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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USD Mixed, House Prices Flat, Consumer Confidence Rises

• USD: Mixed, house price rebound slows, consumer confidence rises more than expected, stocks turn lower
• JPY: Lower, industrial production and household spending declined , unemployment unchanged
• EUR: Lower, France AAA debt rating at risk of a downgrade, Greek bond spreads widen
• GBP: Higher, GDP revised up, house prices rise, trade gap narrows
• CAD and AUD: AUD & CAD higher, RBA rate hike speculation, Canada’s raw material prices rise

Overview

The USD traded mixed Tuesday weakening against the GBP and commodity currencies and firming versus the EUR and JPY. GBP outperformed supported by report of an upward revision in UK Q4 GDP and higher UK house prices. EUR erased early overseas gains pressured by rumors that France may lose its AAA debt rating and in reaction to ongoing concerns about the Greek debt crisis as Greek bond spreads continued to widen. AUD was supported by RBA rate hike speculation and the JPY traded lower pressured by improving risk appetite and firmer equity market trade with additional selling pressure noted in cross trade to the GBP and AUD. CAD traded higher supported by report of an unexpected rise in Canada’s raw material prices. Risk appetite was supported by news from China about possible Yuan revaluation and US China tensions. Reuters reports of divisions in China over the Yuan value. Two PBOC advisors said that China should allow the Yuan to gradually appreciate but the Chinese trade minister said that the Yuan is not the cause of US China trade gap. US Chinese tensions may be easing in reaction to comments from President Obama that he wants to work with China to create balanced and sustained global growth. US economic data was mixed with the Case Shiller House Price Index unchanged last month. The rebound in house prices seen last fall has faded. Consumer confidence came in above expectations and USD edged higher rising to a fresh two month high versus the JPY. Focus turns to Wednesday’s release of the ADP employment report for March. Investors will be looking at the ADP for clues to Friday’s US unemployment report. March nfp is expected to post a gain of 200k.

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Overbought Test Of Resolve

Gbp/Usd moved 100 pips higher during the European session after reports from the U.K. labor market hit the newswires that were better than expected. The minutes from the recent Bank of England rate meeting revealed that nothing much had changed from the previous month, and that CPI and inflation reads were as much to do with a weaker pound than instigated by internal growth.

The MPC minutes suggest that interest rate increases are just as far away in the U.K. as any other major region, with the exception of Australia. This news had a positive effect on the major currencies, but the pound is the only pair to make a substantial breakout. (more…)

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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USD Lower, Service PMI Expands at Best Pace in Two Years

• USD: Lower, ADP employment as expected, services PMI beat expectations, stocks rally
• JPY: Higher, Japan’s finance minister says the government and BOJ will combat deflation
• EUR: Higher, Greece announces extra austerity measures, retail sales and PMI weaken
• GBP: Higher, stronger than expected consumer confidence & PMI, uncertainty about the Prudential AIG deal
• CAD and AUD: AUD & CAD higher, Australian GDP strong, commodity prices rally

Overview

The USD traded mixed in reaction to report that Greece has decided to take extra austerity measures to reduce its budget deficit. Greece plans to cut its deficit by a total of €4.8bln. The new Greek budget plan generates hope that the Greek fiscal crisis will be contained and that Greece will not default on its debt. EUR initially rallied in reaction to the Greek budget news but investors remain cautious and EUR gains were limited. Investors want to see if the Greek budget plans lead to EU solidarity and a plan to aid Greece. Greek officials said they will go to the IMF if the EU fails to give support. EUR upside was also limited by report of weaker than expected EU retail sales and services PMI. GBP traded higher for the first time in six days supported by report of improving consumer confidence and stronger services PMI. Commodity currencies were mixed with the AUD underperforming despite report of strong Australian Q4 GDP. CAD continues to outperform. JPY traded at its highest level since last December versus the USD supported by mixed risk sentiment and a statement from Japan’s finance minister that Japan is taking efforts to defeat deflation. US jobs data was encouraging. Challenging Gray said that February job cuts were at their lowest levels since February 2006. ADP employment declined by the smallest since last February. ADP says jobs growth may return next month for the first time in two years. ADP says the service and manufacturing sector added jobs last month. February non-manufacturing PMI came in stronger than expected posting its fastest growth in two years. US equity markets rallied to the day’s highs after the release of the non-manufacturing PMI and the USD traded lower. The USD traded to a new low for the day in reaction to an IMF statement the Greek budget plan is very strong.

