9 August 2001, 20:45  US FX Daily Outlook: ECB concern over economic growth vaults euro

By Cornelius Luca //
The euro rallied to a six-day high 88.67 cents after the European Central Bank signaled concern over economic growth prospects in the euro zone in its latest monthly bulletin. This shift of position increases the odds that the central bank will cut interest rates in September to boost the sagging euro-zone economy.

Fresh evidence that the ECB needs to support its economy came from Italy, where preliminary GDP fell 0.1% in the second quarter from the first, although it rose 2.0% year-on-year.
Dollar/Swiss franc mirrored euro/dollar's gains with a decline to a 3 1/2-month low of 1.6976 that is sure to upset the Swiss National Bank. The strength of the franc contrasts with the decline in consumer confidence to +12 from +21 for the third quarter and Wednesday's disappointing results in the unemployment rate. Sterling/dollar trimmed gains after climbing to a three-day high of 1.4222, dollar/yen fell from a two-day high of 123.97 after failing to penetrate the resistance of the 124.00 Gann 50-point pivot, and dollar/Canada marked time within an inside range.
With no significant domestic data scheduled for release, traders will likely remain sidelined, with activity based on intraday flows and stop orders. Key levels are 0.8870 in euro/dollar, and 123.00 and 124.00 in dollar/yen.

Current Previous Change Global Global
NY open NY close low high

USD/JPY 123.32 123.59 -0.27 123.11 123.97
EUR/USD 0.8850 0.8803 0.0047 0.8801 0.8867 EUR/JPY 109.15 108.83 0.32 108.60 109.45 GBP/USD 1.4195 1.4171 0.0024 1.4138 1.4222 USD/CHF 1.7013 1.7092 -0.0079 1.6976 1.7094 USD/CAD 1.5337 1.5340 -0.0003 1.5330 1.5352 AUD/USD 0.5159 0.5189 -0.003 0.5140 0.5199
Unable to penetrate the resistance of the key 124.00 Gann 50-point pivot, which targets 123.50 and 124.50, USD/JPY has fallen since Asia session before the intertwined support of the 100-day and 60-day moving averages stopped the slide at 123.10.
Japanese Vice Finance Minister Muto put further pressure on the BOJ ahead of Monday/Tuesday's policy meeting when he said Japan's economy is weakening, and added that BOJ policy plays a key role in dealing with price falls. However, his comments failed to have much impact.
The intraday outlook is mixed.

Support: 123.11 (overnight low), 123.11 (100-day moving average), 123.09 (60-day moving average), 122.70 (July 20 trough), 122.50 (Gann 50-point pivot; targets: 122.00/123.00), 121.05 (Gann 50-point pivot; targets: 120.55/121.55).
Resistance: 123.97 (overnight high), 124.00 (Gann 50-point pivot; targets: 123.50/124.50), 124.08 (20-day moving average), 125.50 (Gann 50-point pivot; targets: 125.00/126.00), 126.15 (July 6 high; 3-month high), 126.84 (April 2 high; 29-month high), 127.00 (Gann 50-point pivot; targets: 126.50/127.50).

EUR/USD also got a boost from the ECB's August bulletin, which repeated the message from the July bulletin; namely that M3 growth is "broadly in line" with reference and the recent rise was likely due to temporary effects.
The ECB said H1 and full-year GDP growth was likely to be weaker than previously expected and stressed increasing uncertainty over the outlook for H2. Traders took the tone of the report to imply the ECB will be more willing to consider faltering euro zone growth when it meets to set policy on Aug. 30.
The outlook is mixed. However, a break above 0.8875, a 2 1/2-month high, would open the gates for a test of the 200-day moving average at 0.8899.

Support: 0.8848 (61.8% Fibonacci retracement level of the Nov. 27-Jan. 5 uptrend), 0.8801 (overnight low), 0.8790 (38.2% Fibonacci retracement level of the June-October downtrend), 0.8744 (20-day moving average).
Resistance: 0.8867 (overnight high), 0.8875 (Aug. 3 high; 2 1/2-month high), 0.8899 (200-day moving average).

One day after sinking to a 16-day low of 107.63, EUR/JPY rose to 3-day high of 109.45 on demand for EUR/USD and on short covering.
The outlook is mixed.

Support: 108.60 (overnight low), 108.49 (20-day moving average), 107.44 (100-day moving average), 106.02 (60-day moving average), 105.80 (38.2% Fibonacci retracement level of May 1999-October 2000 downtrend), 105.83 (200-day moving average), 104.54 (June 20 low).
Resistance: 109.45 (overnight high), 110.15 (Aug 2 high; 3-month peak), 111.02 (50% Fibonacci retracement level of May 1999-October 2000 downtrend).

GBP/USD is off a 3-day high of 1.4222 that it reached alongside EUR/USD. The Sun newspaper reported that Downing Street had denied an interview report in a Brazilian magazine in which Prime Minister Blair was reported to have said his greatest ambition is to scrap the pound and join EMU.
The outlook is mixed.

Support: 1.4138 (overnight low), 1.4131 (60-day moving average), 1.4206 (20-day moving average), 1.3911 (June 20 low), 1.3688 (June 12 low; 15 1/2-year low), 1.3660 (February 1986 trough).
Resistance: 1.4222 (overnight high), 1.4207 (100-day moving average), 1.4353 (Aug. 2 high; 2 1/2-month peak), 1.4414 (May 21 peak).

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