Strong NY State Index Provides No Support to Dollar
The New York State Manufacturing Index defied critics once again in Jul and rose to 26.46, reaching a one year high, and being much better than expectation of a fall to 28.0. The index indicates manufacturing conditions continue to improve in the New York State, with details supporting the headline view. However, this piece of good news provides little support to the green back and it continues to remain pressured. Dollar continue to hover near record low against Euro, falls to fresh 26 year low against sterling. In addition, the greenback is still staying near to the new 22 years low and 18 years low against Kiwi and Aussie made earlier today. Canadian dollar is also hovering new 30 year high against the greenback.
Nevertheless, downside momentum in the greenback is limited so far as traders are holding their bets on some key events in the week. Producer and consumer inflation will be featured in the coming two days with another round of housing data. More important, Bernanke will have his semi-annual testimony on Wed and Thu, together with the release of FOMC minutes.
Daily Pivots: (S1) 2.0279; (P) 2.0323; (R1) 2.0385; More
Cable’s recent rally resumes today by surging to new 26 years high at 2.0403. At this point, further rally should be seen as long as cable stays above 2.0307 minor support. Sustained trading above trend line resistance (now at 2.0380) will encourage further rally towards next upside target of 100% projection of 1.9183 to 2.0132 from 1.9621 at 2.0570. However, note that upside momentum is seen diminishing with mild bearish divergence condition in 4 hours RSI. A break below 2.0307 minor support will indicate that the rally from 1.9621 could have made a top and deeper correction should then be seen towards 2.0056 support.
In the bigger picture, the sustained break of 2.0207 projection target confirms underlying upside momentum is still strong. Also, it added much credence to the case that whole up trend from 1.7047 is resumption of multi-year up trend from 1.3680. In such case, further rally should then be seen to 61.8% projection of 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05 low) at 2.0677 first.
Having said that, even in case of a short term correction, downside should be contained above 1.9783 resistance turned support and bring medium term rally resumption. Also, break of 1.9862 low is needed to indicate a medium term top is formed and turn outlook neutral. Otherwise, medium term outlook will remain bullish.
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.