Forexpros Daily Analysis - 26/05/2010

ForexPros Daily Analysis May 26, 2010


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Fundamental Analysis: GDP Price Index

Traders of the US anticipate the publication of the GDP Price Index. The index measures the annualized change in the price of all goods and services included in GDP.
Therefore - the GDP Price Index is a key inflation measure. A higher than expected reading should be taken as positive/bullish for the USD (as the common way to fight inflation is raising rates, which may attract foreign investment), while a lower than expected reading should be taken as negative/bearish for the USD. Analysts predict a future reading of 0.90%.
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Euro Dollar

Although the Euro broke the support specified in yesterday’s report 1.2256, and fell afterwards by 80 pips, it came back to break the resistance specified in the report (opposite to our expectations), and traded above it after the American closing, but it was not ale to hold this high! This strong bounce, did not break any important levels (so far), to the degree that we can say that the negative technical outlook has changed. When analyzing the 4-hour chart, we can see a beautiful channel, with the price trading in the middle of it at the moment. We can also see that the whole movement of yesterday was in the middle of this channel, and it did not touch or even approach the top or the bottom of the channel. The fact that Fibonacci 61.8% is at the same level as the top of this channel, at 1.2481, makes this level very important. We do not see any reason to change our negative technical outlook for as long as the price is below it. As for the short term the support at 1.2256 has gained more importance after Fibonacci 61.8% for the short term has moved towards it exactly. Breaking this support will drop the Euro to the same target set for yesterday: 1.2142 first, then 1.2000. The resistance is at 1.2301, and breaking it indicates a continuation of the rising correction with its ideal targets between 1.2365 & 1.2481. It goes without saying that the latter is the single most important resistance for the time being, and the separating point between a continuation of the current downtrend, and a reversal to an uptrend! We still believe, we still believe that the drop to a new cycle low below 1.2142 is only a matter of time, nothing will change that except for breaking 1.2481.

Support:
• 1.2256: Fibonacci 61.8% for the short term, important intraday level & a previous support area which showed strength.
• 1.2142: This cycle’s low, and the low of the last 4 years!
• 1.2000: psychological level.

Resistance:
• 1.2301: important intraday level.
• 1.2365: Fibonacci 38.2% for the drop from 1.2670.
• 1.2481: Fibonacci 61.8% for the drop from 1.2670.

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USD/JPY

More semi-horizontal movement, making us gradually lose hope to feel some excitement coming from this boring pair! But, there is a slowly rising channel on the hourly chart, which contained all the previous days’ shallow moves. It is a coincidence that short term 38.2% Fibonacci level at 90.74 is at the top of this channel, which gives it more importance. The bottom of this channel is at 89.37, and will be slowly rising to 89.56, the well known support. Today’s main levels are support 90.14 & resistance 90.74, we can only hope to see some action upon a break of one of them. If we break the support 90.14, we expect to test the bottom of the channel 89.37 first, then to drop to 88.96 on the way to lower targets for the break of this channel. If we break the resistance 90.74, the correction of the drop from 93.62 will go on, with its ideal targets at 91.29 & 91.84. We believe that 91.84 is still the most important medium term resistance for now.

Support:
• 90.14: important intraday level.
• 89.37: the bottom of the slowly rising channel on hourly chart.
• 88.96: Thursday’s low, and a previous very important support.

Resistance:
• 90.74: the top of the slowly rising channel on hourly chart, and short term 38.2% Fibonacci level.
• 91.29: Fibonacci 50% for the short term.
• 91.84: Fibonacci 61.8% for the short term.

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Forex Trading Analysis written by Munther Marji for Forex Pros.

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