ForexPros Daily Analysis July 19, 2010
Fundamental Analysis: Interest Rate Decision
The Bank of Canada (BOC) decision on short term interest rate. The decision on where to set interest rates depends mostly on growth outlook and inflation. The primary objective of the central bank is to achieve price stability. High interest rates attract foreigners looking for the best “risk-free” return on their money, which can dramatically increases demand for the nation’s currency. A higher than expected rate is positive/bullish for the CAD, while a lower than expected rate is negative/bearish for the CAD. The analysts predict a future reading of 0.75%.
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Euro Dollar
The Euro stopped only 8 pips into the resistance specified in Friday’s report (Friday’s & last week’s high was 1.3005), before retreating to areas slightly below 1.29. This shows just how important this resistance is, which is probably the level most qualified to turn the Euro around, and resize this soaring move into a correction! This strong & sharp jump is a natural fruit of breaking the top of the channel after touching it for a record number of times, but eventually the Euro managed to break it! After that serious barrier, the energized Euro had faced even a harder one: Fibonacci 61.8% for the giant move down from 1.3690 to 1.1875. This level is at 1.2997, and will act as a heavy weight barrier in the face of this rise, which in spite of the fact that it has achieved more than 1000 pips so far, it still looks corrective (simply because it did not break the divine ratio 61.8%). Now, even after a drop of more than 100 pips from Friday’s top, 1.2997 will still be the most important resistance in the neighborhood, only a break here means more gains. If broken, we will soar above 1.30 for the first time in more than 2 months, and we will target 1.3092 & 1.3153. On the other hand, the support is at 1.2889, breaking it would indicate that we are drifting away from 1.2997. And that will target 1.2820 & the important 1.2707.
Support:
• 1.2889: important intraday level.
• 1.2820: Fibonacci 38.2% for the short term.
• 1.2707: Fibonacci 61.8% for the short term.
Resistance:
• 1.2997: Fibonacci 61.8% for the massive dive from 1.3690 to 1.1875.
• 1.3092: May 10th high.
• 1.3153: May 3th low.
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USD/JPY
The headline of Friday’s USDJPY’s reports was “Odds are we are already in wave 5”, today, we can take another step and confirm that assumption, we are definitely in the downward wave 5! The Dollar/Yen broke the support specified in Friday’s report 86.95 and successfully reached the first suggested target 86.47. If we look at the attached chart, we will see that the Yen’s strength has penetrated the lows of last December & January. This leaves us with no notable support protecting the 15-year low which was reached last November at 84.81! We will not be a bit surprised if this pair started to move in that direction, and tried to break that low! On the contrary, we have been expecting this for weeks now, and it was included in our reports several times. Short term support is at 86.46, and if broken, the price will continue searching for new lows, targeting 85.84, then the 15-year low 84.81. Resistance is presented by the falling trend line from Wednesday’s tops, which is currently running at 87.08. If broken, we will target short term Fibonacci levels 87.67 & the important 88.01.
Support:
• 86.46: Asian session low.
• 85.84: Nov 30th low.
• 84.81: Now 27th low, and the lowest level since 1995!.
Resistance:
• 87.08: the falling trend line from Wednesday’s high on the hourly chart.
• 87.67: short term Fibonacci 50% level.
• 88.01: short term Fibonacci 61.8% level.
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Forex trading analysis written by Munther Marji for Forexpros.
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