ForexPros Daily Analysis June 30, 2010
Fundamental Analysis: ISM Manufacturing Index
Traders of the US anticipate the publication of the Institute of Supply Management (ISM) Manufacturing Index. It tracks the amount of manufacturing activity that occurred in the previous month.
This data is considered a very important and trusted economic measure. If the index has a value below 50, due to a decrease in activity, it tends to indicate an economic recession, especially if the trend continues over several months. A value substantially above 50 likely indicates a time of economic growth. The ISM index is the result of a monthly survey of over 400 companies in 20 industries throughout the 50 states.
The ISM’s leading quality has been proven over time. During a recession, the ISM’s bottom may precede the turning point for the economic cycle by some months. A higher than expected reading should be taken as positive/bullish for the USD, while a lower than expected reading should be taken as negative/bearish for the USD. Analysts predict a future reading of 59.00.
The Euro broke the support specified in yesterday’s report 1.2240, and dropped as expected, and reached the first suggested target 1.2170, successfully! This drop, and its reaching Fibonacci 50% for the medium term (yesterday’s target) confirms that we are –at least- in the middle of a downward correction, with its ideal target at 1.2100. But if we add to this, the fact that this drop came after the failure to break the top of the descending channel, we can see that this is also negative for the medium term as well, and we would conclude that this drop is not just a correction! We wonder: what’s after Fibonacci 50%? Today’s support is at Fibonacci 61% for the short term at 1.2186, and if broken, we will fall to test the most important Fibonacci level: The ideal target, 61.8% at 1.2100, which is the most important medium term support, if this one is broken as well the target will be 1.2006. The resistance is at 1.2312, and only with a break above here, this pair will improve its negative technical outlook for the short term. If broken, we will target 1.2396 once again, and if this one is also broken, we will be on the way to 1.2519.
• 1.2186: Fibonacci 61.8% for the short term.
• 1.2100: Fibonacci 61.8% for the whole rising move from this cycle’s low to last week’s high.
• 1.2006: June 8th high.
• 1.2312: the top of the falling channel on the hourly chart.
• 1.2396: the weekly high so far.
• 1.2519: May 6th low.
The Dollar/Yen continued to drop slowly, a bit faster than usual yesterday, in yet another confirmation that the bears are beating the bulls! USDJPY broke the support specified in yesterday’s report 88.67, and reached a new bottom for this recent falling trend at 88.27 without being able to meet our suggested target 87.99. This confirms the negative technical outlook we have seen lately. And we believe it will persist as long as we are trading below the falling trend line from June 14th top, which is currently at 90.51. Short term support is at 88.48, and breaking it will be another evidence that we are going down. This break will target 87.99 & 87.35. The resistance has shifted to 89.31, where we see an important level for several reasons. Breaking this level will give this pair a chance to test the important trend line at 90.51 as a first target, and if this one is broken, things will go against our outlook, as we will target 91.45. This pair is going as expected, in the expected direction, and in convergence with our negative technical outlook for the short & medium terms. We expect the fall to go on, but we hope to see it go faster, and more exciting. But for today in specific, we should be careful since we could see a bounce, because we already touched the descending trend line illustrated on the attached chart, a bounce is highly probable, even if it was a temp, but the trend is down without a shadow of a doubt!
• 88.48: the rising trend line from yesterday’s low on intraday charts.
• 87.99: May 6th low.
• 87.35: Dec 9th 2009 low.
• 89.31: important intraday level.
• 90.51: the descending trend line from Jun 14th top on the hourly chart.
• 91.45: June 21st high.
Forex trading analysis written by Munther Marji for Forexpros.
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