Monday June 7, 2004 - 08:20:14 GMT
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Euro drifts closer to 100-day SMA
Daily Forex Technical Report 6-7-2004
· Euro drifts closer to 100-day SMA
· Pound rallying to 61.8% Fib Resistance at 1.8500
The highly anticipated fundamental data out of the US rocked the EUR/USD through a 100+ pip range post-release Friday. Initial moves were capped near local resistance (1.2280/95) made 6/2 and 5/27. Shortly following, however, prices dropped quite unexpectedly to well below the pre-release range (1.2155/70 to 1.2255/80), spiking through the trend regression channel (1.2150) down to 1.2135. The upward inertia ensued, lofting the pair to the top end of the macro regression trend channel. The 50% retracement of 1.2930 (all time high) - 1.1765 looms precariously overhead early in London trading. Notably, the intersection of the regression channel and the 50% retracement level come into play mid-week (6/9). The 100-day SMA (1.2250), which formerly provided some consistent resistance, may provide moderate support going forward. The 100 and 200-day WMA have begun to slope up slightly with the 200-day SMA leading the charge upwards and 100-day SMA lagging the standard MA set. We have eyed the 50% Fib retracement and the top of the regression trend channel as major tipping points for analysis and trading. A break above the 50% retracement line (1.2345) with an hourly close would confirm a major shift in dollar sentiment from just recently (5/1) bullish - to neutral pointing towards bearish. Intermediate term oscillators are neutral, however, on the daily scope they remain pinned to the oversold region looking poised for an even higher future reading. Additionally, volatility indicators have plummeted for nearly three weeks; just as observed during November '03's unrelenting updraft. 1.2500 looks to be a formidable level for the bulls and the 61.8% retracement (1.2480) comes into play in this general region as well. See "Chart of the Day" below for analysis of USD/JPY. Recent interest rate differential plays look to be wearing on the GBP/USD as imminence of interest rate hikes loom ever closer in the US. Local resistance comes into play at 1.8475 with more significant levels scattered between current levels and 1.8600. The 61.8% retracement of 1.9135 (11 year high against the dollar) - 1.7475 comes into play at 1.8500, contributing to the resistance eyed above. The elongated MACD histogram has drifted down from the highs made on the initial test of present levels and are just now washing below the zero line. We see this as bearish; however, a violation would imply sufficient inertia to drive for the 1.8600 price level. All standard MAs' (100 and 200-day SMA and WMA) have advanced higher in near synchronicity with prices trading well above the nearest MA (1.8230). The recent break from trend line support looks to be short lived as the indecision continues for USD/CHF participants. Weekly pivot S1 (1.2325) comes into play just below present levels with S2 registering closely below at 1.2250. It may be difficult for bearish sentiment to remain in tact through these tightly knit support levels. Notably, the 76.4% Fib retracement made by January's lows (1.2140) and recent high's (1.3225) comes into play at 1.2400 and seems to have roped in prices for the time being. Prices may wash around the centerline (1.2425/2500) over the near term unless an unforeseen geo-political event hit the wires. Bulls may attempt to lift the cross on forays below pivot levels noted above.
USD/JPY had a high at 109.28 on 04/15 before a retracement to the 107.50 low on 04/16 (178pts lower). On 04/22 the high was at 109.93 (slightly below our 110.00/50 area) and the pair retraced back to the 109.35 low on 04/26, 58pts lower. The market is obviously overextended but the downtrend is now clearly broken. Bulls have the upper hand and aggressive dip players will look into the 111.70/112.10 zone to add to their USD holdings (50% Fibo from the Aug - Apr bear wave and 10 SMA). Below another decent "buy on dip" level will be 107.80/108.10 thanks to the 50% Fibo from the Mar bear wave and 100 SMA. Bears will be cautious but 114.30/70 seems like a nice reversal area thanks to the Swing High, High BB and a robust Fibo confluence (61.8% Fibo from the Aug - Apr bear wave & 61.8% Fibo from the 99 - 02 bull wave). A sustained breakout above would then open the door to the 116 level, the 138.2% Fibo from the Mar bear wave.
On 5/14, USDJPY rallied to a high of 114.85 (slightly higher than our 114.30/70 reversal area), before retracing to a low of 109.02 on 5/31, 583 pts lower. The market is now stalling after the extensive move lower. The outlook has turned slightly negative after the break below 110.50/60, the swing high / 38.2% retracement of 103.40-114.90 and May 4 high. However, bulls still have a chance at a move higher above 109.02, the 200-day SMA and 5/31 low. A rally above 111.96, the June 4 high would expose 112.15, the May 27 high and 50% retracement of 120.67-103.42. Sustained strength above 112.25/35, the 20-day SMA / 50% fibo of 114.85-109.00 and March 5 & 8 highs would give bulls the opportunity to target 114.85 May 14 top. A failure below 109.02 could inspire reversal players for a move towards the 100-day SMA and 61.8% fibo at 108.50/107.86.
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