Daily Analysis 2012-07-30

The financial markets received a strong incentive From the ECB press conference that changed the momentums in both Forex and stock markets. On the beginning of last week it seemed that the Euro was about to slide under 1.20 and that the S&P was going to fall to 1300 points. This was the outcome of high level of concerns regarding the Spanish debt problem. However, everything changed on Thursday as Mario Draghi impressively defended the Eurozone and said that nothing could break it down. Draghi's patriotic speech replaced the pessimism that controlled the markets with optimism and euphoria.

No one can anticipate the Eurozone's future and there is a big question mark above the ability of the ECB to pull the EU countries out of the mass. Yet, it looks like the stock markets resumed trading in uptrend mode. The S&P 500 broke through the recent pick at 1380 points and its next target is the annual high at 1422 points. Nevertheless, the results season is not over yet and may influence the markets during the following week.

EUR/USD

The Euro made first sign for a bullish correction on Wednesday and we estimated then that it would rise towards 1.2325. The currency made the expected short-squeeze and got the resistance we anticipated. The Euro rose 50% of the recent decline session and it might continue towards 1.25 if it keeps the current momentum. However, the general trend here is still bearish and investor will not rush to transfer their investments to the Euro due to the European debt problems. Therefore, this might be an opportunity to sell the Euro. If the currency closes under Friday's low, it might build the bearish reversal pattern and slide downwards to 1.2150.

The markets will focus on two main events during Thursday and Friday. On Thursday, the ECB will publish the interest rate that is expected to remain at 0.75%. On the day after, the important indicator of the Non-Farm payroll change will be published in the US.

GBP/USD

The pound acted exactly as we estimated on the previous weekly analysis. It broke the support at 1.56, slide to the support at 1.5450 and pulled back to the 200 SMA at 1.5730. According to the current pattern, the pound might turnover and slide towards the support at 1.5450. However, it seems that the pound has intentions to continue the bullish momentum. Therefore, if it manages to break through the resistance of the 200 SMA, it might surge upwards to 1.575. The interest rate will be published on Thursday by the central bank of England, 45 minutes ahead the European bid rate announcement.

USD/JPY

Draghi's speech on Thursday helped most of the major currencies to rise against the USD. However, since the Yen had a negative correlation with the US stock markets, it weakened against the American dollar. The JPY failed in breaking down the support at 78.25 and the USD will probably continue strengthening against the JPY if Wall Street continues up. A possible target for a bullish movement may be the resistance of the 200 SMA a t 79.0. The weakening of the JPY and the strengthening of the other major currencies would make it easier to trade JPY pairs (against Yen's direction). A target for a break down session might be at 77.20.