Thu, Apr 10 2008, 08:12 GMT
by ActionForex.com Team
Action Insight Daily Report
Yen Steals the Show ahead of ECB & BoE
The Japanese yen steals the show from ECB & BOE today and is indeed the biggest mover so far, boosted by new that Singapore unexpectedly set a higher trading range for its currency. Note that we've been pointing out the loss of upside momentum in yen crosses as well as the possibly that short term tops are around the corner, if not already formed. Note that USD/JPY and GBP/JPY has taken out some intraday support level already. Further weakness in EUR/JPY will strengthen the case that yen's strengthen has come back broadly.
EUR/GBP hits another record high of 0.8026 on expectation of closing rate gap between ECB and BOE after today's announcements. ECB is widely expected to keep rates unchanged at 4.00% today. Given re-emergence of inflation risks, which saw flash estimate of Eurozone CPI hitting a new high of 3.% in Mar, far above ECB's target of 2%, Trichet is expected to maintain the hawkish stance in the post meeting press conference. Improvement is business confidence, which is shown in Germany's Ifo Index's improvements from Jan's 103.4 to Mar's 104.8 is also giving the ECB another bullet to be on hold in the near future even though there are still risks to the down side in growth.
On the other hand, BoE is widely expected to cut rates by 25bps to 5.00% today. Recent data showed further deterioration in consumer confidence as well as deepening in housing market recession. However, like other parts of the world, BoE is also facing the problem of re-emergence of inflation risk. Hence even though further rate cuts are still expected from BoE down the road, the pace will likely be unchanged at 25bps per quarter.
Data released earlier saw Australian unemployment climbed from 4.0% to 4.1% in Mar. But the economy added more than expected 14.8k jobs. Japanese trade surplus surged to 1035b in Fe. Machine too orders, on the other hand, fell less than expected by -12.7% mom in Feb, leaving yoy rate at 2.4%. Looking ahead, Trade balance from UK, US and Canada will be released together with jobless claims and Fed budget in US.
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USD/JPY Daily Outlook
Daily Pivots: (S1) 101.24; (P) 102.03; (R1) 102.59; More.
USD/JPY dives sharply to as low as 100.72 today. Break of the inner rising trend line as well as 101.44 support indicates that whole rebound from 95.77 should have completed with three waves up to 102.94. Intraday bias is now flipped to the downside and further break of 98.55 support will confirm this case and bring retest of 95.77 low. On the upside, above 101.89 will turn intraday outlook neutral again and suggest that another high could be seen before a reversal. Decisive break of 103.59 resistance zone is still needed to indicate underlying upside momentum is still strong.
In the bigger picture, as discussed before, USD/JPY has broken out of multi-year triangle consolidation pattern that started in 1998 at 147.68. The decline from 124.13 has met 76.4% retracement of 79.75 to 147.68 at 95.78 so far. Some support is seen at this level. But still, there is no sign of reversal yet. Also, the structure, of the current fall from 124.13 argues that USD/JPY is still in the middle of a larger down trend only.
Medium term outlook remains bearish as long as 103.59 cluster resistance (61.8% retracement of 108.59 to 95.77 at 103.69) holds. Sustained trading below 95.78 will encourage further fall to next important psychological level at 90 first. However, firm break of 103.59 cluster resistance will argue that a medium term bottom is already in place. In such case, stronger medium term rebound should be seen to correct the whole fall from 124.13.
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