FOREX TRADING

Daily Technical Analysis

EURUSD Outlook

The EURUSD was recovered significantly yesterday, topped at 1.2393 and closed at 1.2359. I have been watching interesting reaction between Fibo retracement levels and the close price of h4 candle. As you can see on my h4 below, the last h4 candle still closed below the 38.2% Fibo retracement indicating good resistance around that level so far which keep the bearish scenario intact. However we had strong bullish momentum yesterday, so although the main scenario remains bearish, I will wait until we have a candle closed below the 23.6% Fibo (1.2274) area before thinking about short position testing 1.2140/50 region. On the other hand, if we have a candle that closed above the 38,2% Fibo (1.2350) , further bullish momentum targeting 1.2412 and 1.2472 can be expected before re-testing 1.2671 region.

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Euro 1.2325

Initial support at 1.2144 (May 19 low) followed by 1.2135 (0.50 of 0.8232-1.6039). Initial resistance is now located at 1.2587 (May 24 high) followed by 1.2747 (May 12 high)

Yen 91.25

Initial support is located at 88.97 (May 20 low) followed by 87.95 (May 6 low). Initial resistance is now at 91.88 (May 20 low) followed by 92.97 (May 18 high). (more…)

The greenback relinquished gains against the majors with the euro edging up just shy of the 1.24-level while the Canadian dollar pushed higher to 1.0493 in the Thursday session. Improving risk appetite propped the global equity indexes higher sending the Dow Jones higher by more than 2% and the Nasdaq up by 2.85% in the afternoon session. Crude oil benefited as well, posting a nearly 3.7% rally to above the $74-per barrel mark.

China reassured markets and quelled rumors that it was reevaluating its Eurozone debt holdings – which was first reported in yesterday’s FT. A Chinese government official shrugged off the report, calling it “groundless” and prompting a rally in the global equity bourses.

Economic reports released earlier in the session were largely softer than forecast. Weekly jobless claims fell by less than expected at 460k versus calls for a decline to 455k and down from an upwardly revised 474k in the previous week. The second reading for Q1 GDP was downwardly revised to reveal growth of 3.0% — compared with calls for an upward revision of 3.4% versus the preliminary reading of 3.2%. (more…)

One of the triggers of yesterday’s late sell-off in risk was an FT article suggesting that China was reviewing its holding of EuroZone assets. Overnight, China issued a broadside rejecting this story and trying to reassure markets that it considers Europe a key market for its investments. The effect of this pronouncement was immediate and large in the world’s equity markets and in FX, where the Euro zipped back higher north of 1.2300 after closing yesterday below 1.2200. The commodity currencies rallied even more sharply in response per the usual pattern we have come to expect.

Looking around elsewhere for support for this move, however, and we get a mixed impression at best on whether this rally can hold. First, sovereign spreads within Europe took no heart at all in this rhetoric, thus underlining that the fundamental pressure is still in place at least on the Euro (and therefore supposedly on risk in general per recent patterns) regardless of China’s good intentions. Second, German bunds seem to be fairly stable considering moves elsewhere, trading only slightly lower on the day. Other risk measures have improved slightly, but the spreads related to counterparty risk in the banking system are still widening, something that is likely to remain the case as long as the sovereign spreads don’t come in.

US Jobless Claims a Downer

The latest weekly jobless claims number out of the US continues to show an amazing stickiness in high claims numbers that suggest the employment situation is not improving at all, even as commentators are tossing around number like 500k for next week’s US nonfarm payrolls number. That would actually be one of the highest payrolls gains in the history of the history of the data series. It’s interesting to think that the last time we saw particularly high peaks in unemployment in the US, the unemployment rate had fallen by -0.7% by six months after the peak. Here we are six months after the peak and the rate has only dropped -0.3% and jobless claims are still rolling in well above 400k per week. The latter needs to drop way below 400k, and perhaps 350k, for at least two weeks running to expect any real momentum in job recovery. The claims numbers tend to be the leading indicator. (more…)

