FOREX TRADING

USD Lower, JPY Pressured by BOJ Ease Speculation

• USD: Lower, inventories drop more than expected, stocks rally
• JPY: Lower, BOJ ease speculation, weak machinery orders
• EUR: Higher, German exports drop sharply, industrial production rises in Italy and France
• GBP: Lower, industrial production posted an unexpected decline, concern about UK debt rating
• CAD and AUD: AUD & CAD higher, strong Chinese trade data, stocks and crude rally

Overview

USD traded in a narrow range gaining versus JPY and GBP, and drifting lower versus the EUR and commodity currencies. JPY was pressured by BOJ ease speculation. Reuters reports that the BOJ may ease monetary policy next week. GBP traded lower in reaction to report of an unexpected decline in UK industrial production. EUR erased early loses sparked by report of a sharp drop in German exports. EUR rebounded in reaction to report of stronger industrial production data from Italy and France and gains versus the JPY. The commodity currencies continue to outperform trading higher in reaction to strong trade data from China. China’s exports rose 45.7% in February. The Chinese trade data generates optimism about the strength of the global recovery. Dovish comments from the Fed’s Evans had limited impact on the trade. Evans said the weak labor market will make the Fed keep accommodative policy for some time. The Bloomberg Professional Global Confidence Index finds that optimism about the USD is an 18 month high as the US economy shows signs of recovery. According to the survey, investors expect the US economy to grow faster than Japan and Europe and the Fed is expected to hike rates before the ECB and BOJ. Growth and yield differentials are moving in favor of the USD. The Bloomberg survey also states that investors have turned negative the EUR because of fallout from the Greek debt crisis. Jeremy Siegel a finance professor at University of Pennsylvania Wharton school of business says the US recovery is certain but the EU may splinter. A fresh sign that the US economy is recovering is a report that US job openings are at an 11 month high. This report suggests that US employers may be ready to start hiring new workers. US economic data was mixed with wholesale sales coming in higher than expected and wholesale inventories lower than expected. USD traded to the days lows pressured by a surge in the price of crude sparked by report of lower crude inventories. Focus turns to Thursday’s release of US jobless claims and retail sales and Friday’s release of Michigan consumer sentiment.

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Daily Technical Analysis

EURUSD Outlook

The EURUSD attempted to push lower yesterday. Price slipped below the minor bullish channel, bottomed at 1.3537 but closed higher at 1.3600 and now back inside the minor bullish channel. This fact should keep the bullish correction intact and potential false breakdown scenario which could trigger upside momentum testing 1.3735/50 area. The bias remains neutral in both nearest and medium term as price still consolidation but the major trend should remain bearish as long as price move inside the major bearish channel. Note that only a clear break below the triple bottom formation at 1.3450/35 area could be seen as the end of the bullish correction scenario. Immediate support at 1.3530 area.

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USD Higher, EUR and GBP Pressured by Credit Warnings

• USD: Higher, risk aversion re-emerges on European debt worries
• JPY: Higher, supported by a return of risk aversion, leading index rose more than expected
• EUR: Lower, concern about Greek debt troubles, ECB’s Stark says debt places strains on monetary policy
• GBP: Lower, Moody’s and Fitch warnings on banks and debt, weak housing data, trade deficit widened
• CAD and AUD: AUD & CAD higher, Australia’s job ads strong, tracking equities, gains versus Europe

Overview

USD traded higher Tuesday supported by a return of risk aversion sparked by the re-emergence of concern about European and UK debt. Fresh worries over European debt were triggered by statements from Moody’s and Fitch ratings agencies. The EUR traded lower ahead of today’s meeting with Greek Prime Minister Papandreou and President Obama. Bloomberg reports that this meeting is unlikely to produce any significant offer of US aid for Greece. Papandreou says that Greece needs EU and US help to prevent speculative selling of Greek bonds and that borrowing at high rates will not be sustainable. GBP was pressured by a Moody’s warning that it may cut UK bank ratings as bailout support is withdrawn and in reaction to Fitch concern about UK deficit. GBP was also pressured by disappointing UK housing and trade data and election polls which suggest that the UK is headed for a hung parliament. Commodity currencies continued to outperform despite a sharp decline in the price of crude and a spike in risk aversion as equity markets traded lower. AUD downside was limited by strong jobs ads report and a rebound in US equities. JPY traded higher supported by today’s return of risk aversion. There were no major US economic reports released in today’s trade. The NFIB small business optimism index lost 1.3 points in February and Manpower says that hiring plans are in a holding pattern as a net 5% of employers said they expect to hire new workers in Q2. Focus turns to this week’s release of US jobless claims, retail sales and consumer sentiment.

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Daily Technical Analysis

EURUSD Outlook

The EURUSD attempted to push higher yesterday, topped at 1.3703 but closed lower at 1.3632. The bias is neutral both in nearest and medium term as price still consolidating. The bullish correction scenario after rejection from 1.3450/30 (triple bottom) remains intact as price still move inside the minor bullish channel with 1.3750 – 1.3850 as corrective target but still in a major bearish scenario. Immediate support at 1.3580 area. Break below that area could trigger further bearish momentum re-testing 1.3450/35 area but only clear break below 1.3450/35 area can be seen as bearish continuation confirmation targeting 1.3100 area.

