The overall picture remains weak for the USD following the Federal Reserve's 50 basis point interest rate cut; however, trading was subdued as Forex traders await the U.S. Non-Farm Payroll data at 8:30 EST on February 1. It is clear that the FED is focused on U.S. economic recovery at this time rather than the Dollar, but traders seem to want to be sure before committing to a prolonged weaker Dollar.
Throughout the day, traders seemed to focus on the EURUSD. With this market bumping up against a double top, activity appeared to be light as traders waited to see if any of these tops would be penetrated with conviction. Reports surfaced during the session that retail traders have been supplying short positions at current levels in anticipation of a triple-top formation. This would increase the possibility of a strong breakout rally should tomorrow's reports prove to be bearish for the USD. The USDCHF posted a new low, but toyed with the prospect of a short-covering reversal for most of the day before settling down. The USDJPY remained in a tight range. This tightness is only adding further to the expectation of impending volatility in this pair. There was an interesting move in the EURCAD as the expanded range indicates the possibility of a resumption of the uptrend. Currently this market sits in a minor resistance zone, but any penetration of 1.499 could trigger the start of another leg up.
Overall, the tightness of the ranges in all pairs indicates that Friday could be a very volatile day. All indications are that how the EURUSD handles the current double top formation on the charts will set the tone for the entire day.
EUR/USD - The trend remains up with the EUR in a position to challenge the main tops at 1.4920 (1/15/08) and 1.496 (11/23/07). If resistance forms in this area, watch for a higher high, lower close to signal a short-term top. Although this would not change the trend to down, the EUR could feel pressure down to 1.4633. The market seems to be tentative at current levels as retail traders sell into the potential triple-top. If strong money does indeed control the direction, look for this strategy to fail, setting up the next upside breakout.
USD/JPY â€“ Although the 1/23/08 reversal bottom at 104.96 continues to hold, the trend remains down until the market crosses over the last main top at 107.88. Based on the current tight range of 104.96 â€“ 107.88, look for short-term counter-trend trades to try to establish support at 106.42 to 106.08. Buyers did step in at 105.70 making this a successful test of support. In order to sustain any rally, a good solid base must be built, however.
GBP/USD â€“ The trend is up on the daily chart. Follow through to the upside following last week's reversal bottom indicates the market may be headed to a near-term target of 2.024 â€“ 2.046. The key to sustaining the short-term rally is holding a successful test of 1.964. There was very little downside follow through following the reversal top at 1.995 on 1/30. The short-term charts indicate a continuation of the rally through 1.9556. Breaking 1.9810 indicates the potential for a move down to 1.964.
USD/CHF â€“ The USD fell to new lows for the year against the Swiss Franc. One sign of profit taking at these levels will be a short-term reversal bottom. Although the daily trend remains down until 1.11218 is violated, a countertrend rally could take the market back to 1.09585. The long-term charts indicate continuous erosion of support until 1.05. Based on oversold positions and the potential for a closing price reversal bottom, however, be careful adding additional shorts at current levels.
USD/CAD â€“ The long-term downtrend appears to be ready to resume following the short-covering rally, which took the USD to almost 50% of the 2007 range at 1.0465. The key action, which has to take place to trigger the start of another decline to .9055, would be a violation of the swing bottom at .9754. Unless the market goes through this price with conviction, look for choppy, sideways trading over the near-term. Additional support at .9716 could temporarily stop any sharp break. The short-term charts indicate the USDCAD could ping-pong between .9960 and 1.017 before establishing a trend.
NZD/USD â€“ After holding support at .7382 against the main bottom at .7365 from 10/22/07, the NZD is poised to move higher following a near-term breakout of the 12/07/07 high at .7369. This would set up a further rally to the most recent main top at .81078 from 7/24/07. The rectangular pattern and the uptrend suggest that a potential breakout to the upside is developing. Continue to look for the uptrend to continue unless .7365 is violated.
AUD/USD â€“ The strong follow-through rally from the .8511 bottom on 1/22/08 is still going strong with only a top at .9017 standing in the way. Additional resistance is being presented by sellers at the .8958 - .9063 range. The rectangular formation indicates a breakout above .9017 is likely. On the downside, the AUDUSD must build a supportive base at .8763.
EUR/JPY â€“ The trend is down on the daily charts as the market has just completed a 50% retracement of the 166.64 â€“ 152.10 range. The lower close suggests a further down move with 155.79 as the next downside target. Regaining 159.33 sets up a further rally to 161.03. The trend will remain down, however, until 162.27 is violated.
EUR/GBP- The EURGBP is at a critical point on the chart as both bullish and bearish forces collide at .7502. Downside pressure is coming from the daily/weekly reversal top at .7613 from 1/15/08. Short-term bullishness is being supported by an upside reversal bottom at .7390 from 1/28/08. Several factors could contribute to the bullish scenario. They include breaking out and holding above .7490 and regaining a key retracement area at .7502 to .7528. If the rally is going to fail and start to form a double top, then .7502 - .7528 must repel all rallies.
EUR/CHF â€“ Despite the short-term rally from 1.5824 since 1/23, the trend remains down on the daily chart. This rally came close to completing a 50% retracement of the 1.6735 â€“ 1.5824 range at 1.6280. A penetration through this price will make 1.6387 the next upside target. Should the current reversal top at 1.6187 hold as resistance, then look for a pullback to 1.6006 to 1.5963. If counter-trend buyers do not step in at this level to support the break, then look for continued erosion and a new low for the year.
EUR/CAD â€“ The weekly reversal top at 1.5199 from 1/16 had been putting downside pressure on the market. The indicated break was targeting 1.4673 â€“ 1.4548. Buyers stepped in today at this support zone and triggered a strong rally to the resistance zone at 1.4933 to 1.4996. This is a key retracement area as the bears may try to resume the downtrend with selling in this zone. In order for the higher top, higher bottom pattern to remain intact, the EUR/CAD must take out 1.5197 before 1.4146 is penetrated. A decline under 1.4486 will put the market below 50% of the 2007 range, which indicates a sideways-to-lower trade.
AUD/NZD â€“ Look for downside pressure to continue as the AUDNZD failed near a major 50% price at 1.1623. The top at 1.1613 should act as strong resistance along with 1.1623. A breakout through this level signals a further retracement to 1.1734. The AUDNZD would have to clear this area to begin to look near-term bullish. Currently, short term support is being provided inside of a retracement zone at 1.1374 - 1.1321. If this support zone fails to attract buyers, then the next target is a main bottom at 1.1150 followed by 1.0856.
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