the case that consolidation from 1.2978 is still in progress. Otherwise, current rally is expected to resume after the pull back.
Read full report (EUR/USD, GBP/USD, USD/CHF, USD/JPY) here.
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