Dollar Still in Range, Saved by Solid ISM Manufacturing
Dollar edged lower against majors in early US session but was saved by much stronger than expected ISM manufacturing report and remains in
an established range. The headline ISM Manufacturing Index rose strongly from 50.9 to 54.7 in Apr, beating consensus of 50.9, and is the highest reading since Sep 05. The strong bound in the index suggests that the manufacturing index is probably regaining momentum for expansion. Two of the mostly watched components, the Employment Index and the Price Paid Index were also impressive. Employment index rose strongly from 48.7 to 53.1, highest since Sep 06, and is supportive for a solid payroll report on Friday. Meanwhile, Price Paid Index continued its upside momentum and surged to 73.0, highest since Jul 06, indicating that pipeline inflation pressure is still accelerating.
Earlier today, Sterling was lifted mildly after CBI distributive trade index beat expectation by rising from 32 to 44, highest in two years. The report suggests that retail spending continued to grow solidly and is supportive to further tightening from BoE. Manufacturing PMI in UK came in at 53.9, a touch below consensus of 54.0. Canadian dollar remains firm against the greenback after stronger than expected PPI inflation which showed PPI increased 1.3% mom, 4.8% yoy in Mar.
Bernanke’s speech today will catch some attention on information on Fed’s view after recent round of data. CAD traders will also pay attention to BoC Dodge’s speech on the catalyst for further rally in the CAD. RBA will announce rate decision in the upcoming Asian session and is widely expected to keep rates unchanged at 6.25% after last week’s disappointing Q1 CPI data.
EUR/USD
Daily Pivots: (S1) 1.3598; (P) 1.3637; (R1) 1.3686;
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EUR/USD has another attempt to resume rally in early US session but after all, it’s still bounded in recently established range of 1.3583 and 1.3681 high. As discussed before, risk of short term reversal remains high as bearish divergence condition continues to be displayed in 4 hours MACD and RSI. However, another rise could still be seen as long as EUR/USD stays above 1.3583 support. Break of 1.3583 is needed to indicate a short term top is formed and bring retreat towards the short term channel support (now at 1.3515). Above 1.3681 will bring another test of the short term rising channel resistance (now at 1.3720).
In the bigger picture, now, with 1.3668 target met, risk of medium term reversal is also increasing. As discussed before, medium term up trend from 1.1639 is treated 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. 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.
However, sustained break of the short term channel support is needed to be the first warning of the completion of whole rally from 1.2865. Otherwise, EUR/USD’s rise could continue to extend further to medium term rising channel resistance (now at 1.3810) and mentioned 1.3822 projection target. On the downside, break of the short term rising channel support will indicate the rise from 1.2865 has likely completed. Break of 1.3406/10 support will confirm such case and deeper decline should then be seen to 55 days EMA (now at 1.3374). 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 1.2952).
Read full report (EUR/USD, GBP/USD, USD/CHF, USD/JPY, EUR/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.