Dollar Pressured After Weak Data, EUR/USD to Test 04 High
Dollar is pressured in early US session after downside surprise in both Existing Home Sales and Consumer Confidence. Existing home sales fell -8.4% to 6.12m in March, much weaker than expectation of 6.45m. Meanwhile, Conference Board Consumer Confidence also deteriorated further to 104.0, comparing to consensus of 105.0. While dollar broke through near term support against Euro and Swissy, it’s remains ‘relatively’ against yen and Sterling so far. EUR/USD is heading to 2-year high of 1.3636 and will likely test 04 high of 1.3668 on the current momentum.
BoC kept rates unchanged at 4.25% today as widely expected. The bank forecasts economy to grow at 2.2% and 2.7% in 07 and 08 respectively while CPI is expected to rise over 2% during 2H but return to target by mid 08. The accompanying statement is slightly more hawkish than before. On of the major changes in the accompanying statement is that “inflation has been higher than expected”, comparing to “both total CPI and core inflation have been largely as expected:. Also, BoC now :judges that the Canadian economy was operating just above its production capacity in the first quarter:. However, possible slowdown in the US will have negative impact to the Canadian economy, thus keeping BoC neutral at this moment. USD/CAD rebounds after the announcement as traders take profits.
In the Treasury Committee hearing, BoE Governor King emphasized again the BoE is determined to bring inflation down to target of 2%. Meanwhile, Besley said that “The growth in monetary aggregates is potentially creating an upside risk to inflation going forward” and Blanchflower agreed that this should be a cause of concern. However, Tucker and Bean said relationship between money and CPI is not tight, but rapid money supply is not to be ignored. After all, the BoE members sounded hawkish today but no concrete conclusion can be drawn from today’s hearing yet. Next month’s Inflation Report remains crucial.
EUR/USD
Daily Pivots: (S1) 1.3543; (P) 1.3574; (R1) 1.3608;
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EUR/USD’s retreat from 1.363 was contained above 4 hours 55 EMA and rebounds strongly in early US session. Break of 1.3605 minor resistance indicates that fall from 1.3636 has completed and retest of this high should follow. Break will confirm that recent rally has resumed for 04 high of 1.3668.
However, note that as bearish divergence condition remains in 4 hours MACD and RSI, bouncing off from 1.3636 and a break below 1.3545 support will indicate that EUR/USD is still bounded in consolidation that started at 1.3636 and should bring test of short term rising channel support (now at 1.3476)
In the bigger picture, 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 is treated as resumption of the whole up trend from 1.1639 and is set to retest 1.3668. With such interpretation we’d expect risk of medium term reversal to increase significantly as EUR/USD enter into resistance zone between 1.3668 and 100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822. Hence, focus will then be on reversal signal.
On the downside break of 1.3406/10 support (61.8% retracement of 1.3253 to 1.3636 at 1.3399) will indicate that the rise from 1.2865 has completed and deeper decline should then be seen to 55 days EMA (now at 1.3311). More importantly, this will be the first warning that the rise rally from 1.2483 has completed, and thus, so is the whole up trend from 1.1639. Focus will then be back to medium term rising channel support (now at 1.2935).
Read full report (EUR/USD, GBP/USD, USD/CHF, USD/JPY, EUR/JPY) here.
Shing-Ip Tsui is the founder and CEO of
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