FOREX TRADING

Daily Technical Analysis

EURUSD Outlook

The EURUSD attempted to push higher yesterday, topped at 1.4372 but further bullish momentum was rejected as price closed lower at 1.4273. This fact should keep the pressure on Euro re-testing 1.4250/60 support area today. The bias remains to the downside targeting 1.4172 – 1.4127 area today but we need consistent move below 1.4250/60 to continue the bearish scenario since we seems to have a double bottom support around that area as you can see on my h4 chart below. Immediate resistance at 1.4350/70 area followed by 1.4400 – 1.4450 area. Break above 1.4450 area should be seen as potential threat to the bearish outlook.

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Euro 1.4275

Initial support at 1.4262 (Dec 18 low) followed by 1.4178 (Sept 1 low). Initial resistance is now located at 1.4412 (Dec 18 high) followed by 1.4536 (Dec 16 high)

Yen 91.15

Initial support is located at 88.97 (Dec 18 low) followed by 88.58 (Dec 15 low). Initial resistance is now at 91.23 (Dec 21 high) followed by 91.32 (Nov 4 High).

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Dollar Rally Continues

U.S. Dollar Trading (USD) the new dollar trend extended gains in quiet holiday trading. Not even a solid performance from US stocks could induce Dollar weakness in a dangerous sign for the bears still out there. Little Economic data was released and traders took their cue from a sharp drop in Gold Prices. DJIA +85 points closing at 10328, S&P +11 points closing at 1114 and NASDAQ +25 points closing at 2237. Looking ahead, Q3 GDP is forecast to be unrevised at 2.8% and November Existing Home Sales are forecast to increase to 6.25mln vs. 6.1mln previously.

The Euro (EUR) bounced around the 1.4300 level but was ultimately under pressure for most of the day and finished near multi-month lows. Some ECB members did little to help with Stark commenting he expects further European Bank Write downs and Orphanides comment that it was unthinkable that Greece would default. Overall the EUR/USD traded with a low of 1.4264 and a high of 1.4375 before closing at 1.4270. Looking ahead, October Industrial Orders forecast at -1.1% vs. 1.5% previously.

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USD Mixed, EUR Rebounds in Cross Trade

• USD: Mixed, maintains gains despite rising equity markets, NASDAQ at new high for 2009
• JPY: Lower, exports declined at slowest pace in 14 months, five-year yield hits four-year low
• EUR: Mixed, supported by rebound in cross to CHF and GBP
• CHF: Mixed, EUR/CHF recovers from nine month low, SNB intervention suspected
• GBP: Lower, CBI says UK unemployment likely to rise in 2010
• CAD and AUD: AUD lower & CAD higher, Australia’s auto rise sales, Canada’s retail sales rise ex autos

Overview

USD traded mixed in Monday’s trade consolidating near a three-month high with the main focus on the volatility in the EUR/CHF cross. The CHF rallied to a nine month high versus the EUR then fell sharply in what appeared to be a large sell order from a major Swiss bank. It was unclear whether the CHF selloff was sparked by SNB intervention. SNB officials would not comment on the movement in CHF. CHF cross gains were attributed to safe haven flows sparked by escalating tensions between Iraq and Iran. European currencies traded mixed with the EUR firmer despite a statement from the EU commission that the EUR could be overvalued by as much as 7 to 8%. The EU commission went on to say that they see the EU recovery gaining momentum. GBP drifted lower pressured by the release of CBI forecast projecting more job losses in 2010 for the UK economy. Commodity currencies traded mixed with the CAD supported by rising crude prices. AUD drifted lower pressured by weakness in Asian equity market trade and RBA pause speculation. JPY drifted lower in reaction to report that Japanese exports continued to decline in November. There were no major US economic reports released in today’s trade. Dealers report that markets are thin reflecting the run-up to the Christmas holiday. Bloomberg reports that the fact that the USD remains firm as stocks rise to a new high for 2009 may be a sign that the worst is over for the USD as the inverse correlation equities continues to break down.

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Currency Currents

Key News

• The European Central Bank won’t bail out debt-stricken member states such as Greece, which must repair its public finances on its own, ECB governing council member Ewald Nowotny said.(WSJ)
• The rand declined to a six-week low on speculation the interest-rate appeal of holding South African assets may diminish as the dollar appreciates. (Bloomberg)
• Hungary’s central bank will probably cut its benchmark interest rate today to the lowest level since the fall of communism to speed the country’s recovery from its worst recession in 18 years. (Bloomberg)

Quotable

“A tale of two worlds. We forecast 4% global GDP growth in 2010, but this masks two very different stories. One is a still fairly tepid recovery for the advanced economies. The other is a much more positive outlook for emerging markets, where we forecast output to grow by 6.5% in 2010. In short, we think that the themes of global rebalancing and EM growth outperformance have staying power and have even been bolstered by the crisis.”

