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Action Insight | Written by ActionForex.com | May 31 07 14:30 GMT |
Forex Mid-Day Technical Report Dollar Still in Range after Mixed Data, Edges Higher against Yen

Dollar spiked lower after US Q1 GDP was revised lower than expected from 1.3% to 0.6%, versus consensus of 0.8%, primarily due to smaller inventory accumulation and greater imports. That was the lowest GDP growth in 4 years. Meanwhile, Fed’s preferred inflation gauge, core PCE deflator, rose at 2.2% yoy, same as previously estimated. However, downside was limited after stronger than expected Chicago PMI rebounded strongly to 61.7 in May, matching Mar’s high with all sub-components up from Apr. Construction spending also beat expectation by rising 0.1% in Apr while jobless claim is solid at 310k. After all, the weakness in Q1, though worse than expected, is still priced in by the markets. Dollar is still in range against Euro, and even edges higher against yen, ahead of the more current economic data in NFP, ISM and PCE tomorrow.

On the other hand, Canadian dollar surges to new 30 year high of 1.0664 after stronger than expected Q1 GDP which grew at an annualized qoq rate of 3.7% versus expectation of 3.5%, comparing to prior upwardly revised 1.5%. The CAD is supported by expectation of further rate hike from BoC, in particular after a hawkish press release earlier this week and strength in the economy is providing a solid case for another near term hike from BoC in July. EUR/USD

Daily Pivots: (S1) 1.3401; (P) 1.3429; (R1) 1.3454; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/

EUR/USD spiked higher in early US session but after all it’s still kept in established range of 1.3406 and 1.3519. Outlook remains unchanged. Further downside is in favor towards 1.3364 cluster support (38.2% retracement of 1.2865 to 1.3681 at 1.3369). However, as mentioned before the main question is that with 1.3364 cluster support remains intact, it’s still unclear whether fall from 1.3681 is merely a correction to rise from 1.2865 or the start of a deeper decline. Bullish convergence condition in 4 hours MACD and RSI is suggesting a short term bottom could be around the corner too.

Hence, even though further dip to 1.3364 cluster support is still in favor, firm break is needed to confirm underlying bearishness, otherwise, short term outlook is still rather neutral. On the upside, above 1.3519 will encourage further rise towards short term falling trend line resistance (now at 1.3544) and then 1.3609.

In the bigger picture, risk of 1.3681 being an important medium term top is still high. As discussed before, medium term up trend from 1.1639 is interpreted as having first move completed with three waves up to 1.2978, subsequent sideway consolidation completed at 1.2483. Rise from 1.2483 is treated as resumption of the whole up trend from 1.1639. With such interpretation, we’d expect risk of medium term reversal to increase significantly after EUR/USD met resistance zone between 1.3668 and 100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822. Hence, focus is now on reversal signals.

On the downside, break of the short term rising channel support is already a warning that the rise from 1.2865 has completed. Decisive break of 1.3364 cluster support (38.2% retracement of 1.2865 to 1.3681 at 1.3369) will confirm such case. More importantly, with bearish divergence condition in daily MACD and RSI, this will warn that the whole rally from 1.2483 has also completed, and, so is the whole up trend from 1.1639. Focus will then be back to medium term rising channel support (now at 1.3029).

GBP/USD

Daily Pivots: (S1) 1.9715; (P) 1.9772; (R1) 1.9813; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/

Cable continues to stay below 4 hours 55 EMA (now at 1.9800) despite a brief rebound in early US session. Intraday bias will remain on the downside as long as 1.9831 minor resistance holds. As discussed before, corrective fall from 2.0132 could have completed at 1.9676. However, the failure to sustain above 4 hours 55 EMA is casting some doubts over this. Nevertheless, it will take a break of 1.9716 support to suggest that fall from 2.0132 is still in progress for medium term rising channel support (now at 1.9603) and then 1.9545 cluster support (61.8% retracement of 1.9183 to 2.0132 at 1.9546). Otherwise, another rise is still mildly in favor in the short term. Above 1.9831 will turn focus back to 1.9899 and break will encourage further rally towards short term falling trend line (now at 1.9938) and then 1.9999 resistance.