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USD Mixed as Stocks Weaken

• USD: Mixed, better than expected nfp, consumer credit rises, specs on the IMM halve USD long positions
• JPY: Lower, Nikkei rallies 2.9%, BOJ ease speculation
• EUR: Lower, Sarkozy says EU will help Greece, investor sentiment improves
• GBP: Mixed, BOE policy and UK election uncertainty
• CHF: Higher, Swiss unemployment rate improves, retail sales strong
• CAD and AUD: AUD & CAD higher, tracking improving risk sentiment, Canadian housing starts rise 6.1%

Overview

USD starts the week mixed to lower pressured by a modest improvement in risk sentiment. The improvement in risk sentiment is attributed to Friday’s release of better than expected US unemployment and stronger consumer credit, a statement from French President Sarkozy that the EU is ready to help Greece and in reaction to a Financial Times report which suggests that China is ready to shift its currency policy and break its USD peg. US January consumer credit rose for the first time in over a year and posted its largest increase since July 2008. The Nikkei surged 2.9% adding to the improvement in risk sentiment but European equities and US equities struggled which limited the downside for the USD. European economic data was generally positive with EU investor sentiment improving and Swiss unemployment and retail sales coming in better than expected. There was no major UK economic released today and GBP consolidated recent gains. Commodity currencies traded higher supported by the improvement in risk sentiment with the AUD trading at a six-month high. AUD was also supported by M&A news that Royal Dutch Shell and Petro China are bidding for Australia’s Arrow Energy. CAD traded higher in reaction strong Canadian housing starts report and BOC rate hike speculation .There was limited reaction to an NABE report which says that business economists see a Fed rate hike within the next six months. CFTC commitment of traders for the IMM shows that speculators cut USD speculative long positions in halve last week. The CFTC report suggests that speculative sentiment towards the USD is turning less positive. There were no major US economic reports released in today’s trade. Focus turns to this week’s release of US jobless claims retail sales and consumer sentiment.

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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

The EURUSD failed to continued its bullish correction yesterday, bottomed at 1.3552 and closed at 1.3580. While technically this fact can be seen as potential false breakout scenario thus trigger significant bearish pressure re-testing 1.3450/30 key support area, the Euro was fell after a big surprise in US pending home sales data which fell to -7.6% indicating that risk aversion has taken center stage again. If this is true, a bad result of NFP today could trigger further weakness for the Euro while a good result could give some support. The bias is bearish in nearest term but as long as price still able to move above 1.3450 area, we are actually still in consolidation phase and need a clear break below 1.3450/35 area to continue further bearish scenario targeting 1.3100 area. Immediate resistance at 1.3625. Break above that area should lead us into no trading zone as direction would become unclear.

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USD Higher, Jobless Claims Fall, Pending Home Sales Tank

• USD: Higher, jobless claims fall, productivity revised higher, pending home sales tank, stocks erase gains
• JPY: Lower, BOJ’s Noda rejects government pressure to buy JGB bonds and expand QE
• EUR: Lower, Greek budget euphoria fades, ECB holds rates policy study, exit plan continues, weak Q4 GDP
• GBP: Mixed, BOE holds interest rates and asset purchases unchanged, house prices decline
• CAD and AUD: AUD & CAD lower, Australian trade deficit widens, Canadian building permits fall

Overview

The USD traded higher Thursday supported by ongoing concern about the Greek fiscal outlook and in reaction to mixed US economic data. USD extended its early rally after the release of an unexpected decline in pending home sales. Equity markets gave back all the morning’s early gains after the release of the pending home sales data. The pending home sales report appeared to inject more risk aversion into the trade. The ECB elected to hold rate policy unchanged as expected. In the press conference following the ECB policy decision ECB President Trichet said that the recovery is on track and will remain uneven, current ECB rates are appropriate, and inflation expectations remain anchored. Trichet went on to say that adverse weather could impact first quarter growth. The ECB expects EU 2010 GDP growth of 0.4% to 1.2%. The ECB expects EU 2010 CPI at 0.8% to 1.6%. Trichet said that the ECB welcomes Greece’s fiscal plan and signaled that the ECB would continue with the current gradual pace of withdrawal of liquidity. Trichet also said that it is not appropriate for the IMF to aid Greece. This comment sparked selling of the EUR and generates concern that Greece could be left out in the cold if the EU fails to agree to aid for Greece. EU officials will discuss the need for Greek aid Friday. GBP traded mixed initially supported by the BOE’s decision to hold interest rates and asset purchases unchanged. GBP turned lower in reaction report of a decline in UK house prices. Commodity currencies were mixed with a CAD continuing to outperform. AUD traded lower pressured by concern about the global growth outlook and in reaction to report that the Australian trade deficit widened in January. JPY traded a three month high versus the USD supported by a decline in risk appetite as Asian equity markets decline. JPY was also supported by comments from the BOJ Noda rejecting Japanese government calls for the BOJ who purchase more JGB’s. JPY turned lower after the release of better than expected US jobless claims and productivity data. Jobless claims posted a larger than expected decline, productivity rose more than expected and unit labor costs declined by more than expected. USD edged higher after the release of these reports. Pending home sales posted a sharp decline and factory orders rose more than expected. USD traded to the highs for the day after the report of the pending home sales drop and erasing of early US equity market gains.

Focus turns to Friday’s release of US February unemployment and nonfarm payrolls. The trade expects a modest uptick in the US unemployment rate and a fairly sharp drop and nonfarm payrolls partly because of bad weather and snow storms that blanketed much of the US during February. (more…)