Dollar Rebounds Further on Supportive Data
Dollar rebounds further in early US session after stronger than expected jump in import and export prices.
Import prices rose 0.2% in Nov versus expectation of staying flat. Looking into details, ex petroleum prices increased 0.7%, offsetting fall in petroleum prices. Meanwhile, export price rose 0.4% versus expectation of 0.1%. However, note that both import prices and export prices growth were revised lower in Oct. On the other hand, jobless claim dropped to 304k, better than expectation of 320k.
Earlier today, UK retail sales increased more than expected in Nov by growing 0.3% mom, 3.2% yoy comparing to expectation of 0.1% and 3.0%. Eurozone labor costs increased 2.0% yoy in Q3, lower than expectation of 2.6% and slower than prior quarter’s revised 2.3% growth.
The Swiss National Bank has raise both the upper and lower three-month Libor interest rates 25 basis points to 1.50% and 2.50% as expected thus bringing the effective midpoint to 2.00%. Growth forecast was left unchanged at around 3% this year while forecast for 2007 is lifted from 1.8% to around 2%. However inflation forecast was lowered for next year. The SNB is expected to continue its gradual policy of normalization in 2007 without pressing need for a faster pace. Swiss Franc was pressured with EUR/CHF surging after the announcement.
The Tankan is due the coming Asian session will be closely watched. In particular, the capex plans will be an important factor for BoJ’s monetary policy. BoJ is scheduled to meet next week. Though expectation for a hike is fading, a strong Tankan survey will likely cause some volatility in the Yen.
EUR/USD
Daily Pivots: (S1) 1.3175; (P) 1.3231; (R1) 1.3270;
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As discussed before, rebound from 1.3129 should have topped at 1.3291 with 4 hours MACD limited by zero line and dragged to below signal line on subsequent fall. At this point, short term bias remains on the downside as long as EUR/USD stays below 1.3252 resistance. Correction from 1.3362/64 is expected to continue to retest 1.3129/33 cluster support (38.2% retracement of 1.2760 to 1.3362 at 1.3132). Break will encourage further fall towards 100% projection of 1.3364 to 1.3129 from 1.3291 at 1.3056 and short term rising trend line (now at 1.3011). But still, we’d expect downside of this correction to be contained 1.2938 support (50% retracement of 1.2483 to 1.3362 at 1.2923) and bring another rally.
On the upside, above 1.3291 again will indicate rebound from 1.3129 has resumed for retesting 1.3364 high. But still, firm break above 1.3364 is needed to confirm recent rally has resumed for 1.3668 resistance (04 high). Otherwise, consolidation from 1.3362 could still extend.
In the bigger picture, the current rise from 1.1639 could either be resumption of multi-year up trend from 0.8223 or just part of a larger scale consolidation that started at 1.3668. Neither case is confirmed yet. Nevertheless, medium term outlook remains bullish as long as EUR/USD stays above 1.2760 support or before clear reversal pattern forms. Hence, at this moment, we’d expect the current medium term up trend to continue towards 1.3668 resistance (04 high). On the upside, 100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822 will be key. Decisive break of this 1.3822 level will confirm long term up trend has resumed for 1.4 psychological resistance first.
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Shing-Ip Tsui is the founder and CEO of
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