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Daily Forex Market Commentary for August 4, 2006

Daily Forex Market Commentary for August 4, 2006
By: Cornelius Luca, Currencies Analyst, GFT


The dollar collapsed versus the pound after the surprise BoE rate hike, closed little changed against the euro after the ECB hiked rates on Thursday, as expected, and advanced versus the yen and the franc. The market should be quiet through early US trading and then should explode either way, depending on the reading of the non-farm payrolls report. The dollar risk remains on the downside.

Euro/dollar
The overbought closed unchanged after the expected ECB matched the market expectations and hiked rates to 3 percent. It??™s in the middle of its rising channel, which gives little direction, but the overall bias is positive

Initial support is still seen at 1.2740. Below this level there is support pegged at 1.2718. Distant support is at 1.2650.

Immediate resistance is at 1.2835. Further resistance looms at 1.2862 from a pivot high. If this level gives way, then look for a test of 1.2920. There is a distant second pivot high at 1.2979.

Oscillators are rising.

NEAR-TERM: Mixed
MEDIUM-TERM: Bullish
LONG-TERM: Bullish

Dollar/yen
Dollar/yen climbed up on Thursday and despite pulling back down from the high of the day, it still managed to preserve most of its gains. Expect choppy trading with an upward bias.

Good resistance remains at 115.50, from a 50-pip pivot, which targets 116.00 and 115.00.

The pair has initial support nearby at 114.65. That??™s followed at 114.20 by a 50-point pivot, which targets 113.70 and 114.70.

Oscillators are mixed.

NEAR-TERM: Mixed
MEDIUM-TERM: Mixed to slightly bearish
LONG-TERM: Bearish

Sterling/dollar
Sterling/dollar surged to 1.8919, its highest level since May 19 after the BoE hiked its base rate by 25 basis points to 4.75 percent, the first increase in two years, in order to stifle inflation. News that the Bank of Italy diversified holdings from dollars into pounds also helped. The pair is very overbought near the top of its rising channel, so there is some risk is on the downside.

Initial resistance is seen nearby at 1.8920. Next resistance looms at 1.9030 from a pivot high. Then, there is significant resistance at 1.9080. Distant resistance is at a distant 1.9275.

Support is now seen at 1.8835 and that??™s followed closely at 1.8805. Further support is seen at 1.8780. Below 1.8695, there is support is at 1.8630.

Oscillators are rising.

NEAR-TERM: Mixed
MEDIUM-TERM: Bullish
LONG-TERM: Bullish

Dollar/Swiss franc
Dollar/Swiss franc recovered further on Thursday, as expected, but then trimmed gains. The medium-term outlook is bearish, but the short term is mixed.

Resistance is now seen at 1.2350 and only a break above it would signal that the pair had bottomed and will make a more substantial recovery. There is further resistance at 1.2405 and then at 1.2465.

Below 1.2280 there still is support at 1.2230 and then at 1.2182. Distant support comes at 1.2065.

Oscillators are mixed.

NEAR-TERM: Mixed
MEDIUM-TERM: Mixed to slightly bearish
LONG-TERM: Bearish

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