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Thin Trading In The Currency Market

The major pairs saw some action during the European session, after a flat Asian session, but little of it looked sustainable. As seen in the equity and in the commodity markets, the trading volume remained thin throughout the Asian and the European sessions, most likely due to upcoming Christmas and New Year Holidays. One exception proved to be the cad, which dropped 80 pips ahead of the retail sales report, expected at 08:30 EST

Dollar Index Technical View: TheLFB Member Charts

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Danske Daily

Today’s Key Points

• Asian stocks are mixed this morning with Nikkei higher and the Chinese market trading in red.
• The strong December rebound in the dollar continued on Friday taking EUR/USD to a 1.4262 low. EUR/CHF saw another sharp dip overnight.
• Japanese exports recovered further in November, but remain well below pre-crisis levels.
• US treasuries fell on Friday with yields rising the most in the long end of the curve.
• The Copenhagen climate conference ended with a limited accord

Markets Overnight

Equity markets are mixed in Asia this morning with the Japanese market higher, supported by better-than-expected export data, while the main Chinese indices have been trading in red. US equity market futures are marginally higher following minor gains in Friday’s trading. The S&P500 index closed 0.6% higher in a generally difficult week for risky assets.

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USD Recovery Continues Against Backdrop Of Limited Economic Calendar

News and Events:

FX markets have started the week in a docile mood, with a light economic calendar easing us into the holiday season. The only major release in the G10 space today will be the Canadian Retail Sales (Oct); expected to rise 0.8% MoM after the impressive 1.0% rise in the month prior. However, judging by the market’s complete lack of interest in last week’s higher than expected CPI data out of Canada, it feels very much like FX markets are unwilling to change their fundamental view on any particular economy so late into the year.

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Daily Technical Analysis

EURUSD Outlook

The EURUSD made indecisive movement on Friday, formed a Doji on daily chart. Price attempted to push lower, bottomed at 1.4260 but closed higher at 1.4336. The rejection to move below key support level 1.4250 was not a surprise for me. It was a ‘normal’ upside correction on weekend after a significant bearish week, and overall the bearish scenario still in control, reflected on the bearish channel (red channel) as you can see on my h4 chart below. Break below 1.4250 should trigger further bearish momentum targeting 1.4170 – 1.4127 area, which is an important support area in longer term. Immediate resistance is seen at 1.4400 – 1.4450 area. Break above that area should lead us into no trading zone

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Euro 1.4335

Initial support at 1.4262 (Dec 18 low) followed by 1.4178 (Sept 1 low). Initial resistance is now located at 1.4536 (Dec 17 high) followed by 1.4591 (Dec 16 high)

Yen 90.40

Initial support is located at 88.58 (Dec 15 low) followed by 88.20 (Dec 11 low). Initial resistance is now at 90.91 (Dec 17 high) followed by 91.32 (Nov 4 High).

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US equities closed with small gains and commodities were generally higher too. However, weekend press may test the calm. The UK Sunday Times claimed European banks may have to raise €450bn over the next two years to meet stringent new capital rules. British banks may need about £50bn of additional new capital. Hardly compelling arguments to start buying EUR and GBP again.

Last week saw the biggest fall in the EUR since April as the USD staged a massive comeback and all currencies fell heavily on the week. The 1.4300 level in EUR gave way on Friday in NY and we hit a low of 1.4262 before markets started to show signs of stability. Quadruple witching passed with little volatility in stocks. Indeed, markets were so quiet that a headline for Iraq’s interior minister that Iran had crossed the border had almost no impact on EUR.

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Weekly Technical Commentary

USD/JPY

Chart Levels:

Support 88.00..87.35..86.00..84.82.
Resistance 89.80..90.80..91.35..92.33.

This week: →
This month: ↘

The sharp rally from a multi-year low at 84.82 has turned into ‘triangle’ consolidation. The US dollar is no longer oversold and most elements of this chart still suggest a short USD/JPY position. Long term while below 92.00 downside pressure is maintained, while the closer we get to 85.00 the more the authorities will be tempted to intervene. In fact the early December high at 90.78 might in fact be a new lower interim high. Decent futures volume over the last two weeks suggests many are cutting out of stale positions ahead of expiry and year-end. These will have to be re-built next year.