News and Events:

With no new info coming out this morning, FX markets remain calm and prices in range. After yesterday’s rollercoaster day in equities, driven by strong US data, Asian markets are all in the green giving risky assets a boost. The major problem facing markets will continue to be the lack of liquidity, which especially on the downside, manifests itself rather severely. From the EU, more disagreement among members states and officials continues to plague the Euro – most likely capping any gains the Euro may make. Germany put forward a proposal for an EU levy on banks but it was quickly rejected by France, a motion Britain disagreed with months before. Spain’s parliament will vote today on the 1st round of austerity measures but with the Spanish Socialists just seven seats short of the majority, there is a genuine concern that the vote will fail. A piece from the Financial Times drew attention to the growing inclination among central bankers and large asset managers to diversify of out EUR assets. The article further stated that SAFE, the major Chinese regulatory organization, was discussing the prudency of holding Eurozone bonds although no indication was given that allocations to the Eurozone would be diminished. An unnamed Chinese official additional stated that China’s strategy of FX reserve diversification would not be modified in lieu of current events. Recent US TIC data shows that Chinese appetite for US treasury bills has recovered. Should large players deem the risk of holding EU assets too great, a fundamental shift to other assets would permanently weigh on Euro valuation. A slew of European bond auctions attracted some attention yesterday, but the ECB asset purchasing program possibly distorting the market, it’s hard to derive any useful information from this data. With US data gaining momentum, today’s Q1 GDP release is likely to surprise on the upside. Should the market feel the news is signaling the return of real US growth, combined with the its current safe-haven status, we should expect the see the USD surge on all fronts. (more…)

EUR/USD

Current level – 1.2282

EUR/USD is in a downtrend, after peaking at 1.5146 (Nov.25,2009). Technical indicators are descending, and trading is situated below the 50- and 200-Day SMA, currently projected at 1.3458 and 1.4206.

Although we witnessed a new low at 1.2153, the overall bias is positive for 1.2440 and 1.2603. Initial intraday support comes at 1.2237 and first target is 1.2440.

Profit-taking affects gold curbing silver and platinum

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Good morning from sunny Hamburg and welcome. We approach the end of the week and the NZD could climb versus all of its most traded counterparts in contrast to the EUR. The EUR dropped against its most major counterparts. Also we are going to report about the USD and the CAD. However, we wish you a successful trading day

Markets review

The NZD strengthened versus all of its 16 major counterparts before a report forecast may show that the nation reached a trade surplus for a fourth month in April. The NZD could retrace some of its yesterday`s drop of more than 1% before a statistics bureau report signalized that economists estimate will show a surplus of 455 million NZD. The NZD and the AUD climbed on speculation that their declines in May, on concern Europe`s debt crisis will slow global growth, have been too rapid. The NZD increased 0.4% against the USD and touched 0.6656. The JPY decreased versus the NZD as much as 0.5% and traded at 59.89. The AUD rose 0.3% to 0.8237 versus the USD. Also the JPY has lost 0.3% against the AUD and reached 74.10. The Current benchmark interest rates are 4.5% in Australia and 2.5% in New Zealand, compared with 0.1% in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations. The risk in such trades is that currency market moves will erase profits.

The CAD dropped to near the lowest in six months against the USD as crude oil, the biggest export commodity, fell from intraday highs and U.S. stocks slipped on concern a sovereign debt crisis in Europe will worsen. This month, the CAD has been losing 4.9% against the USD. The CAD lost 0.3% versus the USD and dropped to 1.0706. Furthermore the Canada`s Government bonds fell in May.

The EUR weakened against 13 of its 16 major counterparts before a release forecast to show that French consumer confidence fell in May and on concern that the region`s debt crisis will lead to slower economic growth. The EUR was at 1.2170 versus the USD and dropped to 109.47 against the JPY

Technical analysis

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EUR/GBP

Current level – 0.8479

Longer term bias is neutral for the pair. Trading in a wide range between 0.8450 and 0.8750 area.