In the bigger picture, risk of medium term reversal remains high.. Firstly, the whole up trend from 1.7047 is not clearly impulsive. One interpretation is that rally from 1.7047 ended with three waves up to 1.9024. Subsequent correction ended at 1.8090. Rally from 1.8090 has already met mentioned target of 100% projection of 1.7047 to 1.9024 from 1.8090 at 2.0067. Secondly, regardless of the larger trend, rise from 1.8090 can be interpreted as being a five wave sequence with first wave ended at 1.9142, second at 1.8517, third at 1.9913 and fourth at 1.9183. The channeling property supports this interpretation too. In such case, the fifth wave rally from 1.9183 has also met target of 61.8% projection of 1.8517 to 1.9913 from 1.9183 at 2.0046 too. With bearish divergence condition remains in weekly MACD and RSI, as well as Daily MACD and key 2.0106 resistance (92 high) not decisively taken out, 2.0132 could be the important medium term top already.

On the downside, firm break of the medium term rising channel support (now at 1.9588) will indicate that the whole rally from 1.8090 has completed and add much credence to the case that an important medium term top is already formed and put focus to 1.9183 low. However, sustained trading above mentioned 2.0106 resistance will dampen the above interpretation and indicates that underlying bullishness in cable is much stronger then we thought. Further medium term rally should then be seen towards 61.8% projection of 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05 low) at 2.0677.

USD/CHF

Daily Pivots: (S1) 1.2233; (P) 1.2255; (R1) 1.2275; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/.

USD/CHF dips lower in early US session but was once again supported by short term rising trend line (now at 1.2235). However, it will still take a break above 1.2306 resistance to confirm rebound from 1.1993 has resumed for 61.8% retracement of 1.2571 to 1.1993 at 1.2350. Otherwise, further retreat could still be seen towards 1.2124 cluster support (61.8% retracement of 1.1993 to 1.2331 at 1.2122).

In the bigger picture, previous break of 1.2282 cluster resistance (50% retracement of 1.2571 to 1.1993 at 1.2282) confirms that fall from 1.2571 has already completed at 1.1993 with bullish convergence condition in daily MACD and RSI. More importantly, this will increase the chance that USD/CHF is about to complete a medium term head and shoulder bottom formation (ls: 1.1919, h: 1.1878, rs: 1.1993). Sustained break of 61.8% retracement at 1.2350 and neckline resistance (1.2768 to 1.2571, now at 1.2347) will add more weight to this case. Stronger rally should then be seen to 1.2571 first and then 1.2768.

However, below 1.2124 cluster support (61.8% retracement of 1.1993 to 1.2331 at 1.2122) will indicate that rebound from 1.1993 has possible completed and save the case that recent choppy price actions could merely be part of a medium term triangle consolidation. And, down trend from 1.3283 should still resume after completing such consolidation in such case.

USD/JPY

Daily Pivots: (S1) 121.36; (P) 121.56; (R1) 121.82; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/

USD/JPY finally breaks out of recent range and takes out 121.87 resistance. Further rise is now expected to be seen towards 122.17 resistance. However, as discussed before, upside momentum is seen diminishing as displayed in bearish divergence conditions in 4 hours MACD and RSI. Also, since triangle (pattern started at 121.87) is usually terminal, upside could be limited by 122.17 key resistance. Break of 121.42 minor support will warn that the rally from 117.60 is completed and bring test of the inner rising trend line again (now at 121.08). Further break of 120.83 support will confirm that at least a short term top is formed and encourage further decline to 119.86 resistance turned support.

