FOREX TRADING

USD Lower, Inflation Subdued

• USD: Lower, PPI falls the most in seven months, steady Fed policy
• JPY: Lower, BOJ expands quantitative ease and raised its lending auctions to ¥20trln
• EUR: Lower, annual rate of labor cost rise the slowest in four years
• GBP: Higher, UK claimant count posts biggest drop in 13 years, BOE minutes note increased inflation risk
• CAD and AUD: AUD & CAD higher, strong Australian housing data, easy money from the Fed and BOJ

Overview

The USD traded mostly lower Thursday pressured by the Fed’s decision to hold monetary policy steady and signal that interest rates will remain low for an extended period. GBP surged in reaction to report that UK jobless claims declined the most in 13 years. GBP was also supported by the minutes from the BOE’s March policy meeting which state that the central bank is growing more concerned about inflation risk. EUR traded lower with gains limited by report of slowing rise of labor costs in the EU and selling pressure in cross to the GBP. The commodity currencies traded higher in reaction to firmer equity market trade with the AUD supported by hawkish comments from the RBA’s Debelle and strong Australian housing. Debelle said rates may have to rise a bit more. CAD was supported by report of a surge in Canada’s whole sale trade. JPY traded lower in reaction to the BOJ’s decision to expand quantitative ease from ¥10trln to ¥20trln. Today’s US economic data was mixed with PPI posting a bigger than expected decline. The PPI report supports the Feds forecast that US inflation pressures will likely remain subdued. With the US economic recovery uneven and inflation subdued the Fed will be in no hurry to tighten monetary policy. Focus turns to Thursday’s release of US CPI.

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Currency Crosses Pairs Analysis

EUR/GBP

Current level – 0.9054

Longer term bias remains neutral to bullish for the pair, closing above both bearish trendlines confirms some upside for the week ahead.

Intraday: Yesterdays brake below the trendline isnt confirming a retrace yet. Although the cross is making an effective pullback its loosing bullish momentum and we dont discard a further retrace to 0,8980-0,9000 support zone

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Forex Technical Analysis

EUR/USD

Current level – 1.3801

EUR/USD is in a downtrend, after peaking at 1.5146 (Nov.25,2009). Technical indicators are neutral, and trading is situated below the 50- and 200-Day SMA, currently projected at 1.4793 and 1.4169

The pair almost reached the target area with today’s high at 1.3818 and we still favor a reversal below that zone, that should initiate a downtrend for 1.3530, en route to 1.3440. Nevertheless, current intraday bias is still positive with a crucial level at 1.3715 and on the 1 h. chart only a break below 1.3655 will signal, that the prolonged consolidation has ended.

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Daily Technical Analysis

EURUSD Outlook

The EURUSD had a bullish momentum yesterday, topped at 1.3782 and closed at 1.3771. This fact should keep the bullish scenario targeting 1.3850 intact. The technical evidence that price is in a potential bullish momentum even reversal after touched the triple bottom formation seems stronger now especially if price able to break above 1.3850 area today targeting at least 1.4020/50 area this week. Immediate support at 1.3740 area. Break below that area should lead us back into no trading zone testing 1.3650 area but as long as price still move inside the bullish channel the bullish scenario remains intact.

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Daily Technical Analysis

EURUSD Outlook

The EURUSD failed to continue its bullish momentum yesterday, bottomed at 1.3640 and closed at 1.3674 after bad US TIC long term purchases number triggered risk aversion. This fact leads me to a no trading zone in nearest term as direction is unclear but the bullish reversal scenario triggered by the triple bottom formation should remain intact as long as price still move inside the bullish channel with technical bullish target at least at 1.3850. We will have ZEW economic sentiment and CPI number from the Euro zone which is expected to be the catalyst today. Good result should trigger further upside momentum and keep the bullish scenario intact while bad result should trigger significant bearish momentum and potential threat to the bullish outlook testing 1.3530 support area.

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Daily Technical Analysis

EURUSD

The EURUSD had a significant technical movement on Friday by break above the major bearish channel, confirms the bullish reversal scenario after formed triple bottom formation around 1.3450/35 area. While technical outlook is bullish in nearest term targeting 1.3850 before aim for 1.4025/50 region, on fundamental side Euro is supported by rising risk appetite but note that the we have not seen convincing solution on Greek debt crisis so actually the fundamental foundation for Euro bullishness remains fragile and any negative news from the Euro zone or the US could weigh on the Euro and be a potential threat to the technical bullish view as risk aversion could increase and give advantage to the Dollar. Immediate support at 1.3700. Break below that area should be seen as a serious threat to the bullish scenario testing 1.3550/30 area.

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This was basically a week of continuing consolidation, except for the USD/CAD which is looking seriously at the parity scenario. The coming weeks may be crucial as the markets test important powerlines. We have short-term consolidations/corrections in pairs such as EUR/USD, GBP/USD, EUR/GBP, and GBP/JPY. But we are also testing long-intermediate-term consolidation in USD/JPY, EUR/GBP, and AUD/USD as well.

EUR/USD Test of Rounded Bottom

Daily: The EUR/USD pair continues to be supported above the 1.3450 support. This week, the market closed above 1.35 and appears to be creating a rounded bottom.

Today’s rally so far heightens that probability but is still premature to call it a reversal signal. The market needs to break above the declining trendline preferably followed by a pullback. This would confirm a reversal and a target could be the 1.42 area, which is the support from a consolidation zone.

4H: The 4H time-frame shows the market in a current swing breaking out from a triangle pattern. A swing projection is to the 1.3820 area, and the market is nearing.

The completion of the rounded bottom is tested here. If the market can eventually break above 1.3820 during this current bullish cycle, the market may go to 1.42.

However the momentum is overbought so there might be a slightly correction in the near-term. Then if the market breaks above, get ready for a pullback to confirm.

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USD Off Lows, Retail Sales Beat Expectations

• USD: Lower, Yellen appointed to the Fed, retail sales post unexpected rise, consumer sentiment dips
• JPY: Lower, BOJ may double QE, threat of intervention
• EUR: Higher, Greek debt fears fade, talk of German/French Greek rescue package, industrial output surged
• GBP: Higher, house prices jump, Conservatives expand lead in the polls
• CAD and AUD: AUD mixed & CAD higher, Canada’s employment growth beats expectations

Overview

The USD traded at a three week low Friday pressured by announcement that President Obama will nominate Janet Yellen as vice chair of the Federal Reserve. Yellen is a policy dove and her appointment will likely mean that the Fed will keep interest rates low for much of 2010. USD was also pressured by improving risk appetite as global equity markets rally. The EUR traded higher supported by diminishing concern about the Greek debt crisis and in reaction to report that Germany and France may be considering a $55bln rescue plan for Greece. GBP traded higher supported by report of a jump in UK house prices. Commodity currencies traded higher supported by stronger equity markets and improving risk sentiment with CAD supported by report of stronger than expected Canadian employment and BOC rate hike speculation. AUD gains were limited by speculation the RBA will pause in April. JPY traded lower pressured by report that the BOJ may double the size of its quantitative ease to ¥20trln and in reaction to increasing threat of BOJ intervention. US economic data was mixed with retail sales reported stronger than expected, Michigan consumer confidence posted a slight drop. Business inventories were unchanged. USD came off its lows as US equities turned lower after the release of today’s data. Focus turns to next weeks Fed policy meeting on March 16th. No Fed policy change is expected. Investors will be looking to see whether the Fed makes any changes in its policy statement in regard to the language of "extended period" for low rates.

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