EUR/USD Makes Record High After US GDP Disappoints
Euro finally breaks to new record high against dollar after disappointing Q1 GDP data from
the U.S. The GDP data showed the US economy growing only 1.3%, much lower than expectation of 1.8% while prior quarter’s growth was 2.5%. The
past 12 months growth data up to March was dragged further down by Q1’s data to 2.1% which is the slowest pace in 4 years. The growth in GDP was mainly dragged down by worsening in trade, reduced federal government spending and slowdown in housing market. However consumer spending, which accounts for 70% of the US economy, though slowed from 4.2% to 3.8%, was slightly better than expectation of 3.5%. The price index accelerated further from 1.6% to 4.0%, much higher than expectation of 3.1% and was the fastest pace since 1991. Core PCE Deflator, the Fed’s preferred gauge of inflation accelerated to 2.2% from 1.8%.
Released earlier today, the Swiss KOF Leading Indicator extended its positive run to 1.90 in Apr, up from downwardly revised 1.84 in prior month. Though the reading is slightly below market expectation, the indicator still suggest that business activities will remain solid in the second half of 07. SNB President Roth said earlier that investors trading on a weak franc should be aware of the risks including an “abrupt” adjustment of the currency as “it would be hasty to assume that the franc’s tendency for weakness will last in an unlimited way:”
EUR/USD
Daily Pivots: (S1) 1.3569; (P) 1.3611; (R1) 1.3640;
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EUR/USD’s retreat was once again supported above 4 hours 55 EMA and rebounds strongly in US session on broad based dollar weakness. EUR/USD broke through 04 high of 1.3668 finally and reaches as high as 1.3681 so far. At this point, as EUR/USD is still staying comfortably above mentioned short term rising channel support (now at 1.3479), rally from 1.2865 is still in good shape. Sustained trading above 1.3668 resistance will path the way towards next medium term target of 100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822.
However, note that bearish divergence conditions remain in 4 hours MACD and RSI. Risk of a short term reversal remains high. Break of 1.3583 support will encourage deeper correction towards the short term rising channel support. Decisive break of this channel will be the first warning that whole rise from 1.2865 has completed already, and focus will then be on 1.3406/10 cluster support.
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 will indicate that the rise from 1.2865 has completed and deeper decline should then be seen to 55 days EMA (now at 1.3322). 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 1.2953).
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.