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Forexpros.com Daily Analysis - 06/01/2010

Fundamental Analysis: Interest Rate Decision

The Bank of England (NYSE:BOE) decision on short term interest rate is due to be published tomorrow (Jan 7). The decision on where to set interest rates depends mostly on growth outlook and inflation. The primary objective of the central bank is to achieve price stability. High interest rates attract foreigners looking for the best "risk-free" return on their money, which can dramatically increases demand for the nation's currency.
A higher than expected rate is positive/bullish for the GBP, while a lower than expected rate is negative/bearish for the GBP.
Analysts predict that the rate will remain at 0.50%.

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Euro Dollar

With astonishing accuracy, the Euro stopped at the suggested reversal point 1.4485 (yesterday’s high was 1.4482), and exactly as we expected, started a big drop that reached 200 pips, passing by and breaking the support 1.4454, and reaching both suggested targets 1.4369 & 1.4303 successfully. And with coming back to areas below 1.43, we once again assure the importance of 1.4264, and we will consider it support of the day, and the borderline between a continuation of the drop from 1.4482, or a bounce to the upside. If this important support is taken, we expect the Euro to drop on the first trading day of the New Year towards 1.4176 & 1.4103. But if it holds, a test of short term resistance 1.4327 will follow, and breaking it would lead to a correction of yesterday’s big fall, ideally targeting 1.4406, and if broken we will jump to 1.4485, which reversed the upside activity, and caused yesterday’s drop.

Support:
• 1.4264: Dec 21st low.
• 1.4176: Sep 1st low.
• 1.4103: Aug 10th low.

Resistance:
• 1.4327: Fibonacci 61.8% for the micro term.
• 1.4569: Fibonacci 61.8% for the short term.
• 1.4485: the resistance that caused yesterday’s reversal.

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USD/JPY

Dollar-Yen broke the trend lien rising from 84.81, but the drop that followed was limited, before going back above the line. This behavior recommends caution, the price should trade below certain levels to maintain any importance for this break. Short-term resistance is 92.45, and the support is at 91.75. . If this support is broken, we will fall to the important 90.55, which is also another important support for the short term, and maybe we will see 89.58 after that. On the other hand, if the price holds above this support, a short term rise will be initiated, challenging short term resistance at 92.45, and breaking this level would lead to a correction to the drop from 93.20 (and may be to more than that), targeting 93.08, and once its broken we will be looking forward to the long awaited 93.53.

Support:
• 91.75: the rising trend line from yesterday’s low on intraday charts.
• 90.55: Fibonacci 61.8% for the whole move from 88.91 to 93.20.
• 89.58: Fibonacci 61.8% for the whole move from 87.35 to 93.20.

Resistance:
• 92.45: short-term Fibonacci 61.8% resistance.
• 93.08: previous support/resistance area.
• 93.53: Mar 19h low.

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