Daily Analysis – 18/01/2010

ForexPros Daily Analysis January 18, 2010

Fundamental Analysis: Interest Rate Decision

Traders are looking forward to the publication tomorrow (January 19), of the Bank of Canada, regarding 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. Analysts predict no change in the reading which will remain at 0.25%.

Euro Dollar

We will put all our focus for today on 1.4299, where there is the rising trend line from December 22nd bottom. Staying above it or breaking it will determine the direction for today. If broken, what we called a minor probability in last week’s report (that we have bumped into a medium term reversal level at Fibonacci 38.2%) will get boosted. In this case, the drop from 1.4577 will carry on, and its targets will be the Dec 22nd bottom 1.4216, and the important support at 1.4176. Short term resistance is at 1.4421, and breaking it will bring back a little bit of the positive outlook, targeting 1.4509 & 1.4555.

• 1.4299: the rising trend line from Dec 22nd bottom.
• 1.4216: Dec 22nd bottom.
• 1.4176: Sep 1st low.

• 1.4421: a falling trend line on the intraday charts and hourly chart.
• 1.4509: Nov 3rd low.
• 1.4555: Jan 11th high.


Dollar-Yen tried to break 90.76 on Friday, before going back above it after an short-lived attempt, and stayed above it until the weekly close. But on the other hand, the internal structure of the last two moves: the rise from 90.71 & the fall from 92.03 could be read as parts 1 & 2 of a 3-way correction, or in the language of Elliott Wave analysis: waves a & b. In this case, a similar up move to the one from 90.71 will appear before breaking this important bottom. Such a move will ideally target 91.87 & 92.59. And given that short term resistance is at 91.30, a break here would indicate this move is already underway. On the other hand, breaking 90.76 will eliminate this assumption, and indicates a continuation of the drop on the last day of the week, which is expected to hit this pair hard, and drag it to 89.79 and may be 89.22.

• 90.76: Fibonacci 61.8% for the whole rising move from 88.91 to 93.75.
• 89.79: Fibonacci 61.8% for the whole rising move from 87.35 to 93.75.
• 89.22: a previous well known support/resistance area.

• 91.30: the falling trend line from 93.75.
• 91.87: Fibonacci 38.2% for the whole move down from 93.75.
• 92.59: Fibonacci 61.8% for the whole move down from 93.75.

Forex Trading Analysis written by Munther Marji for ForexPros.For information on forex quotes see ForexPros.

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