By DailyFX – USDCHF.Slower Manufacturing Spells Dollar Doom Data was mildly disappointing in the world's largest economy today as manufacturing activity was shown to have… … slowed in the month.

According to the Institute for Supply Management, activity slowed to a reading of
54.2 against expectations of 57.5. With construction spending
additionally rising less than expected by 0.2 percent for the month,
greenback traders were absent on the session as bears pushed the
underlying lower on expectations that the Fed will favor a rate cut in
the near term. Sentiment remains that although Fed policy makers will
raise rates one more time, considerations of a cut will run deeper as
the activity data may be the start of a downtrend in productivity,
dollar bearish. Dollar selling also ensued on increasing speculation
that the Fed's minutes during the afternoon would boast a more dovish
tone

Technically Speaking
Breaking through thick consolidation, the USDCHF currency pair has
penetrated the lower trendline and steadfastly approaches the December
18th low at 1.2881. However, with current momentum waning, bears may be
exiting in the short term setting up a prime retracement back to at
least 1.3007 (38.2 percent fib from the intersession bear wave). With a
formidable barrier at 1.3043 (50 percent fib) the trap may be set for a
decline to the December 14th spike low of 1.2774.

EURUSD

Fed Indecision Strengthens Bears
Although not blatantly dovish, the afternoon's Fed statements showed
indecision among the policymakers even after a unanimous vote to raise
rates another 25 basis points to 4.25 percent. The minutes continued
the theme that further rate hike consideration would depend widely on
economic factors currently present in the country. The report also went
on to state “committee members generally anticipated that policy would
likely need to be firmed further going forward” however, would
“depend to an increased extent on the implications of incoming
economic data.” Further lending to bearish selling was speculation on
2006 growth estimates. The world's largest economy is set to dip below
the 4.1 percent growth average seen in the past 3 years and expand at an
annualized 3.6 percent rate. This would likely keep further rate hikes
on the sideline as inflation is maintained at the target 3.1 percent
rate.

Technically Speaking
Inverse of the USDCHF action, the EURUSD has bounced from the December
30th spike low of 1.1798 to reach highs not seen since earlier in
December 2005. However, the aforementioned highs look to pose a
considerable barrier and suggestive of a near term retracement
opportunity. Much like the Swiss currency pair, the trap should be set
with a top bottom at 1.1934 (38.2 percent fib from the intersession bull
wave). Any downside breaks would meet formidable support floors at
1.1881 (78.6 percent fib from the wave).

GBPUSD

Productive Uptick In The UK
Helping along the British pound on the session was a manufacturing
report released by the Chartered Institute of Purchasing & Supply.
According to the CIPS report, manufacturing in the U.K. economy turned
upward for the fifth consecutive month. Companies have now increased
their efficiency and productivity in addition to winning more orders on
domestic soil. As a result, suggestive of a stay on rate cut notions as
the output environment has changed, the underlying currency looks to be
buoyed after the slaughterfest seen at the tail end of 2005. Coupled
with a bottom in housing price valuations, a slight up tick in the
fourth quarter, the report adds to temporary euphoria over pound
strength.

Technically Speaking
Hovering the previous resistance ceiling at 1.7454, the GBPUSD currency
pair looks ripe for a retracement. Primary floors of support are held
at 1.7386 (23.6 percent fib from the intersession bull wave) and 1.7337
(38.2 percent fib level from the intersession bull wave). The
correction would indeed be temporary till upward directional bias
resumes towards a test of 1.7600. Downside options include a test of
the double bottom floor just above 1.7150.

By DailyFX