ForexPros Daily Analysis August 12, 2010
Fundamental Analysis: CPI
The Consumer Price Index (CPI) measures the changes in the price of goods
and services. The CPI measures price change from the perspective of the
It is a key way to measure changes in purchasing trends and inflation in the
US. A higher than expected reading should be taken as positive/bullish for
the USD (as the common way to fight inflation is raising rates, which may
attract foreign investment), while a lower than expected reading should be
taken as negative/bearish for the USD. The analysts predict a future reading
The Euro broke the support specified in yesterday’s report 1.3032, and
dropped as expected, reaching both suggested targets 1.2961 & 1.2875 with
complete success, to move 400 pips away from last Friday’s
“Jobs-report-top”. We have commented on the retest case which took place
after the Fed’s statement Tuesday evening by saying: “it is a well known
technical principle that such an accurate retest confirms the break it
followed, and the new direction, which is down in this case. Looking at the
attached chart, we can see that: 1. the rising trend line was broken
decisively and 2. the price retested this line in an accurate fashion. These
are obvious indication of a falling trend. Therefore, unless the price goes
back up to trade above the broken trend line, we expect more downside
activity.” Today, there is more to talk about technically; there is a
complete 5-wave count for the rise from 1.1875, but does it mean that the
uptrend is over? Also, there is not one but 2 channels on the daily chart.
The first (shown in RED on the attached chart), combining the tops of the
waves 1 & 3, which is already broken. The second channel (shown in BLACK on
the attached chart) combines the tops of waves 3 & 5, and although the price
tried to break it, it went back to trade inside it. The bottom of the second
channel is at 1.2869, that is why this will be our support for today. If
broken, the horror movie will go on for the Euro, and we will drop to 1.2775
& 1.2681. The resistance is at the Asian session high 1.2917, and if broken,
a short term correction will target not less than 1.2981 & not more than
* 1.2869: the bottom of the rising channel on the daily chart.
* 1.2775: first of the main Fibonacci retracement levels (the 38.2% level)
for the whole rise from this year’s low 1.1875 to last Friday’s and 3-month
* 1.2681: Jul 14th low.
* 1.2917: Asian session top.
* 1.2981: short term 38.2% Fibonacci level.
* 1.3047: short term 61.8% Fibonacci level.
The Dollar/Yen broke the support specified in yesterday’s report at 85.16,
and dropped to 84.70 which is a 15-year low not seen since June 1995! Later,
it consolidated above 85, and corrected the drop up to short term Fibonacci
50% level at 85.46. With this, we have finally reached the main target of
this falling wave, which we talked about for the last 2 weeks: a drop below
84.81 & a new 15-year low, but what are the next targets? In the attached
chart, which is a weekly one, we can see the falling channel from Sep 07
top. Although the bottom of this channel is very far away, and is just above
74, but there is an interesting trend line inside it, combining the monthly
lows of Dec 08, Jan & Nov 09. This line is around 82.65 currently, providing
us with a perfect target for this dropping wave, since we still expect, as
we did before, that it will dive below 84.70. Therefore, we expect the price
to reach this target, and as we do, we also realize that the limited
volatility of this pair indicates that this will take some time. As for the
short term, the support is at 85.28, and breaking it would indicate that we
are already moving lower with the objective of breaking 84.81, and reaching
lows not seen in 15 years. This will target 83.87 & at a later time, we
still believe in our 82.65 target. The resistance is at 85.90, and if
broken, the price will continue its bounce, targeting 86.43 & 87.49
* 85.28: important intraday level.
* 83.87: Fibonacci extension level 138.2% for the falling wave from 86.86,
compared to the wave which started at 88.10.
* 82.65: the trend line combining the monthly lows of Dec 08, Jan & Nov 09,
on the weekly chart.
* 85.90: short term Fibonacci 61.8% level .
* 86.43: the top of the rising corrective trend channel on the hourly chart.
* 87.49: Jul 29th high.
Forex trading analysis written by Munther Marji for Forexpros.
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