In the bigger picture, since the current rally from 115.13 is not clearly impulsive, it’s being treated as part of a consolidation pattern that started at 122.17. Having said that, upside of this rise will likely be limited by 122.17 and bring another fall to retest 115.13 low before finishing the consolidation. Break of support at around 119.86 resistance turned support, with outer rising trend line support at 119.70 and 50% retracement of 117.60 to 121.87 at 119.74) will confirm this case.

However, sustained break of 122.17 resistance will indicate that the correction from 122.17 is already completed at 115.13. That is, the current rise from there represents resumption of the whole up trend from 108.99. In such case, the up trend is expected to extend further to 61.8% projection of 108.99 to 122.17 from 115.13 at 123.28 first.

EUR/JPY

Daily Pivots: (S1) 162.97; (P) 163.34; (R1) 163.72; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/

Outlook remains unchanged as EUR/JPY continues to consolidate below 164.29 high. As discussed before, upside momentum remains unconvincing, in particular with bearish divergence condition staying in 4 hours MACD and RSI and with daily MACD remains below signal line. Risk of short term reversal remains high. EUR/JPY could now be in formation of a diagonal triangle to conclude the rally from 150.75. Hence, even though another rise could still be seen, upside will likely be limited by 61.8% projection of 137.16 to 159.63 from 150.75 at 164.64 on further loss of momentum and bring reversal.

On the downside, break of short term rising trend line (now at 162.47) will be the first warning that a top is formed. Further break of 162.18 will indicate that the diagonal triangle mentioned has possibly completed. Deeper decline should then be seen to 161.05 support and then 159.60.

In the bigger picture, EUR/JPY’s previous break above medium term rising channel resistance suggests that strength of the rally from 150.75 is stronger than we originally thought. But still, interpretation of rally from 130.60 remains unchanged. First wave up ended at 143.60, subsequent correction ended at 137.167. The third wave up ended at 159.63 while fourth wave correction has ended at 150.75. Rise from there represents the final advance in this structure, targeting 61.8% projection of 137.16 to 159.63 from 150.75 at 164.64 and could terminate there.

On the downside, rise from 150.75 could still resume as long as 159.60 support holds. However, sustained trading below 159.60 will warn that prior break of medium term rising channel resistance was merely a throw-over. Also, this will give a serious warning signal that the whole rise rise from 130.60 has ended. EUR/JPY should set to test the medium channel support (now at 153.74) in such case.

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http://c.moreover.com/click/here.pl?r957562193
Thu, 31 May 2007 11:58:00 GMT from Reuters

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Thu, 31 May 2007 11:35:00 GMT from Reuters

http://c.moreover.com/click/here.pl?r957517993
Thu, 31 May 2007 11:19:00 GMT from European Commission

http://c.moreover.com/click/here.pl?r957517299
Thu, 31 May 2007 11:19:00 GMT from European Commission

http://c.moreover.com/click/here.pl?r957510763
Thu, 31 May 2007 11:14:00 GMT from AP via MSN Money

http://www.actionforex.com/latest_news/latest_news/forex_news_20060323537/ Economic Indicators Update
GMT Ccy Events Actual Consensus Previous Revised
23:30 JPY Japan Manufacturing PMI May 51.4 N/A 52.3
1:30 AUD Australia Trade balance (aud) Apr -0.96 B -0.80 B -1.62 B -1.63 B
5:45 CHF Swiss GDP Q/Q Q1 0.80% 0.60% 0.50%
5:45 CHF Swiss GDP Y/Y Q1 2.40% 2.20% 2.20%
6:00 GBP U.K. Nationwide hse price M/M May 0.50% 0.60% 0.90%
8:00 EUR Germany Unemployment rate May 9.20% 9.10% 9.20%
8:00 EUR Germany Unemployment change May 3.0K -20.0 K -9.0 K
9:00 EUR Eurozone Consumer sentiment May -1 -3 -4
9:00 EUR Eurozone HICP flash Y/Y May 1.90% 1.90% 1.90%
9:30 GBP U.K. Gfk survey May -2 -7 -6
12:30 USD U.S. GDP prelim Q1 0.60% 0.80% 1.30%
12:30 USD U.S. GDP deflator Q1 4.00% 4.00% 4.00%
12:30 USD U.S. PCE Q1 3.30% 3.40% 3.40%
12:30 USD U.S. Core PCE Q1 2.20% 2.20% 2.20%
12:30 USD U.S. Jobless claims 310K 310 K 311 K 314K
12:30 CAD Canada GDP annualised Q/Q Q1 3.70% 3.50% 1.40% 1.50%
13:45 USD U.S. Chicago PMI May 61.7 54 52.9
14:00 USD U.S. Construction spending Apr 0.10% 0.00% 0.20%