Intraday: short term bullish trendline broken, tested support in 0.8450 and pulled back to 0.8500 resistance. Watch for a break below support area between 0.8450 and 0.8400 figure.

Profit-taking affects gold curbing silver and platinum

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Daily Technical Analysis

EURUSD Outlook

The EURUSD continued its bearish momentum yesterday, bottomed at 1.2167 and closed at 1.2173. I said that the candle in the circle could give us a clue, and it did. Although we saw some upside attempts, price finally going down after the candle closed below 38.2% Fibo. This fact should keep the bearish scenario targeting 1.2000 area intact. However price is already oversold so watch out for potential upside correction. Immediate resistance at 1.2250. Break above that area could trigger further upside correction testing 1.2293 and 1.2364 resistance area but I still prefer a bearish scenario with short on rallies strategy.

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Euro 1.2200

Initial support at 1.2144 (May 19 low) followed by 1.2135 (0.50 of 0.8232-1.6039). Initial resistance is now located at 1.2587 (May 24 high) followed by 1.2747 (May 12 high)

Yen 90.05

Initial support is located at 88.97 (May 20 low) followed by 87.95 (May 6 low). Initial resistance is now at 91.88 (May 20 low) followed by 92.97 (May 18 high).

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Yesterday’s modest bounce in EURUSD off the lows saw almost no follow-through today and the Euro was generally weak from late Europe and throughout the US session today on the latest signs of nervousness about counterparty risk in the European banking system – particularly the last couple of days of stories and rumors about the largest Spanish banks’ difficulties. These difficulties are wrapped up in the entire sovereign debt issue as banks abroad are reluctant to lend to entities in a country that is experiencing sovereign debt stress. And while Greek spreads have been stabilized for now at very wide levels by the recent bailout package, we are seeing a significant further stretching in sovereign Italy- and Spain-Germany spreads, a worry due to the size of these countries relative to Greece/Portugal and because they have very large, internationally significant banks.

Today’s weak Euro and the signs of European bank stress finally began dragging on broader risk sentiment as the US trading session wore on today and the bulls’ comeback attempt crumpled severely into the close, with the psychologically important 10,000 level in the Dow Jones Industrials suddenly under threat again in the final half hour of trading. This morning we discussed the importance of the old 1090 level (previous significant low) in the June S&P500 future, and indeed, this proved the pivot point of the day, as 1089.50 was the high level traded before range trading set in and then the drop in sentiment in late trading. Commodity currencies largely followed the swings in risk appetite, collapsing later in the day as they proved once again that when the “risk-off” button is pressed, they overtake the Euro to the downside. The underperformance of the Aussie takes place despite a story from the FT today that China is reconsidering it position on its central bank’s Euro holdings. Only the USD is able to absorb the kind of flows we can infer from such reconsideration. EURUSD is likely to remain under pressure here as the “crowded trade” rally in EURUSD we saw last week seems to have been a three-day wonder. (more…)

• With the ongoing deterioration in the US dollar money market, there is growing speculation as to whether the Fed will intervene further any time soon to stabilise the situation.
• We believe that the bar for further Fed intervention is relatively high. The current level of market stress is simply not high enough to make use of the various liquidity programmes under the existing terms.
• Moreover the money market problems are mainly driven by the foreign US dollar squeeze and to a lesser extent domestic US problems. US commercial banks have plenty of liquidity with about USD1,000bn in excess reserves.
• The most likely move by the Fed, if any, is to ease the terms of the US dollar swap lines by cutting the penalty rate to 75 basis points on top of the OIS, although this would break with earlier precedence.
• While it would help little to cap the 3M LIBOR at the current level, it could prevent a further widening of the FRA/OIS spread and thereby keep swap rates in check.

