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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China Tightening Pressures Commodity Currencies

• USD: Mixed, disappointing earnings at Alcoa, trade gap widens, China begins to curb lending
• JPY: Higher, supported by safe haven and repatriation flows
• EUR: Lower, pressured in cross trade to JPY and GBP, concern about global growth as China tightens
• GBP: Higher, trade deficit narrows as exports surged and Tories gain in election polls
• CAD and AUD: AUD & CAD lower, Australian housing finance declines, Canada posts a trade deficit

Overview

USD traded mixed Tuesday gaining on the commodity currencies and the EUR and weakening versus the JPY and GBP as investors digest news from China and risk aversion re-emerges. Global equity and commodity markets were pressured by report that China had tightened credit conditions. USD was initially supported in overseas by positive statements from a Chinese sovereign wealth fund official who said that the USD has hit bottom and the JPY will continue to fall. USD traded higher in reaction to these comments and JPY lower. China announced that it is raising its reserve requirements by 50bps. Stocks and commodity prices traded lower in reaction to the tightening move from China. The hike in China’s reserve requirements raises concern about the global recovery and demand for commodities. Growth led currencies like the AUD underperformed pressured by the tightening in China and weaker equity and commodity markets. CAD was pressured by disappointing Canadian trade data and weaker commodities. Canada posted a surprise trade deficit last month. JPY rebounded into the US session supported by safe haven flows and gains in cross trade as equity markets decline. JPY was also supported by a clarification from the Chinese sovereign fund official that his statement on USD reaching a bottom was his personal view not that of the Chinese government. GBP traded higher supported by improving UK trade balance as exports surged and in reaction to a UK election poll which indicates the Tories will gain majority control of parliament if the UK election were held today. EUR drifted lower pressured in cross trade to the JPY and GBP and in reaction to the spike in risk aversion. The US trade deficit widened more than expected in November. The trade data had limited impact on FX trade. Today’s tightening in China sparked unwind of carry trades. The pace of the withdrawal of liquidity in China will be key to the outlook for growth led and emerging markets currencies and risk appetite. So far the reaction to the Chinese tightening has been limited. An official at China’s central bank said that monetary policy remains reasonably loose. (more…)

Forex Technical Analysis

EUR/USD

Current level-1.4486

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 bias remains positive for 1.4630-70 and initial support comes at 1.4450. A break above 1.4541 will renew the uptrend towards 1.4670. Crucial on the downside remains 1.4260.

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Daily Technical Analysis

EURUSD Outlook

As I had expected, the EURUSD had a bullish momentum yesterday after breakout from the range area, topped at 1.4555 and closed at 1.4513. However earlier today in Asian session price retreated lower, traded around 1.4490 at the time I wrote this comment, indicating limited bullish momentum so far. The bias is neutral in nearest term but the bullish scenario targeting 1.4600 remains intact as long as price stay above 1.4450 area. CCI just cross the 100 line down on h4 chart suggesting potential further downside pressure testing 1.4450. Break below that area should be seen as bullish failure and could trigger further bearish momentum back towards 1.4250 again

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USD Lower as Fed Seen on Hold for Quite Some Time

• USD: Lower, diminished Fed rate hike speculation, optimism about the global recovery
• JPY: Higher, gains limited by selling in cross trade, EUR/JPY tops 134.00
• EUR: Higher, improving risk appetite, shrugs off of possible downgrade of Portugal’s debt rating
• CHF: Higher, strong Swiss retail sales, gains limited by threat of SNB intervention
• GBP: Higher, business optimism improves, Tories pledge to cut UK budget deficit more than Labor
• CAD and AUD: AUD & CAD higher, China’s exports surge, strong Australian jobs & Canadian housing data

Overview

The USD traded lower to start the week pressured by fallout from Friday’s report of an unexpected decline in US nonfarm payrolls and in reaction to improving optimism about the global recovery as China’s exports surge. The decline in nonfarm payrolls will force the Fed to maintain low yields. The Fed’s Bullard said Monday that US interest rates are likely to stay low for quite some time. The surge in China’s exports sparked a rally in Asian equities to a 17 month high and contributed to improving risk appetite. CHF was supported by report of strong Swiss retail sales with gains limited by threat of SNB intervention. EUR traded higher despite report Portugal’s debt rating may be downgraded. GBP benefits from the Tories pledge to cut the UK budget deficit more than the Labor Party. Commodity currencies surge in reaction to stronger metals and crude prices with gold trading $20 higher and crude prices topping $84 a barrel. AUD was also supported by strong ANZ jobs report and the CAD by strong Canadian housing starts. CAD gains were limited by selling in cross trade to Australia and Europe. Strong economic data from China and Australia fuels speculation that interest rates may be heading higher in Asia. No major US economic data was released in today’s trade. Focus turns to the start of the US earnings season and the release of US retail sales and Thursday’s ECB policy meeting. USD is vulnerable to long liquidation pressures as investors pare back speculation that the Fed will bring forward interest-rate hikes.

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Daily Technical Analysis

EURUSD Outlook

The EURUSD made a significant movement this morning by break above range area. This fact should be seen as bullish confirmation at least targeting 1.4600 area before aim for 1.4800 area. Immediate support at 1.4450 area. Break below that area should lead us into no trading zone as direction would become unclear for me but could be considered as a false breakout and trigger further bearish momentum re-testing 1.4250 again. I think the situation is a little bit tricky now since I do not see convincing fundamental factors in Euro zone that can support the currency significantly at this phase. So make sure only use tight money management.

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USD Higher, Jobless Claims Rise Less than Expected

• USD: Higher, equity markets decline as China hikes three months yields, jobless claims beat expectation
• JPY: Lower, new Finance Minister Kan wants a weaker JPY
• EUR: Lower, EU retail sales posted an unexpected decline, economic confidence improves
• GBP: Lower, BOE maintains current level of interest rates and bond buys
• CAD and AUD: AUD & CAD lower, tracking dip in commodity prices, Canada’s Ivey PMI disappoints

Overview

USD traded higher Thursday as equity markets decline in reaction to a surprise interest-rate hike in China and the JPY weakens in reaction to a statement from Japan’s new finance minister that he favors a weaker JPY. China hiked three months yields for the first time since last August. The surprise rate hike sent equity markets lower and sparked selling of commodities. GBP traded lower as the BOE elected to hold interest rate policy and asset purchase plan unchanged. EUR was pressured by report of a sharp drop in EU retail sales. Commodity currencies traded lower in reaction to weaker equity market trade and a dip in commodity prices. AUD downside was limited by report of strong Australian retail sales. There was little reaction to report that a Chinese scholar says the time is right for a one-off 10% appreciation of the Yuan versus the USD or a statement from Sarkozy of France that the world needs to have a multi-currency system. US jobless claims rose by less than expected and continuing claims are at their lowest level since January.

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Daily Technical Analysis

EURUSD Outlook

The EURUSD attempted to push lower yesterday, bottomed at 1.4283 but closed higher at 1.4408. The pair still trapped in 1.4250 – 1.4450/80 area. Maybe we need a fundamental catalyst to lead us out from this choppy market and US NFP tomorrow is expected to do this job. While aggressive traders can continue to use range trading strategy to short around 1.4450/80 or to long around 1.4250 with tight stop loss, conservative traders wait until we have a clear break from the range area to make decision.

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