FOREX TRADING

ADP Report Dissapoints, USD/JPY Slides in Aftermath

Market forecasts were proven wrong as the ADP employment change showed a decrease of 23K private sector jobs, when expectations were calling for a 40K increase.

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US Data Mixed, Dollar Slips

The dollar traded softer against the majors amid increased risk-appetite ahead of key reports on the US labor market starting on Wednesday. The greenback relinquished the 1.51-handle versus the British pound and the 1.35-mark against the euro earlier in the session before recovering slightly in the New York afternoon. The US equity markets were marginally higher after a mixed bag of economic reports.

Home prices continued to struggle with the Case-Shiller index, declining by 0.7% on an annualized basis versus a slide of 3.1% in the previous year and down by 0.4% on a monthly basis from a decline of 0.2% in the prior month. The Conference Board’s consumer confidence survey beat consensus estimates in March, rising to 52.5 from an upwardly revised February reading of 46.4.

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USD Mixed, House Prices Flat, Consumer Confidence Rises

• USD: Mixed, house price rebound slows, consumer confidence rises more than expected, stocks turn lower
• JPY: Lower, industrial production and household spending declined , unemployment unchanged
• EUR: Lower, France AAA debt rating at risk of a downgrade, Greek bond spreads widen
• GBP: Higher, GDP revised up, house prices rise, trade gap narrows
• CAD and AUD: AUD & CAD higher, RBA rate hike speculation, Canada’s raw material prices rise

Overview

The USD traded mixed Tuesday weakening against the GBP and commodity currencies and firming versus the EUR and JPY. GBP outperformed supported by report of an upward revision in UK Q4 GDP and higher UK house prices. EUR erased early overseas gains pressured by rumors that France may lose its AAA debt rating and in reaction to ongoing concerns about the Greek debt crisis as Greek bond spreads continued to widen. AUD was supported by RBA rate hike speculation and the JPY traded lower pressured by improving risk appetite and firmer equity market trade with additional selling pressure noted in cross trade to the GBP and AUD. CAD traded higher supported by report of an unexpected rise in Canada’s raw material prices. Risk appetite was supported by news from China about possible Yuan revaluation and US China tensions. Reuters reports of divisions in China over the Yuan value. Two PBOC advisors said that China should allow the Yuan to gradually appreciate but the Chinese trade minister said that the Yuan is not the cause of US China trade gap. US Chinese tensions may be easing in reaction to comments from President Obama that he wants to work with China to create balanced and sustained global growth. US economic data was mixed with the Case Shiller House Price Index unchanged last month. The rebound in house prices seen last fall has faded. Consumer confidence came in above expectations and USD edged higher rising to a fresh two month high versus the JPY. Focus turns to Wednesday’s release of the ADP employment report for March. Investors will be looking at the ADP for clues to Friday’s US unemployment report. March nfp is expected to post a gain of 200k.

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Wakeup Call: Weak Greek 7-Year Auction To Be Put To The Test In The Coming Days

Greece decided to try with a EUR 5bn 7-year auction, but the outcome was not too impressive. The issue was covered 1.4 times (Easter was quickly blamed) and the 5-year CDS jumped 23bps yesterday.

Calendar

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Daily Technical Analysis

EURUSD Outlook

The EURUSD was indecisive yesterday. On h1 chart below we can see that price moves in range area of 1.3417 – 1.3507 indicating consolidation after bullish correction on Friday. The bias is neutral in nearest term. The major trend remains bearish but the fact that price so far still able to move consistently above 1.3450 area still indicating potential further upside correction testing the upper line of the major bearish channel. We need a break from the range area to see clearer direction. Break above 1.3507 could trigger further upside correction testing 1.3600 area while a break below 1.3417 not only could trigger further bearish momentum testing 1.3340 but potentially end the bullish correction phase testing 1.3250 and 1.3100 region.

