ForexPros Daily Analysis May 27, 2010

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Fundamental Analysis: Chicago PMI

Traders of the US anticipate the publication of the Chicago PMI. The Chicago Purchasing Managers Index determines the economic health of the manufacturing sector in Chicago region.Any reading above 50 indicates expansion of the manufacturing sector, while a reading below 50 indicates contraction. The Chicago PMI can be of some help in forecasting the US ISM and usually has an impressive correlation with it. A higher than expected reading should be taken as positive/bullish for the USD, while a lower than expected reading should be taken as negative/bearish for the USD. Analysts predict a future reading of 60.00.

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Euro Dollar 

The Euro broke the support specified in yesterday’s report 1.2256, and fell afterwards by 104 pips, only to stop before our suggested target & the 4-year low 1.2142. And after finding a bottom at 1.2152, the price bounced almost 150 pips in 8 only hours! This strong bounce, did not break any important levels (so far), to the degree that we can say that the negative technical outlook has changed. When analyzing the 4-hour chart, we can see a beautiful channel, with the price trading in the middle of it at the moment. We can also see that the whole rising move from 1.2152 was in the middle of this channel, and it did not touch or even approach the top or the bottom of the channel. Today, we will favor Fibonacci 61.8% over the top of this channel. Our most important resistance is Fibonacci 61.8% at 1.2472 and not the channel top!  We do not see any reason to change our negative technical outlook for as long as the price is below it. As for the short term the support is at 1.2252, and breaking it will drop the Euro to the same target set for yesterday: 1.2142 first, then 1.2000. The resistance is at 1.2350, and breaking it indicates a continuation of the rising correction with its ideal targets between 1.2411 & 1.2472. It goes without saying that the latter is the single most important resistance for the time being, and the separating point between a continuation of the current downtrend, and a reversal to an uptrend! We still believe that the drop to a new cycle low below 1.2142 is only a matter of time, nothing will change that except for breaking 1.2472.

Support:• 1.2252: the rising trend line from today’s low on intraday charts.• 1.2142: This cycle’s low, and the low of the last 4 years!• 1.2000: psychological level.

Resistance:• 1.2350: Fibonacci 38.2% for the drop from 1.2670.• 1.2411: Fibonacci 50% for the drop from 1.2670, which is very close to the 4-hour channel top.• 1.2472: Fibonacci 61.8% for the drop from 1.2670.

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USD/JPY

Although the price approached our resistance 90.74, and stopped only 9 pips below it, we have seen nothing but more semi-horizontal movement, making us gradually lose hope to feel some excitement coming from this boring pair! But, there is a slowly rising channel on the hourly chart, which contained all the previous days’ shallow moves. The channel’s top is just above short term 38.2% Fibonacci level at 90.74, making this resistance the most important for now. The bottom of this channel is at the well known support 89.56. Today’s main levels are support 90.09 & resistance 90.74, we can only hope to see some action upon a break of one of them. If we break the support 90.09, we expect to test the bottom of the channel 89.56 first, then to drop to 88.96 on the way to lower targets for the break of this channel.  If we break the resistance 90.74, the correction of the drop from 93.62 will go on, with its ideal targets at 91.29 & 91.84. We believe that 91.84 is still the most important medium term resistance for now, while the medium term support is at 89.56.

Support:• 90.09: the rising trend line from Tuesday’s low on hourly chart.• 89.56: the bottom of the slowly rising channel on hourly chart.• 88.96: Thursday’s low, and a previous very important support.

Resistance:• 90.74: Fibonacci 38.2% for the short term.• 91.29: Fibonacci 50% for the short term.• 91.84: Fibonacci 61.8% for the short term.

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Forex Trading Analysis written by Munther Marji for ForexPros. For more information about technical analysis visit ForexPros

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