Focus turns Thursday’s ECB and BOE policy meetings and Fridays release of US unemployment. The ECB is expected to remain on hold and there is uncertainty about whether the BOE will maintain its current level of asset purchases. US February unemployment is expected to post a modest rise with nonfarm payrolls declining by 50k. (more…)

USD Higher, UK Debt Woes, Uncertainty about Greek Aid

• USD: Higher, China’s manufacturing growth slows, denial of imminent Greek bailout, UK debt jitters
• JPY: Lower, government pressure on the BOJ to buy government debt to combat deflation
• EUR: Lower, pressured by spillover from collapse of the GBP, uncertainty about Greek aid
• GBP: Lower, concern about UK government debt, mortgage approvals at eight month low
• CHF: Lower, Greek bailout rumors, UK debt worries overshadow strong Swiss PMI
• CAD and AUD: AUD & CAD higher, strong Australian housing data, strong Canadian GDP

Overview

The USD traded higher Monday supported by a collapse in the GBP, weaker than expected PMI data from China and a denial from German Chancellor Merkel of report of an imminent Greek bailout. GBP was pressured by UK election polls and concern about UK government debt. China’s February PMI declined to 52, a reading of 55.4 was expected. This report suggests that manufacturing activity is slowing in China. There are numerous reports of a possible new Greek bailout plan which according to the WSJ is estimated at 30bln. According to these reports the bailout plan will require Greece to raise taxes and implement spending cuts. German Chancellor Merkel denies that there is an imminent Greek bailout plan and EUR traded lower. Stronger than expected manufacturing PMI data from the EU, UK and Switzerland were overshadowed by the UK debt jitters. Commodity currencies traded higher with the CAD supported by reported stronger than expected Canadian GDP and AUD supported by report of strong new home sales and Q4 company profits. JPY traded lower pressured by report that the Japanese government wants the BOJ to consider directly purchasing government debt and in reaction to firmer equity market trade. US economic data was mixed with personal income rising less than expected and consumption coming in higher than expected. ISM Index came in slightly weaker than expected and construction spending was in line with expectations. US equity markets extended early gains after the release of today’s data today’s data which added support to the commodity currencies but had limited impact on European currencies.

Focus turns this week’s central bank policy meetings in Australia and Canada on Tuesday and the UK and EU on Thursday and Friday’s release of US February unemployment. The BOC is expected to maintain steady rate policy, the RBA is expected to hike rates 25 bps, the ECB is expected to remain on hold and there is uncertainty about whether the BOE will maintain its current level of asset purchases. US February unemployment is expected to post a modest rise with nonfarm payrolls unchanged from last month. (more…)

USD Mixed, PPI Jumps and Jobless Claims Rise

• USD: Lower, jobless claims rise, PPI higher than expected, Philly Fed improves, LEI rose less than expected
• JPY: Higher, BOJ holds monetary policy steady, no expansion of QE, Yuan revaluation speculation
• EUR: Lower, rumors of SNB intervention in EUR/CHF cross, stocks higher, Italian debt troubles
• GBP: Lower, worse than expected public-sector borrowing in January, mortgage approvals decline
• CAD and AUD: AUD & CAD higher, IMF gold sales, Canadian CPI nears BOC target, CRB rebounds

Overview

USD opened near a nine-month high Thursday supported by a number of factors which include Wednesday’s report that the FOMC had considered a 25bps discount rate hike in January, in reaction to stronger than expected US economic data, and by fresh sovereign debt concern with the focus shifting to Italian debt troubles. Wednesday the US reported strong housing and industrial production data. These reports encourage speculation that the US recovery is gaining momentum and fuel speculation of an earlier Fed rate hike. The EUR was pressured by a Dow Jones report that says derivative contracts used by Italian municipalities could magnify debt imbalances over time. European sovereign debt concern continues to pressure the EUR and GBP. GBP traded lower pressured by report that the UK posted its first January budget deficit on record. The commodity currencies opened lower pressured by report that the IMF looks to sell 191.3 tons of gold. News of the IMF gold sales sparked selling of commodities. The AUD downside was limited by hawkish comments from the RBA’s Lowe and rising Australian consumer confidence. CAD turned higher in reaction to report that Canada’s CPI rose sharply in January with the annual inflation rate approaching the BOC’s 2% target. JPY traded higher supported by a drop in risk appetite and in reaction to the BOJ’s decision to hold monetary policy steady and not expand quantitative ease. The BOJ has been under pressure from the Japanese government to take additional measures to combat deflation. JPY was also supported by speculation that China may allow the Yuan to appreciate by as much as 5% next month. Yuan appreciation could help China slow the pace of its recovery. Today’s US economic data was mixed with initial jobless claims posting an unexpected rise. PPI came in higher than expected. The PPI report suggests that inflationary pressures are rising in the US. Rising inflation could encourage more Fed rate hike speculation. The Philly Fed survey came in slightly higher than expected and leading indicators came in below expectation. The employment component of the Philly Fed showed improvement and stocks edged higher. USD turned lower after the release of today’s US economic reports as US equity markets trade higher. (more…)