Fundamental Analysis: German CPI
European traders anticipate the publication of the German CPI. The index measures the changes in the price of goods and services. The CPI measures price change from the perspective of the consumer. It is a key way to measure changes in purchasing trends and inflation in Germany. A higher than expected reading should be taken as positive/bullish for the EUR (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 EUR. Analysts predict a future reading of 0.10%.
The Euro broke the resistance specified in yesterday’s report 1.2603, and successfully reached the first suggested target 1.2681 with a very good accuracy since yesterday’s high was 1.2686. The most important technical event, was touching the top of the rising channel on the hourly chart for the third time during the Asian session, after touching it for the first time on Friday, and the second on Tuesday. We could be before an important turning point at 1.2686, but until this moment we have not got far from the top of the channel. We should carefully watch the top of this channel, which is at 1.2690 currently. 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 this top, we could be facing a turning point which will probably lead to a drop of hundreds of points. Short term support is at 1.2644, and once we break it, we will start drifting away from the channel top, and will target 1.2552, and may be 1.2442. The resistance is at the channel top at 1.2690. If this broken, we will target 1.2801 first, and may be 1.2906 before the end of the week.
• 1.2644: Asian session low.
• 1.2552: yesterday’s low.
• 1.2442: May 18th high.
• 1.2690: the top of the falling channel on intraday charts.
• 1.2801: May 11th high.
• 1.2906: previous well known support/resistance area.
Our waiting finally paid, as we finally saw the Dollar/Yen sharply bouncing as we have expected, and as we have been waiting for. The Dollar/Yen broke the resistance specified in yesterday’s report 87.72, only to reach 88.44 (the high at the moment of preparing this report). This sharp 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. Short term support is at 88.19, and breaking it would indicate a continuation of the drop to 87.35 & 86.47. The resistance is at 88.51, and breaking it would mean that the Dollar is about to capitalize on the break of the above mentioned trend line, which will ideally target short term Fibonacci levels: 89.20 & 89.73. 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, even if it was a temp, but the trend is down without a shadow of a doubt!
• 88.19: Friday’s top.
• 87.35: an obvious support area on the hourly chart, and Dec 9th 09 low.
• 86.47: previous well known support.
• 88.51: previous well known resistance.
• 89.20: Fibonacci 50% for the drop from 91.45.
• 89.73: Fibonacci 61.8% for the drop from 91.45.
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