http://www.actionforex.com/general_information/forex_newsletters/forex_newsletter_200507301487/

The U.S. economy struggled through the first three months of 2008, weighed down by the housing slump and a hesitant consumer, but export sales and inventory growth helped stave off a contraction.

The gross domestic product grew at a 0.6 percent annual rate in the first quarter, the Commerce Department said on Wednesday, holding steady from the last three months of 2007.

The expansion, however slim, came as something of a relief to Wall Street, which had been bracing for a contraction. Many analysts have labeled the current downturn a recession, but the economy appears so far to have avoided the informal definition of two consecutive quarters of contraction.

Still, the report showed the economy had slowed to a crawl. GDP grew at a 4.9 percent pace in the third quarter of 2007, before the subprime mortgage crisis began to expand into other sectors.

Americans spent less in the first quarter, shying away from large-scale purchases, and pushing consumption to an anemic 1 percent annualized rate of growth. That was the smallest increase since the second quarter of 2001, after the burst of the technology bubble. The weakening job market and falling stock markets have roiled consumers as the housing slump continued to cut into their equity. Consumption was down from 2.3 percent in the last quarter of 2007.

A separate measure of consumer purchases, adjusted for inflation, declined 0.2 percent in the first quarter, after rising 2.4 percent at the end of last year.

The residential sector continued its sharp decline, dropping at a 26.7 percent annual rate in the first quarter after falling 25 percent at the end of 2007. Problems in the housing market lopped 1.2 percent off the first quarters overall growth rate.

The biggest contribution to first quarter growth came from business inventories, which grew by $1.8 billion. While the expansion implies that businesses produced more at the beginning of the year, it also suggested production might slow as companies prepare for a drop in consumer demand.

Red-hot export sales, fueled by foreign buyers attracted to the inexpensive dollar, again propped up American business sales even as domestic demand shrank. But the support from exports appeared to slow; foreign sales of American goods grew 5.5 percent in the first quarter, compared with 6.5 percent at the end of last year. Import activity also grew, which takes money out of the domestic economy.

Inflation also remained elevated. Prices rose at a 2.6 percent annual rate on a surge in the cost of oil and food. Excluding food and energy costs, inflation rose at a 2.2 percent annual rate.

The major indexes hooked lower in late trading, but held to modest gains as a couple of more high-rated stocks broke out.

At 3 p.m. EST, the Nasdaq led with a 0.4% gain. The NYSE composite was up 0.3% while the Dow and S&P 500 held to 0.2% gains.

Volume remained lower across the board.

Fresh breakouts came out of the Internet and health care sectors.

NetEase.com () jumped 1.45 to 21.81, clearing a 21.94 buy point in a cup with handle. Chinese Internet stocks rallied after portal operator Sohu.com () beat Q1 earnings expectations and gave a Q2 sales forecast well above analysts’ estimates. NetEase.com’s earnings growth, however, lags substantially below Sohu’s.

Alcon () climbed 6.21 to 159.70, breaking out past a buy point of 157 in a slightly high handle. The world’s largest eye-care company has posted unimpressive EPS gains of 13% and 18% the past two quarters, although it has a pretty stable earnings history.

