FOREX TRADING

Risk was in an indecisive mood today, as a deepening bond sell-off yielded to a strong bounce and equities opened high, then fell sharply, only to rise back toward the highs of the day into the close. The latter action was more or less mimicked by the commodity currencies, which sold off to varying degrees on the consolidation of the risk rally, only to push back stronger later in the day. Looking at our two lines in the sand for risk appetite, we’re about where we left in USDJPY and the S&P500 – right around the daily Ichimoku cloud resistance in the former and not far from the 200-day moving average in the latter. One of the more interesting moves elsewhere was a steep sell-off in gold, a development with no readily apparent catalyst, save for perhaps nervousness in positioning ahead of tomorrow’s big numbers.

Elsewhere, oil was up sharply, putting a floor under CAD for the moment, though USDCAD is well off the lows overnight. Tomorrow’s combination of Canadian and US employment data may be less important than the general direction in risk for the pair, which needs to pull back above the 1.0500 area to deserve more bullish technical interest. The US ISM Non-manufacturing survey was very slightly disappointing, but finally showed the employment sub-component inching slightly above 50 for the first time since December of 2007.

Again, European sovereign debt spreads continue to show no real relief, and today, CEE currencies were extremely weak on the news of an "informal" visit of the IMF to Hungary, which is the least credit-worthy of the three major CEE countries (with Poland and Czech Republic). This is a red flag for risk, as we discuss in the chart below. With that said, an auction of Hungarian bonds went off reasonably well (even if it fell a bit short of the government’s expectations), considering the generally nervous environment of late. More on this story over at zerohedge.

Chart: HUF and PLN and the DAX

Interesting to note that HUF and PLN (shown in the chart as HUFEUR in white and PLNEUR in red) led general risk the last couple of times around (not in December when the initial focus was exclusively on punishing the Euro and the market failed to see the spillover risk to all markets) in early February, when they rose before the DAX (in green) did and then in late April, when they weakened ahead of the DAX. Note the recent very marked divergence in the weak CEE currencies relative to a DAX that is trying to rally at present.

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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…)

• USD: Mixed, IMF warns rising sovereign debt levels pose biggest threat to the global economy
• JPY: Lower, BOJ says Japan to eventually escape deflation, stops short of endorsing an inflation target
• EUR: Lower, Greek/German 10 year bond spread widens to record level, Greek aid talks begin today
• GBP: Higher, labor market improves as jobs claimant count falls more than expected, BOE more upbeat
• CAD and AUD: AUD & CAD mixed, Australia’s leading index rises, BOC rate hike speculation

Overview

USD traded mixed with the EUR pressured by ongoing concern about the Greek fiscal debt, GBP supported by report that the UK labor market is improving, commodity currencies trade higher supported by rate hike speculation with AUD supported by report of sharp rise in Australia’s leading index and the JPY traded lower with downside limited by comments from BOJ deputy governor that Japan will eventually escape deflation. Greek/ German 10 year bond spread rose to a 12 year high fueling concern about the cost of financing the Greek debt. Greek aid talks begin today and are expected to last two weeks. The German opposition party has threatened to block the government’s approval of a fast track of Greek aid. The IMF says that sovereign debt levels pose the biggest threat to the global economy. Persistent EUR selling pressure limits USD downside versus the majors. Growth led currencies continue to outperform supported by optimism about the global recovery as the Bank of India hikes interest rates and the BOC signals rates may soon rise. Rising interest rates are seen as confirmation that the markets are returning to normal. No major US economic data was released in today’s trade. Investors will continue to monitor news concerning the Greek debt. Focus turns to Thursday’s release of US initial jobless claims and existing home sales. (more…)

Singapore dollar revaluation

The government of Singapore decided on a modest revaluation of the Singapore dollar, which jumped a little over 1% vs. the US dollar and therefore to the strongest level since before the crisis hit in 2008. The move is seen as a response to stronger inflation readings in Asia as China’s commodity demand has seen prices for key commodities rise as much as 70% over the last year. The magnitude of the "revaluation" was not particularly great, but the Singapore authorities are clearly not against further appreciation of their currency as growth is expected to surge past previous expectations. The Monetary Authority of Singapore said it would seek a "modest and gradual appreciation" of the SGD against a basket of currencies. This pushed the USD a bit weaker in Asia, and commodity currencies a bit higher (is this a preview of the kneejerk reaction that awaits if the Chinese try to revalue?) but later the EURUSD was back lower, and the market must also consider the argument of whether less pressure on reserve diversification from trying to maintain currency pegs or managed floats is a Euro negative.

Risk rally

Of course, commodity currencies are stronger not just on the Singapore news, but also because risk appetite remains robust after the market liked what it saw from the key chip company Intel yesterday after the US equity markets closed. Sales, profits and guidance were all positive and Nasdaq 100 futures are trading at a new high for the cycle, having rallied almost 100 percent now from their lowest levels after the crisis, and even more remarkably, now only a little over 10% from the 2007 highs. Crude oil also survived a test of support below 84 dollars a barrel and Gold rebounded from its two-day sell-off. The kiwi was a reluctant participant in the commodity currency rally, since its retail sales numbers saw an ugly dip in February, against expectations for reasonably strong expansion.

