Euro strength continues, approaching key resistance

Euro continues to strengthen across the board today,
breaking through 1.2911 high and is seen heading towards 1.2978 key resistance. On the other hand, just as we said EUR/JPY’s rally was not decisive, it powered through 149 level, rallying over 100 pts to as high as 149.72, heading towards 150 psychological resistance. Euro’s strength was helped by comments from Bundesbank President Axel Weber who predicts substantial economic expansion for the remainder of 2006 and suggests German GDP could potentially grow at 2% this year. Meanwhile, Eurozone June trade balance was confirmed to be + Euro 2b, better than expected euro -1b.

While dollar remains weak against European currencies, it’s steady against yen, with USD/JPY remaining in established range as, yen is equally weak. Dollar’s weakness was also apparent as in sharp fall in USD/CAD despite poor retails sales data from Canada.

EUR/USD

Daily Pivots: (S1) 1.2789; (P) 1.2816; (R1) 1.2853;

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EUR/USD’s rally continues today, with a break above 1.2886 and 1.2911 resistance, further rally is expected towards key cluster resistance at 1.2978 (61.8% projection of 1.2457 to 1.2908 from 1.2695 at 1.2974 and 100% projection of 1.2695 to 1.2886 from 1.2780 at 1.2971). TOuching of 1.2879 will indicate an intraday top is possibly formed and risk pull back towards 55 hours EMA (now at 1.2855) but downside should be contained there and bring further rise towards 1.2978.

The bigger picture in EUR/USD remains mixed. Question remains on whether rise from 1.2457 represents resumption of medium term up trend from 1.1639 or merely part of a larger scale consolidation. On the upside, it will take a firm break above 1.2978 cluster resistance to confirm the whole medium term up trend from 1.1639 has resumed. On the downside, a break below 1.2695 low will shift favor back to the case that whole rise from 1.1639 has already ended with three waves up to 1.2978 already and 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.



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