Thursday’s forex market commentary

The dollar sharply reversed its aggressive gains made earlier on Wednesday after Federal Reserve Chairman Bernanke warned against future effects of previous interest rate increases while gauging persistently higher inflation stemming from record energy prices. While economic growth will slow down, he also warned about the high cost of further tightening. The dollar should remain under selling pressure, at least until the market starts discounting Bernanke’s statements.

The euro/dollar hit a near-three-month low of 1.2459 before turning up and closing high enough to erase more than 2/3 of the losses made since Monday. There is good resistance nearby at 1.2625 and this level must break to confirm more strength. There is a potentially bullish reversal in the making, so a break higher is quite possible.

If 1.2625 gives way, then brace for a test of the further level at 1.2655. Next big level is 1.2700 and a break higher means that the pair already has a significant low in place. Distant resistance is at 1.2862.

Support now comes at 1.2560. Next level lies at 1.2510. Distant support is pegged to 1.2458.

Oscillators are rising.

NEAR-TERM: Slightly bullish
LONG-TERM: Bullish

Dollar/yen peaked at a three-month high of 117.86 early on Wednesday and then went south with gusto, forming a bearish reversal formation.

Initial support is at 116.65. Below 116.35, the pair has support at 115.70. Strong support remains at 115.50, from a 50-pip pivot, which targets 116.00 and 115.00.

Above 117.35, strong resistance remains at 118.25 from another 50-point pivot that targets 117.75 and 118.75.

Oscillators are mixed.

LONG-TERM: Bearish

Sterling/dollar broke above the 60-day moving average and managed to wipe out the Monday’s losses, and most of Friday’s as well. The momentum still favors the upside.

Resistance now comes at 1.8485, and this level is very important. If it gives way, then cable may challenge the area between 1.8540 and 1.8560. Distant resistance looms at 1.8665.

Initial support is at 1.8415. That’s followed by 1.8365. Below 1.8320, the pound has support at 1.8260. Distant support comes from a pivotal at 1.8088.

Oscillators are rising.

NEAR-TERM: Mixed to slightly bullish
LONG-TERM: Bullish

Dollar/Swiss franc
Dollar/Swiss franc fell sharply from 1.2595, the highest level of its uptrend, and the slightly overbought pair formed a bearish reversal formation. It should see some more weakness on Thursday, but the pace of the decline should be subdued.

Support is now seen at 1.2445. Next level comes at 1.2385, and this is very important. A close below this level would signal a further decline to 1.2340 and 1.2290.

Initial resistance is at 1.2520. Above this level, resistance is seen at 1.2580. A break above this level would suggest a further rally to 1.2640.

Oscillators are falling.

NEAR-TERM: Slightly bearish
LONG-TERM: Bearish

Thursday, July 20, 2006 8:00 GMT
Daily Forex Market Commentary
By: Cornelius Luca, Currencies Analyst, GFT

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