The bar is high for further Fed intervention in money markets

With the ongoing deterioration in the US dollar money market, the debate surrounds what the Fed could do remedy the problem.

Before making these considerations, it is reasonable to emphasise that this time the problem is rooted in foreign markets. This is in sharp contrast to the previous blow out. The fact that this is less of a domestic issue and more of a foreign issue is likely to raise the bar for further intervention – in particular as the Fed is in the process of unwinding and because the central bank is under increased political scrutiny.

This is particularly so as the Fed has already undertaken the obvious by reintroducing the currency swap lines with the ECB, BoE, BoC, SNB and BoJ. However, so far this has been relatively unsuccessful. Even though the LIBOR OIS spread has continued to widen only USD9.20bn has been drawn from the programme so far. (more…)

News and Events:

An eerie calm has spread over the financial markets today as all eyes are fixed on global equity markets. Asia & Europe’s regional indexes have a slightly positive inclination but the buying feels more like bargain hunting rather than an actually change in sentiment. The current bout of risk reduction has and will continue to punish asset pairs most heavily associated with the changes in global macro condition – notably AUD, NZD, SEK, NOK and EM currencies. Gold is trading higher to $1200 while US yields grinded lower with the 10yr heading to 3.10%. The direction of Gold and the 10yr yields suggests that market anxiety remains and the search for a perceived safe havens continues . We don’t see any significant adjustment to the current trend until tensions between North and S. Korea are mollified and a higher level of EU cooperation is reached. Relations between EU member-states seem childish at best at a critical juncture in the history of Euro. In an interview with the German newspaper Frankfurter Allgemeine Zeitung, European Commission President Barroso responded to Merkel’s intention to widen the naked short selling ban by calling the policy ‘naïve.’ Meanwhile, German Economic Minister Bruderle cautioned that Germany was opposed to issuing any joint EUR bonds because the move could be misconstrued as ‘rewarding members states pursuing poor policies.’ The continued divergence in opinion among EU officials clearly bids farewell to any hope for an intellectual solution – until an agreement is reached, the current environment will continue to weigh on risky assets and FX trades. Institutional traders have shifted their focuses away from solely Greek concerns and are now evaluating the overall systemic challenges of the EU. In the midst of all this squabbling, the only choice for EU leadership will be the ECB. It is the only institution with the unified capability to relieve mounting financial stresses. The inherent problem with turning to the ECB is that their efforts are focused on solving liquidity issues and direct intervention remains a low probability event. Without any structural changes to the EU, the cosmetic endeavors of the ECB will eventually fail under the weight of market-driven pressure. In the UK, the Queen’s speech as always was a ceremonious spectacle but devoid of any relevance. It’s apparent that the close-knit nature of Cameron and Clegg will probably cause more harm than good. There are still wide ideological gaps between the two political parties and little evidence of any forward progress on a unified budget. The highlight of today’s trading day will be US durable goods and new home sales. We suspect both figure to surprise on the upside, however FX markets will be primarily concerned with stock market reactions to the aforementioned news. (more…)

EUR/GBP

Current level – 0.8544

Longer term bias is neutral for the pair. Building bullish momentum after rebounding from 0.8430 support.

Intraday: rebounds from minor bull trendline but capped by 50MA, favour a retest of 0.8450 zone.

Profit-taking affects gold curbing silver and platinum

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EUR/USD

Current level – 1.2318

EUR/USD is in a downtrend, after peaking at 1.5146 (Nov.25,2009). Technical indicators are descending, and trading is situated below the 50- and 200-Day SMA, currently projected at 1.3458 and 1.420

Yesterday’s low at 1.2176 was the final of the downtrend since 1.2600 and current bias is positive for 1.2440, en route to 1.2603. Intraday support comes at 1.2260, followed by the crucial 1.2174.

Profit-taking affects gold curbing silver and platinum

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