Thursday, February 05, 2004

Euro USD Report

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Technical Outlook
Further range contraction in EUR/USD yesterday as the pair was held to a mere 75-pip intraday range. Additional contraction in volatility is anticipated as the pair nears the apex of the 3-week triangle. Intermediate outlook remains neutral as long as the pair stays confined to the 1.2700 - 1.2300 area. Above the the convergence of the 38.2% Fibo from the Nov - Jan bull wave/50-day EMA however ST technicals slightly favor an upside break scenario. Our upside pivot remains the 20-day SMA, with a break above exposing the more significant 1.2779 1/23 high. No change in our take on USD/JPY. Two consecutive closes below the 105.50 fib zone continue to favor a grind lower and eventual test of the 105.00 psychological support area. Risk/reward on the downside is quite poor, however, as a clear lack of downside momentum makes the pair quite vulnerable to a classic short squeeze should sellers capitulate. Bulls would need to muster a move back above 106.30, however, to trigger anything significant. Rather dull price action in GBP/USD as the pair continues to consolidate within the daily triangle. Intermediate-term bias remains neutral until the stalemate is resolved. Short-term technicals slightly favor the upside after two consecutive closes above the 20-day SMA. Reaction at the upper triangle trendline (around 1.8450) is key in determining if the pair is set to break out to the upside or merely resume the consolidation. USD/CHF continues to consolidate around the 10-day SMA. Daily charts remain flat with no real directional bias favored until either resistance at the 50-day EMA or support at the 20-day SMA are cleared. If forced to take a side, we slightly favor the downside as multiple failures at the 50-day EMA indicate a potential conclusion to the current corrective phase.

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