Euro Treads Water While Pound Hit By More Bad News

Written by Boris Schlossberg Senior Currency Strategist
Monday, 09 May 2005 GMT
Not surprising that after a sharp move on Friday, the FX markets spent
most of Monday consolidating their losses to the dollar. Friday's eye
opening NFP print of 274K vs. just 174K expected created a serious
shift in market psychology.
Some analysts are predicting the possibility of 50bp hike rather than
the "measured" 25bp hikes taken by Fed up to now. Overall the tone has
turned decidedly dollar bullish as the greenback now holds 100bp
premium on the euro with the market expecting the spread to possibly
double before the Fed finally takes a rest. Only two events on the
calendar this week could ruin that rosy scenario for dollar longs - US
Trade Balance data due this Wednesday and Advanced Retail Sales due
Thursday. If the Trade Balance registered a deficit of -$65 Billion or
greater then all of the structural concerns regarding the untenable US
Balance Sheet position would again come to the forefront and the
market may sell dollars once more. Retail sales on the other hand are
expected to improve to 0.7% from 0.3%, but the weekly department store
data has not been strong so a downside surprise is possible. For the
time being however, the path of least resistance for the EUR/USD
appears to be down.

Meanwhile GBP/USD continues to suffer another day of negative eco
data. While PPI inputs and housing numbers reported above
expectations, both Industrial and Manufacturing production wildly
missed their projections, printing at -1.2% and -1.6% vs.0.2% and 0.1%
respectively. As the slowdown in UK economy becomes more apparent to
the market and the pressure mounts on the BOE to lower rather than
raise rates, sterling may decline further as carry traders begin to
liquidate their positions en masse.

How to Calculate Pivot Points

How to Calculate Pivot Points

There are several different methods for calculating pivot points, the
most common of which is the five-point system. This system uses the
previous day's high, low and close, along with two support levels and
two resistance levels (totaling five price points) to derive a pivot
point. The equations are as follows:

R2 = P + (H - L) = P + (R1 - S1)

R1 = (P x 2) - L

P = (H + L + C) / 3

S1 = (P x 2) - H

S2 = P - (H - L) = P - (R1 - S1)

Here, "S" represents the support levels, "R" the resistance levels and
"P" the pivot point. High, low and close are represented by the "H",
"L" and "C" respectively. (Note that the high, low and close in
24-hour markets [such as forex] are often calculated using New York
closing time [4:00 p.m. EST] on a 24-hour cycle. Limited markets [such
as the NYSE] simply use the high, low and close from the day's
standard trading hours.)

Majors Collapse Under Dollar’s Onslaught

Written by Sam Shenker Currency Analyst

Monday, 09 May 2005 GMT

EUR/USD - Euro bulls retreated after the dollar longs staged a massive assault on the single currency positions and pushed the pair below the 1.2800 figure in the latest bout of the greenback bullishness. As euro continues to lose ground to the dollar, single currency longs will try to mount a defense at 1.2730, a minor support created by the 2005 low. An intermediate support at 1.2657, a Nov 3 daily spike low, currently defends the major support at 1.2632, an Oct 28 daily spike low. In the unlikely event of the countermove by euro bulls, single currency longs will encounter a minor resistance at 1.2892, a 78.6 Fib of the Feb-Mar euro rally. An intermediate resistance can be seen at 1.2942, a 20-day SMA, with major resistance at 1.3019, a 61.8 Fib of the Feb-Mar euro bull swing continuing to defend dollar held territory against the advance by the single currency longs. Oscillators remain mixed, with Stochastic treading above the oversold line on the daily chart at 30.92 and extremely oversold at 5.78 on the dealer (4HR) chart. RSI is neutral on the daily chart at 37.38 and is approaching oversold line at 33.28 on the 4-hour chart. MACD remains below zero line on the daily chart and is getting ready for a bearish crossover above the zero line on the dealer (4HR) charts.

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