Two weeks ago, the Greenback was the top performer, followed by the Japanese yen. Then, the Japanese yen we the highlight of last week. This week, the rotation comes to the commodity currencies such as the Loonie and the Aussie. Let’s take a look.

EUR/USD Awaiting Breakout from Consolidation

I was correct to update last week that the bullish attempt on Friday was not to be considered a bullish signal. Instead the market did indeed retest the 1.3450 area, but bounced off of it this week.

Weekly and Daily: The EUR/USD is still in congestion. Looking at the daily, we see that it has been consolidating with a slight downward tilt since the start of February. The 1.3450 area provided support, while each rally attempt falls shorter and shorter (congestion).

Looking at the weekly, we see that the last 4 weeks have been without direction. However, we can see in price and momentum, that the market is very bearish and without any bullish signs, looks to continue to 1.30 area. (78.6% retracement).

On the other hand, the current support is strong and has held up. So wait for a break below 1.3450 to confirm outlook to 1.30 area.

For a bullish outlook, which should only be for short-term and monitored carefully, a confirmation requires a break above 1.38 and estbalishing support above this area as well. Then, the target maybe the 1.43 area.

4H: Looking at the 4H time-frame for clues, you can see that the momentum has channeled up, and is currently testing support. the market is also testing tghe 61.8% retracement area of the previous upswing.

If the market stays above 1.35, there may be another bullish swing projection on the upside. This may bring the market near 1.38 area. Remember, this is still in the context of congestion, which is in a larger context of decline.

If the market gets to that point (1.38/1.3850), monitor for topping action, but also beware of a possible break above.

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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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Daily Technical Analysis

EURUSD Outlook

The EURUSD still trapped in range area of 1.4450 – 1.4600 yesterday. However, earlier today in Asian session price break from that range area, slipped below 1.4450 suggesting a potential bearish scenario towards 1.4250 as bullish scenario is now in serious threat. The bias is bearish in nearest term. Another movement above 1.4450 should lead us into no trading zone as direction would become unclear for me.

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Daily Technical Analysis

EURUSD Outlook

The EURUSD made another indecisive movement yesterday, trapped in a range area of 1.4450 – 1.4600 as you can see on my h4 below, indicating consolidation but the scenario is more to the upside unless we have a break below 1.4450. The bias is neutral in nearest term. We will have some important news from the Euro zone and US today. While ECB likely to keep rate at 1%, traders focus will be more on the ECB press conference. An optimistic tone should support the Euro further while a negative tone may diminish Euro rally. US retail sales data is expected to be weak. Unless we have a significant positive surprise on retail sales numbers, the Dollar should remains under pressure. Break above 1.4600 should continue the bullish scenario targeting 1.4800 area.

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USD Rebounds on Dovish ECB Rumor, Weaker Commodities

• USD: Mixed, China’s reserve rate hike seen as minimal threat to global growth
• JPY: Lower, BOJ may succumb to government pressure to ease monetary policy further in 2010
• EUR: Higher, Greek finance minister says Greece will not need a bailout from the EU or IMF
• GBP: Higher, BOE Sentance says interest rates may have to rise this year, industrial production rises
• CAD and AUD: AUD & CAD higher, rebound in risk appetite as concern about China tightening fades

Overview

USD traded lower Wednesday pressured diminished fear that Tuesday’s tightening in China will derail the global recovery. Equity markets stabilized in the US and Europe which contributed to a slight improvement in risk appetite and a rewind of carry trades. The pace of the withdrawal of liquidity in China will be key to the outlook for growth and risk appetite. So far Chinese tightening has been limited. An official at China’s central bank said that monetary policy remains reasonably loose. His comments helped to dampen fears that China’s tightening will derail the global recovery. GBP was supported by BOE rate hike speculation. The BOE’s Sentance said that the central bank may have to increase interest rates this year. EUR was supported by Asian central bank demand and a pledge from Greek officials that they will take action on the deficit. Greece’s finance minister said that Greece will not need an IMF or EU bailout. Commodity currencies rebounded supported by stable equity market trade. JPY traded lower pressured by diminished risk aversion and BOJ ease speculation. JPY was supported Tuesday by safe haven demand and unwind of carry trades. Wednesday finds a modest rebound in carry trades as the impact of China’s tightening fades. There was limited reaction to a statement from the Fed’s Plosser that he sees the economy emerging from recession and the Fed may begin to tighten even with jobless rate high. Plosser said that he does not see inflation pressures presently but that keeping interest rates too low too long could lead to a burst of inflation or sow the seeds for the next crisis. Plosser is a policy hawk and his views may not be representative of the majority of the FOMC. USD rebounded midsession as commodity prices declined and reaction to a rumor that the ECB may signal a dovish policy bias at tomorrow’s meeting. (more…)

The market showed a tendency to move higher against the U.S. dollar during the Asian and the European sessions, but so far, the major pairs have failed to break out of the range of the prior few days of trading. One exception was the pound, which advanced 90 pips overnight, but even so, this is below the pair’s ATR for this time of the day. Unless something happens during the U.S. session, the trading range is expected to remain subdued. The macroeconomic calendar is relatively light this Wednesday ahead of the Fed Beige Book, which does not necessarily help the currency market ahead of historically slow dollar index movement in Wall Street trade.

Dollar Index Technical View: TheLFB Member Charts

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The dollar index swing up and down around the breakeven line throughout the overnight session. The trading volumes were strong during the European hours, but the market moved chaotically in very close ranges. This is in reaction to the fundamental part of the market being very mixed mixed: on one side, U.S. yields are rising, which is dollar bearish, but on the other, the U.S. economy appears to be emerging faster than the Euro-area from recession, which is dollar bullish. Looking ahead, the dollar bulls and bears will continue to fight during the first part of the U.S. session, with the U.S. and Canadian trade balance numbers at 08:30 EST probably setting the direction of trading.

Dollar Index Technical View: TheLFB Member Charts

4 Hour Chart Flows: Mixed Price Points: 78.45 Looking for: A Short, wave IV) reversal

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Daily Technical Analysis

EURUSD Outlook

The EURUSD made indecisive movement yesterday. The bullish momentum after breakout from the previous range of 1.4250 – 1.4450 seems limited so far and looks like price is trying to make another choppy market. However, as long as price stay above 1.4450 area, the bullish scenario targeting 1.4600 should remains intact. Break below 1.4450 should be seen as potential bullish failure re-testing 1.4250 area once again.

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