Daily Report: Forex Markets Follow Stocks in Consolidation

Market Overview | Written by ActionForex.com | Oct 17 08 07:47 GMT |

The forex markets continue to stay in tight range today with dollar and yen mildly softer against other major currencies. Note that intermarket relationship with stock is the main driver in the forex markets currently and will likely remain so for a while. Weakness in the commodity markets is apparent with oil breached $80 level briefly while gold also breached 800 level briefly too. However, the lift on dollar by commodities will likely be temporary and as stock markets' choppy consolidations are still in progress, the forex markets will likely follow. After all, note that levels in major pairs and crosses as well as the dollar index still hold and there is no change in the medium term bullish outlook in dollar and yen yet. Also, DOW's 7,884 low will be the key level to watch for and as long as this level holds, there is no confirmation of downtrend resumption in DOW yet. Thus, any breakout in the forex markets will be treated with caution as that may only be part of short term consolidation only. Breakout in dollar and yen needs to be confirmed by breaking of 7,884 in DOW too. On the data front, main focus will be on new residential construction data from US today. The NAHB home builder confidence index released yesterday dropped three points to an all time low of 14 last month, suggesting deep pessimism in the housing industry. Housing starts is expected to drop slightly from 0.89m to 0.88m annualized rate in Sep while building permits is expected to be unchanged at 0.85m. Preliminary U of Michigan consumer sentiment is expected to drop from 70.3 to 65 in Sep. Eurozone Trade deficit is expected to widen from -2.3b to -6b in Aug. EUR/USD Daily Outlook Daily Pivots: (S1) 1.3353; (P) 1.3446; (R1) 1.3546; More EUR/USD is still bounded in established range of 1.3258 and 1.3785 and outlook remains unchanged so far. Intraday bias remains mildly on the downside fore retesting 1.3258 low first. And break will confirm that recent down trend has resumed for next long term fibonacci level at 1.3053. On the upside, even though another recovery cannot be ruled out, as long as 1.3785 resistance holds, further decline is still in favor. However, note that break of 1.3785 will indicate that EUR/USD has completed a head and shoulder bottom reversal pattern and in such case, 1.3258 should at least be a short term bottom and stronger rebound should be seen in such case. In the bigger picture, note that EUR/USD is now sitting in an important long term support zone with a) 38.2% retracement of 0.8223 (00 low) to 1.6038 at 1.3053, 55 Months EMA at 1.3361 and the development in the new few weeks will be important to the long term outlook. Firstly, fall from 1.4687 as well as that from 1.6038 is still in progress as long as 1.3785 resistance holds. Sustained trading below mentioned 1.3053 fibo resistance and 55 months EMA will affirm that medium downside momentum is still strong in EUR/USD. Further break of 100% projection of 1.6038 to 1.3381 from 1.4867 at 1.2710 will add more credence to the case that whole down trend from 1.6038 is developing into a five wave impulsive decline. In other words, EUR/USD is probably just in the middle of such fall which should extend beyond 1.1639 low before forming a medium term bottom. On the upside, however, above 1.3785 will firstly indicate that a short term bottom is in place. Secondly, this will argue that EUR/USD is drawing some support from mentioned support zone to form a medium term bottom. Stronger rebound should be seen in this case with focus turned back to 1.4867 resistance Break will confirm that a medium term bottom is in place. Also, this will leave the decline from 1.6038 in three wave structure which suggests that the price actions from 1.6038 are developing into something that's corrective in nature. In other words, fall from 1.6038 is probably just a correction from the long term angle and will likely be contained above 1.1639 low even if decline resumes. Forex News Digest U.S. Preview: Financial Turmoil to Hurt Consumer Confidence U.S. Preview: U.S. Housing Starts Set to Fall in September Asia-Pacific Market Recap: Fixed Income Mixed, Equities Mixed Australia's Export Price Index Jumps on Commodities in the Third Quarter Japan's Service Sector Dips Lower Than Forecast in August RBC Economist Forecasts BOC Will Cut Key Rate to 2% U.S. NAHB Builder Confidence at Lowest Reading Ever in October (Update) Thursday's News Recap: U.S. Jobless Claims Down, CPI in Line, Philly Mfg Sinks Dollar Heads for Weekly Loss Against Euro on Mounting Recession Concerns Housing Starts in U.S. Probably Dropped to 17-Year Low as Credit Dried Up Fed to Meet With Credit-Default Swap Industry on Clearinghouse Plan Today Australian, New Zealand Dollars Head for Weekly Gain on Bank Guarantees More Forex News