FOREX TRADING

We wish you a good morning from Hamburg where the snow begins to thaw. Today we are expecting a lot of interesting economic data from the U.S. Furthermore the USD could reach a four month high against the EUR. However, much luck trading today.

Markets review

The EUR dropped to its lowest level in more than four month versus the USD on concern Greece`s deteriorating financial situation will weigh on the region’s economic recovery. The USD reached 1.4188 against the EUR. Furthermore the JPY climbed to a four week high against the EUR, with the EUR/JPY falling to 129.83, on speculation that European Central Bank Executive Board Member Juergen Stark will reiterate the bearish outlook for the region’s economy and the budget deficit in Greece when he speaks today. The NZD dropped for a second day after a government report showed that consumer prices fell last quarter. This damping prospects for an interest rate increase. The USD gained to 0.7310 versus the NZD and the AUD slipped to 0.9194 USD.

The NZD dropped versus all of its 16 most traded counterparts after the statistics department said that consumer prices slipped 0.2% in the last quarter from the previous three month. The Reserve Bank of New Zealand Governor Alan Bollard, who predicted that the prices would fall, said last month the he expected to keep the interest rate at 2.5% until the middle of the year to help the economy recover from a recession.

Technical analysis

CAD/JPY

After the first week of January, the CAD has been trading in bearish trend against the JPY and reached its level from the beginning of the year. Recently, the currency pair touched its support around 88.05 and could recover. Now it seems that the CAD is ready for a changing trend. A crossing MA Oscillator through the signal line from below may support that. The next resistance could be around 89.35.

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Daily Technical Analysis

EURUSD Outlook

The EURUSD had a significant bearish momentum yesterday, break below the triangle formation, as you can see on my daily chart below, indicating potential bearish scenario. Earlier today in Asian session we have another important move as price already break below 1.4250 key support level. This fact should be seen as bearish scenario confirmation targeting 1.4000 this week. However, watch out for a ‘hidden’ support level around 1.4180 area. Another movement above 1.4250 area should lead us into no trading zone in nearest term but as long as price stay below 1.4450 I prefer a bearish scenario at this phase with short on rallies strategy.

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Traders used the twin excuses of lingering concerns over the public finances of Greece and a sour investor confidence reading to beat down the euro on Tuesday to challenge its weakest point so far in 2010 ahead of the return from a long U.S weekend. Further detracting from risk appetite ahead of the onset of earnings season to full swing are ongoing fears that Chinese monetary tightening will negatively impact global growth, and the eventual bankruptcy filing of Japan Airlines. And while these events played into the hands of the dollar this morning, the one bright spot appears to be the British pound where a sweetened deal from Kraft for Cadbury’s is putting currency flows under the spotlight. As we conclude our daily report, the U.S. dollar is trampling on competing currencies sending the dollar index 0.6% higher to begin the week.

Euro – The stresses and strains of the Eurozone are very much for real at the moment, and if you ask your local finance minister he’ll probably point his finger at Athens. EU commissioner for economic and monetary affairs, Joaquin Almunia said that while the plan drawn up by the government of Greece was adequate, it was comprised of what her called “ambitious” spending cuts.

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EUR/USD

Current level-1.4397

EUR/USD is in a downtrend, after peaking at1.5146 (Nov.25,2009). Technical indicators are neutral, and trading is situated between the 50- and 200-Day SMA, currently projected at 1.4793 and 1.4169.

Current rebound from 1.4335 is corrective in nature and while the pair stays below 1.4450 resistance, the bias will continue to be negative for a break below 1.4260, en route to 1.3740 support on the daily frame

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News and Events:

This morning’s UK CPI was sharply higher than forecasts; coming in at a monstrous 0.6% MoM, 2.9% YoY in December, up from last month’s 0.3% MoM, 1.9% YoY rise. Today’s reading comes within a fraction of hitting the 3% threshold where BoE Governor King would be obliged to write a letter to the UK Chancellor of the Exchequer to explain the massive overshoot above the 2% target. GBPUSD has responded with a knee-jerk spike higher to 1.6456 levels, but the momentum of the move has lacked much follow through, as there are a couple of mitigating factors to consider. Firstly, it was clearly outlined in the BoE’s Quarterly Inflation Report last November that the MPC expected a sharp rise in CPI around the turn of the year, and, according to their forecast, this would drop back towards target in the subsequent months. Secondly, despite optimism for UK growth prospects going forward (stimulated by an article in the UK Telegraph newspaper today), the UK remains the only economy in the G10 that has yet to emerge from recession; leaving the slightly uncomfortable possibility that analysts begin to consider a stagflationary scenario (high inflation, negative growth). (more…)

U.S. Dollar Trading (USD) weakened gently in quiet markets as US Bank Holiday kept trading thin. Stock markets came off lows in Asia and rallied in Europe to help risk appetite improve. Attention this week will be on Q4 Chinese GDP and US Corporate earnings. Looking ahead, November TIC flows previously at 20bn.

The Euro (EUR) came under pressure at the open as stories over the weekend focused the markets attention towards the ongoing debt crisis in Greece. A scheduled meeting of Eurozone ministers on Monday to discuss the proposed Greece budget will provide more information. Stable equity markets allowed the Euro to rebound to 1.4400 during the day. Overall the EUR/USD traded with a low of 1.4333 and a high of 1.4401 before closing at 1.4385. Looking ahead, German January ZEW survey forecast at 49.5 vs. 50.4 previously.

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Daily Technical Analysis

EURUSD Outlook

The EURUSD had a moderate bullish momentum yesterday, topped at 1.4399, closed at 1.4383 and keep moving higher earlier today in Asian session traded around 1.4407 at the time I wrote this comment. I think the bias should remains neutral in nearest term as I am still expecting a range market between 1.4450 – 1.4250 at this phase. On daily chart below we can see that price move in triangle area indicating a consolidation. For me unless we have a break above 1.4450 I still prefer a bearish scenario. Break above 1.4450 should be seen as bearish failure which could trigger further bullish momentum re-testing 1.4600 area.

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The NY session was predictably slow as most US markets were closed in observance of Martin Luther King Jr. Euro traded in a 1.4370 to 1.4400 range all session. Expect the price action here to heat up in the London session though, as the all-important German ZEW survey of economic optimism is due. The market is looking for a relatively unchanged read of 50.0 for January after a 50.4 print the prior month.

The Euro has enough problems with the peripheral countries as it stands, so expect any weak result here (from the strongest economy in the Eurozone) to elicit a decent amount of downside pressure. The 21-hour sma has been providing immediate support by 1.4380 and we would also expect short-term buying interest ahead of the 1.4330 zone.

In terms of the upcoming Asia session, there is nothing noteworthy on the docket. Keep in mind, however, than many of the yen crosses have been in consolidation mode for a good while. These patterns tend to snap sooner or later and in a pretty violent manner. We are currently eyeing USD/JPY 90.60 as the potential downside trigger and ditto for 130.00 in EUR/JPY.

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DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Daily Technical Analysis

EURUSD Outlook

As I had expected, the EURUSD had a bearish momentum after break below 1.4450, bottomed at 1.4338 and closed at 1.4379 on Friday. The bias is neutral in nearest term but I prefer a bearish scenario at this phase targeting 1.4250 area as bullish scenario failed. Immediate resistance at 1.4400 – 1.4450 area. Only break above 1.4450 area should be seen as bearish failure and lead us into no trading zone as direction would become unclear.

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USD/JPY

Chart Levels:

Support 91.00..90.00..89.30..88.00.
Resistance 93.15..93.78..94.65..95.30.

This week: ↘
This month: ↘

The very sharp rally from a multi-year low at 84.82 is one of the biggest monthly moves higher in years, only eclipsed by the ten yen rally in March 2008 and a fifteen yen one in January 2002. We think it stalled last week at 93.78 with a ‘doji’/'spike high’ weekly candle against ‘channel’ and Fibonacci retracement resistance. Also because the USD had become overbought against the yen while bullish momentum was dropping quickly. Adding to our view is the fact the Lagging Span has also met Fibonacci resistance and the bodies of the candles of 26 weeks ago. All other elements of the ‘cloud’ chart suggest a short position still despite January’s countertrend corrective rally. Allow for many re-tests of 85.00 this year.

