ForexPros Daily Analysis July 12, 2010
Fundamental Analysis: German ZEW Economic Sentiment
The European traders anticipate The German Zentrum für Europäische Wirtschaftsforschung (ZEW) Economic Sentiment to determine the sentiment of German institutional investors.
Above 0 indicates optimism while below 0 indicates pessimism. It’s a leading indicator of business conditions. The reading is concluded from survey of about 350 German institutional investors and analysts.
A higher than expected reading should be taken as positive/bullish for the EUR, while a lower than expected reading should be taken as negative/bearish for the EUR. The analysis predict a future reading of 25.20.
The Euro broke the support specified in Friday’s report 1.2677, and dropped to 1.2607 before it continued its way down after the new week’s open to 1.2578 (today’s low at the moment of preparing this report). The rise topped at 1.2720, in what turned out to be the most serious test of the top of the rising channel on the hourly chart. The drop which followed the open, raised the possibilities that we could be before an important turning point at the channel top, specially after dropping from Friday’s high 150 pips so far. As we said in our last report: “We will not be able to escape the fact that a break here will be a very positive signal for both the short & medium terms. But, if we keep trading below (or around) it, we could be facing a turning point which will probably lead to a drop of hundreds of points”, and we still stand by this view! Short term support is at 1.2552, and once we break it, we will start drifting away from the channel top, and will target 1.2442, and may be 1.2393. The resistance is at 1.2607, and if broken, the negative outlook we have been praising will get a “shock”, and the Euro will be on the way to 1.2737, and may be 1.2801.
• 1.2552: Wednesday’s low.
• 1.2442: May 18th high.
• 1.2393: June 25th high.
• 1.2607: the falling trend line from Friday’s top on hourly chart.
• 1.2737: May 12th high.
• 1.2801: May 11th high.
The Dollar/Yen continued to rise, reaching 89.13, but at a much slower pace that we have seen on Wednesday. This slow bounce came as no surprise, with the consolidation around 88, and after bouncing from the support area shown on the hourly chart below, and after clearly breaking the falling trend line from June 21st top. It seems as if we are in a wave 4 correction now (please refer to the attached chart), which will ideally target a Fibonacci ratio of the wave 3 dive. Short term support is at Friday’s top 88.60, and breaking it would indicate a continuation of the drop to 87.99 & 87.35. The resistance is at 89.01, and breaking it would mean that the Dollar will continue to capitalize on the break of the above mentioned trend line, which will ideally target Fibonacci levels for wave 3: 89.52 & 90.13. This pair is going as expected, in the expected direction, and in convergence with our negative technical outlook for the medium term. We absolutely expect the fall to continue on the medium term. But we should not neglect the enormous possibilities of a bounce up targeting Fibonacci levels: a bounce is highly probable, and it is most likely to be just a temp, but the trend is down without a shadow of a doubt!
• 88.60: Friday’s top.
• 87.99: the bottom of the rising channel on the hourly chart.
• 87.35: an obvious support area on the hourly chart, and Dec 9th 09 low.
• 89.01: the falling trend line from Asian session high on intraday charts.
• 89.52: Fibonacci 50% for the wave 3 dive (from 92.09).
• 90.13: Fibonacci 61.8% for the wave 3 dive (from 92.09).
Forex trading analysis written by Munther Marji for Forexpros.
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