Forexpros.com Daily Analysis - 12/08/2010

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Fundamental Analysis: CPI

The Consumer Price Index (CPI) measures the changes in the price of goodsand services. The CPI measures price change from the perspective of theconsumer.It is a key way to measure changes in purchasing trends and inflation in theUS. A higher than expected reading should be taken as positive/bullish forthe USD (as the common way to fight inflation is raising rates, which mayattract foreign investment), while a lower than expected reading should betaken as negative/bearish for the USD. The analysts predict a future readingof 0.20%.

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Euro Dollar

The Euro broke the support specified in yesterday's report 1.3032, anddropped as expected, reaching both suggested targets 1.2961 & 1.2875 withcomplete success, to move 400 pips away from last Friday'sJobs-report-top. We have commented on the retest case which took placeafter the Fed's statement Tuesday evening by saying: it is a well knowntechnical principle that such an accurate retest confirms the break itfollowed, and the new direction, which is down in this case. Looking at theattached chart, we can see that: 1. the rising trend line was brokendecisively and 2. the price retested this line in an accurate fashion. Theseare obvious indication of a falling trend. Therefore, unless the price goesback up to trade above the broken trend line, we expect more downsideactivity. Today, there is more to talk about technically; there is acomplete 5-wave count for the rise from 1.1875, but does it mean that theuptrend is over? Also, there is not one but 2 channels on the daily chart.The first (shown in RED on the attached chart), combining the tops of thewaves 1 & 3, which is already broken. The second channel (shown in BLACK onthe attached chart) combines the tops of waves 3 & 5, and although the pricetried to break it, it went back to trade inside it. The bottom of the secondchannel is at 1.2869, that is why this will be our support for today. Ifbroken, the horror movie will go on for the Euro, and we will drop to 1.2775& 1.2681. The resistance is at the Asian session high 1.2917, and if broken,a short term correction will target not less than 1.2981 & not more than1.3074.

Support:* 1.2869: the bottom of the rising channel on the daily chart.* 1.2775: first of the main Fibonacci retracement levels (the 38.2% level)for the whole rise from this year's low 1.1875 to last Friday's and 3-monthhigh.* 1.2681: Jul 14th low.

Resistance:* 1.2917: Asian session top.* 1.2981: short term 38.2% Fibonacci level.* 1.3047: short term 61.8% Fibonacci level.

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USD/JPY

The Dollar/Yen broke the support specified in yesterday's report at 85.16,and dropped to 84.70 which is a 15-year low not seen since June 1995! Later,it consolidated above 85, and corrected the drop up to short term Fibonacci50% level at 85.46. With this, we have finally reached the main target ofthis falling wave, which we talked about for the last 2 weeks: a drop below84.81 & a new 15-year low, but what are the next targets? In the attachedchart, which is a weekly one, we can see the falling channel from Sep 07top. Although the bottom of this channel is very far away, and is just above74, but there is an interesting trend line inside it, combining the monthlylows of Dec 08, Jan & Nov 09. This line is around 82.65 currently, providingus with a perfect target for this dropping wave, since we still expect, aswe did before, that it will dive below 84.70. Therefore, we expect the priceto reach this target, and as we do, we also realize that the limitedvolatility of this pair indicates that this will take some time. As for theshort term, the support is at 85.28, and breaking it would indicate that weare already moving lower with the objective of breaking 84.81, and reachinglows not seen in 15 years. This will target 83.87 & at a later time, westill believe in our 82.65 target. The resistance is at 85.90, and ifbroken, the price will continue its bounce, targeting 86.43 & 87.49

Support:* 85.28: important intraday level.* 83.87: Fibonacci extension level 138.2% for the falling wave from 86.86,compared to the wave which started at 88.10.* 82.65: the trend line combining the monthly lows of Dec 08, Jan & Nov 09,on the weekly chart.

Resistance:* 85.90: short term Fibonacci 61.8% level .* 86.43: the top of the rising corrective trend channel on the hourly chart.* 87.49: Jul 29th high.

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Forex Trading Analysis written by Munther Marji for ForexPros. For more information about currency charts visit ForexPros.

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