Many leaders in the top-rated Oil & Gas-U.S. Exploration and Production industry group were reversing off highs, while a few leaders in other groups struggled.

Tele Norte Leste (), also known as Oi, tumbled below its 50-day moving average, shedding 2.07 to 22.99. The stock stopped its decline just before hitting its 200-day line.

Oi said Friday it agreed to acquire a controlling interest of rival Brasil Telecom for $3.5 billion.

MEMC Electronic Materials () fell 1.91 to 68.59, dropping below its 200-day line. Its shares fell 6% Friday after a disappointing profit outlook.

1:15 p.m. Update: Stocks Find Direction At Midday

By VINCENT MAO

Stocks strengthened and were near session highs midday Monday after struggling for direction earlier in the day.

At 12:40 p.m. EDT, the NYSE composite gained 0.4% and Nasdaq 0.3%. The Dow and S&P 500 rose 0.2% each.

Turnover was tracking lower on both exchanges.

Construction and farming machinery groups, as well as transportation equipment makers scored gains.

But the highly ranked Chemicals-Fertilizers group took heat. Volume was heavy in the group a bad sign.

Arena Resources () gapped up and gained 2.04 to a new high of 49.08. That puts the oil and gas producer 11% past a 44.07 buy point of a cup-with-handle pattern.

Chart Industries () climbed 1.43 to 40.93. The maker of gas production and storage equipment is trying to emerge from its recent pullback. It broke out of a double-bottom base Feb. 28.

Olin () rose 0.79 to 23.98, ahead of its earnings after the close. Profit is expected to surge 127% to 50 cents a share. The company operates two business segments. Its Chlor Alkali unit makes chemicals such as chlorine and caustic soda. Its Winchester unit makes ammunition and reloading components.

On the downside, Cash America International () dropped 3.05, or 6%, to 45.16. It erased Friday’s earnings-inspired gains and then some. Jefferies and Co. cut the operator of pawnshops and payday loan centers to hold from buy.

11:15 a.m. Update:Stocks Struggle To Make Headway On Weak Volume

By ALAN R. ELLIOTT

Watchful waiting appeared to be the tenor ahead of the Federal Reserve’s Open Market Committee meeting Tuesday, as trading volume sagged and most leading stocks continued to make nickel and dime moves. Fertilizer issues jumped into another day of volatile behavior, and oil prices eased after jumping to near $120 in early trading.

The NYSE composite ratcheted up a 0.3% gain. The Nasdaq pulled up from earlier losses, gaining 0.1%.

The S&P 500 also pulled up, adding 0.1%, while the Dow hovered at the break-even mark. Most of the big volume moves were matters of pennies: Citigroup (), Microsoft () and Apple () on the S&P 500; Verizon (), 3M () and DuPont () on the Dow. Overall volume was tracking sharply lower on both the NYSE and the Nasdaq.

Markets across Asia traded mostly higher. But the Shanghai composite tumbled 2.3%, ending a four-day win streak. China Life Insurance () and China Petroleum & Chemical aka Sinopec led the declines after reporting steep drops in Q1 profit. Hong Kong’s Hang Seng index rose 0.6% and Tokyo’s Nikkei 225 edged up 0.2%.

In Europe and the U.K., markets were modestly higher with eyes toward Wednesday’s rate decision by the U.S. Fed. The FTSE in London managed a fractional gain late in the session. The CAC-40 in Paris was 0.8% higher.

Nasdaq 100 group mate Intuitive Surgical () sutured-up an 8.52 gain to 288.30. The maker of the da Vinci robotic surgical system toppled April 18 after a weaker-than-expected sales forecast for ‘08. Shares are off their lows, but still below their 10-week moving average and 19% off their April 7 high.

Zoll Medical () spiked up 1.30 to 33.50. The maker of defibrillators and other cardiac resuscitation equipment has gained in the past four sessions, and is nailing new highs in strong volume.