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The second week of the New Year did not offer much in terms of breakouts from the recent consolidation ranges. Fundamentals reflect a slow recovery and risk appetite also remained subdued this week after some initial rally. Let’s take a look at some major currency pairs.

EUR/USD Stalking Consolidation

Daily and 4H: The EUR/USD is heading back to the support of its consolidation. The stochastic in the daily has crossed and today’s price action seems to be very aggressive, though we still have a few hours to go.

Looking at the 4H time-frame, it will be interesting to see if the 78.6% retracement level at 1.4330 can hold. This may give way to a throwback scenario, which does not have to reach 1.4450, but it is a preferred scenario as this will make this previous support into resistance.

If the decline then continues a swing, it is projected to the 1.4200 area. If 1.4200 breaks, this is the decline to start the continuation towards the 1.37-1.38 area (61.8% retracement in the daily time-frame).

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U.S. Review

The Fourth Quarter Ended on a Weak Note

• We raised our estimate of fourth quarter real GDP growth to a 5.6 percent pace based on recent data on business inventories and international trade.
• December economic data continue to come in below expectations. Retail sales declined 0.2 percent and sales excluding motor vehicles fell 0.3 percent.
• The Fed’s Beige Book and the National Federation of Independent Business survey showed conditions continuing to deteriorate across much of the country.
• Consumer prices rose 0.1 percent in December.

Caution Remains the Buzz Word

Businesses and consumers remain exceptionally cautious and will not likely be phased by a blowout real GDP number for the fourth quarter. We have recently raised our estimate for fourth quarter real GDP growth to a 5.6 percent annual rate. A substantial slowdown in the rate of inventory liquidations will account for the overwhelming majority of that gain. Final demand remains exceptionally weak and, while the worst of the layoffs appear to have passed, there is little sign hiring is set to pick up. Three major reports, the National Federation of Independent Businesses (NFIB) Small Business Optimism Index, the BLS Job Openings and Labor Turnover (JOLTS) report, and the Fed’s Beige Book reiterated this point this past week.

The NFIB Small Business Optimism Index fell 0.3 points to 88.0 in December. Plans to hire increased modestly but remain in negative territory, rising to -2 percent from -3 percent. In addition, fewer businesses said they were able to raise prices and fewer planned to boost inventories. The one positive aspect of the report is the number of firms stating they planned to boost capital spending rose slightly, climbing 2 points to 18 percent.

The lack of any clear sign that hiring is picking up is particularly discouraging following last Friday’s weak employment report. Job openings in the November JOLTS report fell back to their series low of 1.8 percent. The number of hires and number of total separations both increased in November but total separations still outnumber hires, indicating employment declined on a net basis. There has been a slight improvement in hiring over the past five months. The number of people hired each month peaked in July 2006 and fell by 1.7 million by June of 2009. Hiring has since increased by 257,000 per month.

Total separations, which include quits, layoffs and retirements, rose in November but have generally been trending lower. The combination of fewer hires and fewer separations means that businesses are reducing their workforces more through quits and retirements today than by layoffs. The data also provided the missing link as to why the drop in weekly first-time unemployment claims has not translated into a net increase in nonfarm payrolls.
The Fed’s Beige Book also noted weaker economic conditions and relatively few districts had anything positive to say about the employment outlook. Most districts said layoffs continued but most also noted there has been some reduction in the number and size of cutbacks and that more firms are opting for hiring freezes or reducing hours instead of making large-scale cuts.

The other major disappointment this week was November’s retail sales report, which showed a 0.3 percent drop for December. Earlier reports had indicated that chain store sales were up for the month, so expectations for the Commerce Department’s retail sales figures were high. The Commerce Department sales figures are adjusted for both seasonal and holiday day changes and this year’s earlier Thanksgiving means that more holiday shopping took place in November and sales were thus pulled forward. On a net basis, holiday sales still show modest gains from last year.