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Euro 1.3485

Initial support at 1.3270 (March 26 low) followed by 1.3247 (May 6 low). Initial resistance is now located at 1.3507 (Mar 24 high) followed by 1.3569 (Mar 23 high)

Yen 92.50

Initial support is located at 91.77 (Mar 25 low) followed by 91.09 (Mar 24 low). Initial resistance is now at 92.96 (Mar 25) followed by 93.77 (Jan 8 high). (more…)

USD Strength Retreats

U.S. Dollar Trading (USD) was under pressure from the open as the Euro rally flowed over from Friday and dragged the rest of the pairs higher against the Greenback. February Core PCE was 0.0% vs. 0.1% forecast. US stocks rallied on the large move higher in Oil. In US stocks, DJIA +45 points closing at 10895, S&P +6 points closing at 1173 and NASDAQ +9 points closing at 2404. Looking ahead, March Consumer Confidence is forecast at 50 vs. 46 previously. Also released, January Case Shiller House Prices are forecast at -0.2%m/m.

The Euro (EUR) tested 1.3500 in early Asia but was capped from heavy profit taking above the figure and fell back to the mid 1.34 range. March Consumer Sentiment was unchanged at -17. EUR/JPY struggled above the Y125 once again. Overall the EUR/USD traded with a low of 1.3418 and a high of 1.3508 before closing at 1.3480. Looking ahead, February Import Prices are forecast at 0.4% vs 1.7% previously.

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US Bond Yields Highest Since Last June

US 10 year bond yields traded at the highest level since June 2009 reaching a yield of 3.94% last week. The credit crisis sent ten year bond yields to a record lows in December 2008 as investors sought safety in US treasuries and the Federal Reserve lowered the Fed funds rate to a record low. The worst of the credit crisis has passed and bond yields are rising. Are bond yields rising because of optimism about the US recovery or because of concern about rising US debt? The answer to this question may be crucial to the outlook for the USD.

The US government reported a record $221bln monthly budget deficit in February. February marked the 17th straight month that the US government has posted a deficit. The Obama administration is forecasting 1.56trln deficit for 2010. US government deficits are projected at 1trln or more through 2020. Last week the U.S. Congress passed a health reform bill. The estimated cost of the health reform bill is just under 1trln over the next 10 years with the CBO estimating that the reform bill could reduce US budget deficit by close to $200bln in the next decade. Many analysts are skeptical that the health reform bill will reduce the deficit and warn that the health care bill could cost more than the government estimate. This may partly explain why it might not have been a coincidence that US ten year yields hit their highest level since last June after the announcement of the passage of the health reform. Additional deficit concerns include report that the US Social Security administration will for the first time pay out more this year than it takes in and last week the Obama administration unveiled new measures to help the unemployed reduce their mortgage payments. The revamped mortgage plan will expand the administrations $75bln foreclosure relief effort but it’s not clear by how much.

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Greek Bond Sale Successful

Despite ripping higher on the Asian open, EURUSD has spent the rest of the day consolidating between 1.3409 and 1.3508, with the DXY in slightly negative territory overall (DXY -0.35%). German regional and composite CPI data released in the morning was higher than expected with the EU harmonized HICP +0.6% MoM, +1.3% YoY (+0.3% MoM, +0.9% YoY expected). The effect on the currency space has been limited, with the key inflation measure for the Eurozone as a whole due on Wednesday. The only other significant release of the morning was Swedish Retail Sales which was extremely disappointing at -1.0% MoM, +2.3% YoY compared to median forecasts looking for +0.3% MoM, 4.2% YoY. The unexpected plunge in retail activity has understandably caused EURSEK to rally from 9.7400 levels prior to the release all the way up to 9.8000 levels shortly after.

The afternoon has been somewhat subdued with US PCE and Personal Income data coming out broadly in line with forecasts, and US equity markets modestly higher. The Greek sale of 7 year debt has proceeded without incident, with the head of the Public Debt Management Agency quoted as saying that they have now successfully “pre-funded the whole of April”.

Tomorrow’s main releases will be Norway’s Retail Sales, the final estimate of UK Q4 GDP, and US Consumer Confidence.

AC Markets
http://www.ac-markets.com

Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.

