The upcoming ISM manufacturing report is expected to show a slight improvement to 36.0 from 35.8 for the month of March. However, if we look to the Chicago and New York readings for an indication then we may see the broader reading disappoint, as they both fell to record lows.
[B]Fundamental Outlook[/B]
The upcoming ISM manufacturing report is expected to show a slight improvement to 36.0 from 35.8 for the month of March. However, if we look to the Chicago and New York readings for an indication then we may see the broader reading disappoint, as they both fell to record lows. The regional gauges saw significant decreases in prices paid, production and shipments but on a positive note they both realized gains in new orders and employment. Therefore, if the ISM indicator follows suit, there could be an increase in risk appetite if traders focus on the positive components which are more indicative of future growth. If this is the case or we get the expected improvement then we could see the dollar weaken on revering safe haven flows. However, if activity significantly declines then we may see expectations for a recovery pushed out until mid 2010. This would sink equity markets and be a supportive factor for the greenback. Therefore, a positive fundamental outcome would conflict with the bearish euro/dollar technical outlook. Therefore, it may present an opportunity to enter a longer-term short position.
[B]Technical Outlook [/B]
My working assumption is that a wave 2 high is in place at 1.3740 (within what will be a 5 wave decline from 1.4723). Ultimately, the EURUSD is in a long term bear that likely lasts for a few years. That is not to say that there will not be rallies along the way. I wrote yesterday that “near term, 5 waves may be nearing completion from 1.3640. Look to sell rallies… the breakdown level at 1.3416 is resistance.” A corrective rally from yesterday’s low is expected to reach completion within the next day. As mentioned, former support at 1.3416 is now resistance.
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[I]To discuss this report contact John Rivera, Currency Analyst: [email protected][/I]