The New York State Manufacturing Index defied critics once again in Jul and rose to 26.46, reaching a one year high, and being much better than expectation of a fall to 28.0. The index indicates manufacturing conditions continue to improve in the New York State, with details supporting the headline view. However, this piece of good news provides little support to the green back and it continues to remain pressured. Dollar continue to hover near record low against Euro, falls to fresh 26 year low against sterling. In addition, the greenback is still staying near to the new 22 years low and 18 years low against Kiwi and Aussie made earlier today. Canadian dollar is also hovering new 30 year high against the greenback.
Nevertheless, downside momentum in the greenback is limited so far as traders are holding their bets on some key events in the week. Producer and consumer inflation will be featured in the coming two days with another round of housing data. More important, Bernanke will have his semi-annual testimony on Wed and Thu, together with the release of FOMC minutes.
EUR/USDDaily Pivots: (S1) 1.3757; (P) 1.3785; (R1) 1.3809;
EUR/USD continues to trade in tight range below key medium term resistance of 100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822. Though mild bearish divergence conditions in 4 hours MACD and RSI suggest upside momentum is diminishing, a break below 1.3729 minor support is needed to indicate a short term top is formed. Otherwise, further rally is still in favor. Below 1.3729 will bring deeper pull back to 4 hours 55 EMA (now at 1.3688 first).
In the bigger picture, the current development is dampening the original view that rise from 1.3262 is the last advance in a five wave structure that started at 1.2483. Firstly, the current momentum of the rise from 1.3262 is seen stronger than the prior rally from 1.2865 to 1.3681. Secondly, the falling trend line in both daily MACD and RSI were broken, negating the bearish divergence conditions. In other words, the underlying bullishness in EUR/USD could be much stronger than we originally thought.
Focus remains on 1.3822 resistance. Sustained trading above this level will add much weight to the case that whole medium term rally from 1.1639 is indeed resumption of multi-year up trend from 0.8223 (00 low). That is, further rise should be seen in medium term towards 95 high of 1.4523 with much chance to extend further to 61.8% projection of 0.8223 to 1.3668 from 1.1639 at 1.5004.
On the downside, failure to take out 1.3822 decisively, followed by a break of 1.3262 support, will retain the original case. That is, medium term rally from 1.1639 has likely completed after being limited by 1.3822 resistance as expected. Deeper decline should then be seen to 1.2978 cluster support first (38.2% retracement of 1.1639 to 1.3813 at 1.2983) and then next cluster support at 1.2483 (61.8% retracement of 1.1639 to 1.3813 at 1.2469). Also, since in such case, rise from 1.1639 is likely merely part of a larger scale consolidation that started at 1.3668 there will be much chance of extending the fall to retest 1.1639 low before completing the consolidation.
GBP/USD
Daily Pivots: (S1) 2.0279; (P) 2.0323; (R1) 2.0385;
Cable's recent rally resumes today by surging to new 26 years high at 2.0403. At this point, further rally should be seen as long as cable stays above 2.0307 minor support. Sustained trading above trend line resistance (now at 2.0380) will encourage further rally towards next upside target of 100% projection of 1.9183 to 2.0132 from 1.9621 at 2.0570. However, note that upside momentum is seen diminishing with mild bearish divergence condition in 4 hours RSI. A break below 2.0307 minor support will indicate that the rally from 1.9621 could have made a top and deeper correction should then be seen towards 2.0056 support.
In the bigger picture, the sustained break of 2.0207 projection target confirms underlying upside momentum is still strong. Also, it added much credence to the case that whole up trend from 1.7047 is resumption of multi-year up trend from 1.3680. In such case, further rally should then be seen to 61.8% projection of 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05 low) at 2.0677 first.
Having said that, even in case of a short term correction, downside should be contained above 1.9783 resistance turned support and bring medium term rally resumption. Also, break of 1.9862 low is needed to indicate a medium term top is formed and turn outlook neutral. Otherwise, medium term outlook will remain bullish.
Source : Actionforex.com
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