USD Lower, Stocks Rise, Growth Currencies Outperform

• USD: Lower, improving risk sentiment, RBA rate hike speculation, diminished Greek uncertainty
• JPY: Lower, retail sales post best annual gain in 12 years, selling in cross trade
• EUR: Higher, EU economic confidence rises to a two year high, Greek bond spreads remain wide
• GBP: Higher, consumer credit rises, mortgage approvals dropped, Conservatives expand lead
• CHF: Higher, EUR/CHF rebounds from all-time low, threat of intervention
• CAD and AUD: AUD & CAD higher, hawkish comments from the RBA, firmer equities, higher crude

Overview

The USD starts the week lower pressured by improving risk appetite as equity markets firm. The improvement in risk sentiment is attributed to last weeks announcement of an EU/IMF aid plan for Greece, stronger economic data from the EU and Japan and speculation that this week’s US nonfarm payrolls will post a sharp rise. The EU/ IMF aid plan for Greece limits some of the uncertainty about Greece and reduces the risk of a Greek debt default. The head of the IMF says there is no immediate sign that Greece needs help. EU economic confidence rose to a two year high and Japan’s retail sales rose at the fastest pace in 12 years. These reports fuel optimism about the strength of the global recovery. Commodity currencies traded higher tracking the improvement in equities and firmer commodity prices. AUD traded higher supported by hawkish comments from the RBA Governor Stevens that interest rates are too low and could not remain at prior levels. This week’s main focus will be Friday’s release of US March unemployment. Nonfarm payrolls are expected to rise by as much as 190k. Anticipation of improving US employment outlook adds today’s improvement in risk appetite. Today’s US economic data was mixed with personal income unchanged, and personal consumption in line with expectation. Bloomberg reports that analysts at Goldman Sachs have changed their negative USD bias stating that the USD is supported by low inflation, rising equities and safe haven demand sparked by the Greek fiscal crisis.

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Bullish Dollar Index Challenges Inverse Equity Correlations

The major forex pairs are going into a period of trade that has price action losing its direction, and offering mixed trend and momentum reads on the 4 Hour charts. Traders are seeing bouts of Usd buying and selling as each of the regional traded markets open and close that although sporadic, still have a long-Usd bias.

Currency valuations are back to the areas that March started trade at, with the Usd now able to challenge the 12-month 90% inverse correlation to S/P trade. In March, the S/P market has gained 7%, while at the same time the dollar index has found buyers, indicating that the global market is starting to price in the Federal Reserve rate increases at a rate that will probably outstrip other regions, whenever it is the Fed starts to monthly increases to overnight interest rates.

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Daily Technical Analysis

EURUSD Outlook

The EURUSD still maintain its bullish momentum earlier today in Asian market since triggered by hope on solution of Greek debt problem on Friday, slipped above 1.3450 but retreat lower around 1.3430 at the time I wrote this comment. Situation can be very tricky at this phase. The bias is bullish in nearest term. The major bearish scenario remains intact as long as price stay inside the bearish channel but we have potential upside risk. Note that Greek problem responsible for the Euro bearish momentum. So if the market optimism continues to grow and no longer see Greek problem as serious matter, then we have a good reason for bullish reversal scenario, especially if price violate the bearish channel. Immediate support at 1.3400. Break below that area should keep the bearish scenario intact testing 1.3300 – 1.3250 before testing 1.3100. Initial resistance at 1.3480. Break above that area should trigger further upside pressure testing 1.3530 and the upper line of the bearish channel which can be a serious threat to the technical bearish outlook.

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Euro 1.3435

Initial support at 1.3270 (March 26 low) followed by 1.3247 (May 6 low). Initial resistance is now located at 1.3507 (Mar 24 high) followed by 1.3569 (Mar 23 high)

Yen 92.40

Initial support is located at 91.77 (Mar 25 low) followed by 91.09 (Mar 24 low). Initial resistance is now at 92.96 (Mar 25) followed by 93.77 (Jan 8 high). (more…)

Euro Rallies On Easing Greece Fears

U.S. Dollar Trading (USD) had a mixed day losing plenty of ground against the Euro but gaining against many of the risk currencies as stock markets floundered. Hurting investor sentiment in the US session was the reports of a South Korean naval ship sinking near the North Korean coast. In US stocks, DJIA +9 points closing at 10850, S&P +1 points closing at 1166 and NASDAQ -2 points closing at 2395. Looking ahead, February Core PCE forecast at 0.1% vs. 0.0% previously.

The Euro (EUR) enjoyed a solid relief rally on short covering for most of the day as a clearer bailout picture for Greece emerged. EUR/USD broke above 1.3400 and EUR/JPY crept to the Y124 level. Further gains are possible as the market finds itself very short and in a solid risk taking mood. Overall the EUR/USD traded with a low of 1.3268 and a high of 1.3425 before closing at 1.3420. Looking ahead, March Consumer Sentiment is forecast at -17.

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