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Most traders find that it is necessary to utilize a broker when making transactions on the FOREX exchange. A broker is a middleman that handles the actual buying and selling of orders for traders. The broker may be an individual or a company, they will often also offer advise and suggestions for their clients but they only execute orders based on the decision of the trader. Brokers earn their profit either through fees or commissions.

In the case of a FOREX broker they must be associated with a large financial institution to have access to the necessary funds for margin trades. When looking for a broker in the U.S. you need to be sure that the broker is registered as a Futures Commission Merchant by the Commodity Futures Trading Commission. This will allow you to protect yourself from fraud and abusive trade practices.

To start trading in the FOREX market you must open an account with a broker. There are a large, even overwhelming, number of brokers available on the internet. To pick the right broker yourself you need to be prepared to spend some time doing some research. This will help you understand the different services available from various brokers as well as their fees and commission structures.

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Fibonacci, Actually named Leonardo of Pisa, was born in Pisa, Italy about 1175 A.D.. Today, he is recognized as the greatest European mathematian of the middle ages. Fibonacci is credited with introducing the Arabic-Hindu numeral system to Europe. He also introduced the decimal system. Both became the basis of mathematics we use today. Enough background for now.

Although Fibonacci covered an entire realm of mathematics, the main numbers used in trading are actually percentages. The percentages are 38.2%, 50%, and 61.8%. These areas are viewed as trend retracement points. The most commonly held theory is that a 38.2% retracement of a trend is a failed reversal and the overall trend should continue. A retracement to the 61.8% mark signals that the retracement is the beginning of a new trend. The 50% level is used for different strategies if confirmed by several other signals

The use of Fibonacci numbers in trading has become increasingly popular in recent years. It does not take long when looking at charts to see several examples of Fibonacci tracements. On numerous occassions I have watched analysts making market predictions on T.V. shows. I will often check the charts about what they discussed. Some of the predictions for new price levels are dead on Fib. retracement numbers.

Fibonacci numbers, as with all technical indicators should not be used by themselves. They should be combined with other indicators to make a complete system to trade with. I do believe that Fibonacci numbers should be a part every traders list of indicators. They do seem to be extremely accurate, This could possibly a self fulfilling prophecy. If enough people believe it, they will cause it to hold true.

In any case, if you do not currently use them, you may want to look into it.

Dow -102 S&P -11.7 NASDAQ -22.2

ECONOMIC DATA

(RU) Russia Dec Official Reserve Assets: $439.0B v $441.8Be

(CL) Chile Dec Copper Exports: $3.2B v $2.9B prior

(IS) Israel Dec Consumer Prices M/M: 0.0% v 0.3%e; Y/Y: 3.9% v 4.2%e

(PD) Poland Nov Trade Balance: -€292M v -€750Me; Current Account: -€1.2B v -€975Me

(CA) Canada Nov New Motor Vehicle Sales M/M: -7.0%e v 3.5% prior

(US) Dec Consumer Price Index M/M: 01% v .2%e; CPI Ex Food&Energy M/M: 0.1% v 0.1%e; CPI NSA: 215.949 v 216.000e

(US Jan Empire manufacturing: 15.92 v 12.00e

(BE) Belgium Nov Trade Balance: €1.9B v €0.9B prior

(US) Dec Industrial Production: 0.6% v 0.6%e; Capacity Utilization: 72.0% v 71.8%e

(US) University of Michigan Confidence: 72.8 v 74.0e

(MX) Mexico Central Bank Interest rate leaves Overnight rate unchanged at 4.50%; as expected

JP Morgan’s disappointing earnings report is hammering US indices this morning. Investors have all but forgotten Intel’s hot quarterly report from yesterday. The final CPI reading of 2009 showed that consumer inflation was tame last year, with prices rising 2.7%, following at 0.1% increase in 2008. The January Empire Manufacturing was better than expected, with very strong growth in the prices paid (hit a one-year high) and new orders components. (more…)