Downside stocks included Trimble Navigation (), which slipped 2.05 to 32.85. The move gave back some of the gap-up gains made Friday, after the maker of GPS products, primarily for engineering and construction applications, topped Q1 consensus views.

10:15 a.m. Update: Stocks Fade After Higher Open

By VINCENT MAO

Stocks gave up a higher open and turned slightly negative in early trade Monday.

At 9:54 a.m. EDT, the Dow, Nasdaq and S&P 500 were each down 0.1%. The NYSE composite was mostly unchanged.

Volume was tracking lower across the board, especially on the Nasdaq. Turnover is likely to remain low ahead of the Fed’s decision on interest rates Wednesday.

Some fertilizer makers were under pressure again.

Potash Corp. of Saskatchewan () dropped 4.35 to 202.73. On Thursday, the stock fell 5% on the biggest volume since its run an ominous sign. Group mates Mosaic () lost 3.24 to 128.06 and Agrium () declined 2.72 to 86.41.

On the upside, B/E Aerospace () gapped up and gained 1.97 to 41.47. Before the open, the maker of aircraft interiors reported Q1 earnings of 53 cents a share, up 47% from a year ago and 2 cents above views. Sales growth was below views at 22%, but B/E boosted its full-year profit outlook to $2.35 a share, or a penny above analysts’ estimates.

Visa () jumped 1.25 to a new high of 76.35 in fast trade as a number of brokers initiated coverage on the credit card firm. Goldman Sachs and UBS started coverage with buy ratings. JPMorgan initiated coverage with an overweight rating. Citigroup started Visa at hold and Credit Suisse has Visa at neutral.

Visa, which went public March 19 at 44, reports earnings after the close. Profit is slated to rise 92% to 46 cents a share.

Meanwhile, Sina () gained 1.92 to 48.97. The Chinese online media firm headed further north of its 200-day moving average. The stock climbed in sympathy with strong earnings from Sohu.com ().

9:15 a.m. Update: Stocks Set For Mildly Higher Open

By VINCENT MAO

Stock futures pointed to a slightly higher open Monday, ahead of a busy week of economic data. Nasdaq futures climbed 2 points vs. fair value, S&P 500 futures were mostly flat and Dow futures rose 3 points.

There are no economic reports due today, but the Fed starts its two-day meeting Tuesday. A rate cut to 2% is expected on Wednesday.

Other key data this week: ADP Employment (Wed.), GDP (Wed.), PCE Deflator (Thurs.), ISM (Thurs.) and nonfarm payrolls (Fri.)

Crude oil neared the $120-a-barrel mark on supply concerns, but then pulled back. The June contract added 2 cents to $118.54 a barrel. On Sunday, BP () shut down its Forties Pipeline System, which supplies more than 700,000 barrels of oil each day to the U.K. because of a refinery strike.

On the M&A front, Berkshire Hathaway () and privately held Mars Inc. announced plans to buy chewing-gum manufacturer William Wrigley Jr. () for about $23 billion. Wrigley also reports earnings today. Shares surged 26% in the pre-market.

Ford () charged up 8% in the pre-open on news that billionaire Kirk Kerkorian’s Tracinda Corp. plans to up its stake in the troubled automaker. Tracinda, which already owns 4.7%, plans to make a bid for 20 million shares.

Meanwhile, Sohu.com () shot up 14% in pre-open trading on solid Q1 results. The Chinese Internet portal delivered earnings of 64 cents a share, up 256% from a year ago and 27 cents ahead of analysts’ views. Sales more than doubled to $84.8 million. Results were boosted by a pickup in advertiser spending for the 2008 Beijing Olympic Games. Sohu.com also guided Q2 profit and revenue above views.

On the downside, Continental Airlines () said it would not pursue a merger with another carrier right now. Shares slipped 3% in the pre-market. The company had been in talks with UAL Corp. () regarding a possible combination.

Earlier this month, Northwest Airlines () and Delta Airlines () agreed to join forces to create the world’s biggest airline.