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The Euro continues to be pressured, but the greenback is giving back some of its recent strength as well. On the other hand the Japanese currency stalled its slide, though there has not been any significant show of strength. These developments may thus be corrective so let’s continue to stalk them for a return of dollar strength, and/or Japanese yen weakness. Meanwhile, commodity currencies such as the AUD and the CAD continue to firm up along with gold and oil.

EUR/USD: 1.3050 Target Shelved as Market Consolidates

Daily and 4H: The EUR/USD has been projected to slide to the1.3050 area. The week began in the direction of this outlook, but failed to break below the previous low at 1.3280.

A rally is materializing as we can see in the 4H time-frame. The daily time-frame shows a reversal combination to end the week as well.

This all suggests some furthering of the near-term bullish attempt.

Remember however that the market is in an established bearish mode, so stalk this current rally as a correction.

The 4H chart shows a swing projection can bring the pair to 1.36. The RSI in this scenario would reflect sideways instead of bearish overall momentum.

The daily RSI still shows bearish momentum and may still do so after a rally to 1.36. (The range has been staying below 60).

So stalk the current rally towards 1.36 and see if topping action and a bearish attempt can follow. If so, look for the market to essentially range between 1.36 and 1.33 with a bearish bias.

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• USD: Higher, growth slows in Europe, Greek debt troubles, stocks slide
• JPY: Mixed, BOJ held rate policy steady, leaves economic assessment unchanged
• EUR: Lower, Q4 GDP revised lower, cost of financing Greek debt rises
• GBP: Lower, service PMI disappoints, election uncertainty
• CAD and AUD: AUD & CAD mixed, RBA not in a hurry to hike rates again, OECD expects slower G-7 growth

Overview

USD traded higher Wednesday with the EUR pressured by Greek debt woes and in reaction to a downward revision in EU Q4 GDP. The cost to finance Greek debt continues to rise generating fear that the EU/IMF aid plan for Greece will fail. GBP was pressured by report of weaker UK service PMI and UK election uncertainty. Commodity currencies were mixed with AUD gains limited by a statement from RBA watcher McCrann that the RBA will not be in a hurry to raise rates further. CAD traded mixed as the price of crude drops and gold rises to a two-month high. Commodity currencies continue to outperform supported by optimism about the strength of the Asian economic recovery. The World Bank upgraded its GDP forecast for developing Asia and China. Concern about the recovery in the G-7 nation’s pressured stocks and supports the USD as the OECD says it expects a short term slow down in G-7 nations growth. JPY traded mixed initially pressured by the BOJ decision to hold rate policy steady and leave its economic assessment unchanged. Focus turns to BOE and ECB meetings Thursday. The ECB and BOE are expected to remain on hold.

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Asian markets were firmer today after a lackluster performance in US equities. Concerns about debt laden Greece continue to weigh heavily on the euro while commodity currencies continue to gain on improving global economic outlook. Crude oil continued to climb, testing 17 month highs at $87-per barrel with gold bettering $1137.00 late in the Tokyo session. Copper prices hit levels not seen since August of 2008, topping $7990.00-per metric ton. The loonie and the aussie continued their assault on the dollar with the loonie breaking parity to .9983 at market open in London. (more…)

• USD: Higher, pending home sales surge, non- manufacturing ISM beats expectations, Dow approaches 11k
• JPY: Higher, diminished threat of BOJ ease, Yuan revaluation speculation
• EUR: Lower, pressured by rising US bond yields/strong US employment, housing and services data
• GBP: Higher, election polls point to a Conservative majority diminishing the risk of a hung parliament
• CHF: Mixed, EUR/CHF rebounds from record low on SNB intervention
• CAD and AUD: AUD lower & CAD higher, rumors that the RBA will hold monetary policy steady Tuesday

Overview

USD traded mixed to firmer Monday extending Friday’s gains versus the EUR and weakening versus the JPY and commodity currencies. USD traded higher Friday supported by report that the US economy added the most jobs in three years and in reaction to the rise in 10 year bond yields to a 10 month high. The main focus of Monday’s trade was UK election polls, Yuan revaluation speculation and strong US data. UK election polls show that the Tories have a 10 point lead over Labor. A Tory victory would reduce the risk of a hung parliament and may diminish concern about an imminent downgrade of the UK’s sovereign debt rating. The U.S. Treasury will delay the April 15th currency report on China in hopes that the delay will encourage China to strengthen the Yuan. JPY edged higher supported by Yuan revaluation speculation and diminished ease speculation. Recent weakness of the JPY will diminish the odds of the BOJ rate cut at this week’s policy meeting. AUD traded lower pressured by rumors that the RBA will hold rate policy steady at Tuesday’s policy meeting. Today’s US economic data was positive with pending home sales posting an unexpected rise and non manufacturing ISM beat expectations. The pending home sales rise may reflect the fact that the home buyers tax credit will expire at the end of April. The employment component and the business outlook of the non-manufacturing ISM posted strong gains. CFTC commitment of traders for last week showed that speculators increased USD long positions the highest level since February 23rd. Bullish USD sentiment is rising with US bond yields. US ten-year yields are approaching 4% as the US economy improves.

This week’s main focus will be central bank policy meetings in Australia Tuesday, Japan Wednesday and Europe Thursday. The RBA is expected to hike rates 25 basis points to 4.25% but the RBA policy decision is a close call. The BOJ is expected to leave monetary policy unchanged in reaction to recent weakness of the JPY. The ECB and BOE are expected to remain on hold.

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