Mid-Day Report: Dollar Pares Gain as Commodities and Stocks Rise, Euro and Swissy Soft

Market Overview | Written by ActionForex.com | Feb 04 09 15:14 GMT |

Euro and Swiss are the major losers today following downgrade of Russia's credit rating. Dollar rides on Euro's weakness and climbs against most major currencies but gives back some gains in early US session as commodities strengthens. Aussie recovers some of the earlier losses when Gold is back above 910 while Canadian dollar also rises broadly with crude oil back above 41. Some weakness is also seen in the Japanese yen in early US session after stocks are sent higher by better than expected ISM non-manufacturing index, which unexpectedly rose to 42.9 in Jan. Also from US, ADP private employment report showed another -522k contraction in the job market in private sector in Jan. Challenger report showed 241k planned job cuts in Jan, highest in more than seven years and 45% more than that in Dec 08. Euro's weakness earlier today is triggered by Fitch downgrading Russia's credit rating to BBB with a negative outlook. EUR/GBP's break of 0.8928 minor support argues that this week's recovery has completed and is heading for 0.88 level first. EUR/JPY also falls sharply from this week's high of 117.01 and breaches 114 level too. Economic data from Eurozone are also disappointing. Eurozone's service PMI came in at 42.2 in January, lower than initial reading of 42.5 but still improved slightly from 42.1 in December. Germany's service PMI was also revised down to 45.2 in January, down from 46.6 in the previous month. Retail sales in the Eurozone was flat in December on monthly basis, better than consensus of -0.3% drop and revised -0.1% drop in the previous month, as drops in non-food products were offset by sales growth in food, drink and tobacco However, on yearly basis, the gauge contracted -1.6% while November's figure was also revised down to -2.6% plunge. On the other hand, January's reading for the UK rose more-than-expected to 42.5 from 40.2 in December, suggesting the worst of contraction may have passed. EUR/USD Mid-Day Outlook Daily Pivots: (S1) 1.2874; (P) 1.2966; (R1) 1.3130; More EUR/USD's fall from 1.3069 extends further to as low as 1.2812 before recovering mildly. Rebound from 1.2706 might have completed and intraday bias is turned neutral for the moment. Below 1.2798 will suggests that recent decline from 1.4719 is resuming for retest if 1.2329 low. Though downside might be contained there initially and bring some consolidations first. At this point, while another rise cannot be ruled out, upside should be limited below 1.3329 resistance and bring fall resumption. However, note that firm break of 1.3329 will dampen this case and suggests that fall from 1.4719 has completed earlier then we thought. Strong rise could then be seen to retest this high. In the bigger picture, a medium term bottom in place at 1.2329. Whether such fall from 1.6038 to 1.2329 is impulsive or corrective in nature is debatable. But after all, with 1.4867 resistance intact, whole decline from 1.6038 is still expected to resume. Also, fall from 1.4719 is tentatively treated as resumption of such medium term down trend. Sustained break of 1.2329 will target 1.1639 medium term support next. Strong rebound from 1.2329 or above will argue that consolidation from there is still in progress could extend further between 1.2329 and 1.4719 before down trend resumption.