Thread: Forexpros Daily Analysis - 05/05/2010

ForexPros Daily Analysis May 5, 2010


Fundamental Analysis: ECB Press Conference

The European Central Bank holds this monthly press conference about 45 minutes after the Minimum Bid Rate is announced. It is about an hour long and has two parts: First, a prepared statement is read; then the conference is opened to press questions. The questions often lead to unscripted answers that trigger market volatility. The press conference, which is broadcasted on the ECB website, is the ECB's primary method for communicating with investors about monetary policy. It covers in detail the factors that affected the most recent interest rate and other policy decisions, such as the overall economic outlook and inflation. Most importantly, it often provides clues regarding future monetary policy. If the statement is more hawkish than expected, that is usually good for the euro.

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Euro Dollar

The Euro broke the support specified in yesterday’s report 1.3173, and completely collapsed reaching both suggested targets 1.3113 & 1.3050. It even dropped more than 100 pips below our second target, dropping below the 1.30 for the first time since Apr 28th 2009. It was obvious, even before this recent drop, that the technical picture is negative, which we have expressed clearly in yesterday’s report. But, the pace of this drop has exceeded our expectations. If we try to explain what happened, it could be a 5-wave drop which is still developing, out of which we are in the 3rd wave. And since wave 4 could be a sharp correction or a horizontal one, we must be extra cautious around here. We could see a sharp correction taking us back to the 1.31 area, before dropping below 1.29, or we could see a modest correction. Thus, we prefer to concentrate on the short term levels, and follow of break of any of them. The important levels for today are resistance 1.2985 & support 1.2948. If we break the support 1.2948, the price will continue dropping to the important levels in the 1.28 area: 1.2885 & 1.2820. But if we break the resistance 1.2985, the price will go back to trade inside the broken channel, and will start correcting yesterday’s drop, targeting 1.3065 & 1.3130.

Support:
• 1.2948: important intraday support, protecting yesterday’s low.
• 1.2885: Apr 22nd 2009 important low.
• 1.2820: Mar 10th 2009 high.

Resistance:
• 1.2985: the bottom of the channel which was broken yesterday.
• 1.3065: Fibonacci 38.2% for the short term.
• 1.3130: Fibonacci 61.8% for the short term.

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USD/JPY

The Dollar’s rise stopped at 94.96, that’s 9 pips below our resistance 95.05, then it dropped, to leave us wondering is this everything? Is the short term rise over, or will it go on? Everything depends on breaking 95.05 or holding below it. If we hold below this resistance the price will be expected to fall, and test the rising trend line from 92.80 at 94.56. If broken the technical outlook will turn negative for the short term, and we will target the important support 93.91. If this one is broken, the technical outlook will turn negative for the medium term, and we will target 93.30 as a first and modest target for this break, on the way to lower levels later. On the other hand, if 95.05 gives way, it will be hard to imagine the rise stopping before the 96 station as we will target 95.90 & may be 96.69.

Support:
• 94.56: the rising trend line from 92.80 on the hourly chart.
• 93.91: the rising trend line from 91.58.
• 93.30: Apr 23rd low.

Resistance:
• 95.05: Aug 24th high.
• 95.90: Jul 29th low.
• 96.69: May 19th 2009 high.

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Forex Trading Analysis written by Munther Marji for ForexPros.

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Dollar continues its erratic behavior:

The dollar continues its rather erratic behavior on May 4th, although this time the greenback’s volatility has gone in favor of gains.

The dollar was able to gain against most of the forex majors as it was backed by positive economic data. The ISM Manufacturing Index was expected to come out at 60, but it came out at 60.4, boosting the dollar. After falling on May 3rd, the US stock markets were able to gain once again, with the NASDAQ increasing by 1.53% and the Dow Jones increasing by 1.3%.