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Weekly Market Wrap

Trading volumes and data were light this week as markets wound down ahead of the holidays. In the US, the November housing starts and building permits data bounced back from the softness seen in October. The FOMC kept interest rates on hold and slightly sweetened its economic outlook, although this positive note was somewhat offset by the second consecutive increase in weekly jobless claims. The dollar gained steadily for a second week against the euro and the yen as sovereign debt issues continued to roil the Euro Zone, while gold hit a one month low below $1,100 on Thursday. The Senate Banking Committee voted to move the nomination of Fed Chairman Bernanke to a full Senate vote, but not without another round of Bernanke bashing from the usual quarters (even after Time named Bernanke the Man of the Year). In the background, there were dark rumblings: PIMCO’s Bill Gross raised his cash holdings to the highest level since the failure of Lehman in Sept 2008, while BoA/Merrill Lynch analysts discussed the possibility of a “Valentine’s day massacre” market correction in Q1 that could stem from the end of the Treasury’s MBS buying program or other factors, and Meredith Whitney took another swipe at banks, cutting her 2009-2011 EPS targets on JP Morgan, Goldman and Morgan Stanley. US equity markets closed the week out on high volume due to quadruple witching and the quarterly Q&P rebalancing. Equity indices ended mixed for the week, with the DJIA down 1.3%, the Nasdaq rising 1%, and the S&P 500 slipping 0.4%.

Little was expected from the FOMC this week, although ahead of the decision an FT article prompted speculation that, in a nod to the ECB, the Fed might choose to distinguish between liquidity and monetary policy, specifically by raising the discount rate from the existing 0.50% level and simultaneously keeping the Fed Funds target rate steady at 0-0.25%. The discount rate hike never came to fruition, but the FOMC did alter its policy statement to remind markets that most of its special liquidity facilities are scheduled to wind down in Q1 2010. As expected, the Fed funds rate was kept unchanged and the commitment to keeping rates on hold for an “extended period” was reaffirmed, with the economic outlook paragraph slightly more optimistic.

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USD Mixed, JPY Lower, BOJ Won’t Tolerate Deflation

• USD: Mixed, overseas loses pared by news of Iran/Iraq tension
• JPY: Lower, BOJ won’t tolerate deflation, five-year bond yields hit a four-year low
• EUR: Mixed, German IFO hits 17 month high, trade balance swung to surplus, EUR/CHF declines
• GBP: Higher, mortgage approvals rise, BOE says banking system more stable, PSNCR at record high
• CAD and AUD: AUD & CAD higher, Australia’s business sales rise, Carney says low rate pledge conditional

Overview

USD drifted lower Friday pressured by a slight uptick in risk appetite as US equity markets edged higher. The EUR was supported by report that the German IFO business sentiment hit its highest level in 17 months and the EU trade deficit swung to surplus in October. GBP edged higher in reaction to report that UK mortgage approvals rose for the third month in a row and the BOE says that the UK banking system is more stable. Commodity currencies traded higher supported by improving risk sentiment and rising crude prices. AUD was supported by report of improvement in Australian business sales. CAD traded higher in reaction to a statement from the BOE’s Carney that the BOC has the flexibility to shorten the time frame for its commitment to keep rates low until mid 2010. Carney appeared to be reacting to Wednesday’s report of higher than expected Canadian CPI. JPY traded lower in reaction to a pledge from the BOJ that the central bank would not tolerate deflation. This pledge encourages speculation that the BOJ may ease monetary policy early next year. USD downside was limited by report of tensions between Iran and Iraq as Iraqi troops were reported to have crossed over the border into Iran and temporarily occupied one of Iraq’s oil fields. The Iraqi deputy minister denied the report. EUR/CHF dropped below 1.50 with CHF supported by rumors of a coup in Pakistan. The drop in EUR/CHF may encourage the SNB to intervene as the SNB has defended the 1.5100 level in the past. The Pakistan government denied the coup rumor.

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Stocks Rise, Yields Up

With no more than eight trading sessions remaining for 2009 the New Year really isn’t very far away at all. And with an increasing number of onlookers observing that yields will rise next year, investors are slowly but surely starting to bake that view into the cake. The reversal in 10-year U.S. yields from a Dubai-inspired 3.16% to a pre-FOMC 3.61% took place in under three weeks and confirms the worries bubbling away under the surface many fixed income investors seem to be harboring.

While the Fed managed to portray within its statement this week that the economy faces a remarkably inflation friendly environment, the word is out that 2010 will be a year in which corporate and government funding costs will very likely increase. The latest to admit to turning around the tanker is manager at the world’s biggest bond fund, Pimco’s Bill Gross. Today it was reported that he has lightened the boatload of government debt and futures he’s carrying predicting lower yields and flatter curves instead trading it in for cash. He now hoards the largest proportion of cash since before the Lehman’s crisis.

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