FOREX TRADING

News and Events:

The fx markets main focus continues to be the Greek sovereign debt issue and the potential of something concrete materializing from the ECOFIN meeting today. However, we are doubtful we will hear anything new. The Eurozone members are expected to pressure Greece into endorsing further austerity measures and will be given until mid March to prove it will be able to reach its forecasted deficit targets (we are not sure what an extra few weeks will do but…). As of yet, there has been no official bailout plan reported, only a softly worded statement on EU ‘solidarity’ and we don’t think a detail strategy is coming any time soon. So, now FX traders can look forward to 30 days of nervousness and in our mind EUR weakness. Overnight, there has been some harshly worded comments that suggest that members might not be a cohesive as last weeks statement advocated. Finland ‘s Finance Minister stated that EU rules were ‘against a bailout’ and any aid would have to be a bilateral agreement between Greece and members. He also suggested that Finland would not help and ‘Greece must get the money it needs from the market,’ and that Finland has already help enough by supporting Latvia and Iceland . The Austrian Finance Minister said that the fuzzy economic data produced by Greek should not be allowed to undermine the credibility of the EUR. Worryingly, Eurostat, which is already bringing Greece to court for statistical irregularities, today issued a statement that they were unaware that Greece used currency swaps to disguise gaps in there balance sheet. The statistical agency of the European commission has now set an end of February deadline for disclosure on these transactions. Because of the EUs own disclosure and accounting rules, members were not required to report these deals, so markets are completely in the dark to the size and scope of these swaps. And given the familiar names and structures being mentioned, it has eerier similarity to past crisis in the US at the state and country level. Separately, The RBA minutes of Feb 2nd policy meeting provided no real insight into the timing of the next hike.

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Good morning from cold Hamburg. We hope you have enjoyed your weekend and you were able to relax for a new trading week. Today we will see important data from the US, which could have decisively influence on the FOREX market. Have a nice start in the new week

Markets review

According to a survey the fed officials will do their part to spur the economic growth by keeping interest rates near zero after their two-day meeting this week. Futures trading in Chicago showed on Friday an 18 percent chance that the fed will raise its target lending rate by at least a quarter-percentage point by its June meeting. Today, the US economy will release the data of Existing Home Sales in December. The Monthly data is expected to show a fall of 9.8% while the annual rate may be fallen to 5.9 million from 6.54 million in November. The USD fell against the EUR, JPY and a lot of other major currencies. The EUR/USD climbed for a second day to 1.4168 after rising to a high of 1.4174. The USD/JPY fell for a third day to 90.14 after touching on Friday a low at 89.79, which was the lowest level since December 12th. The falls in the USD may be also caused by the drops in stocks after the Nikkei 225 stock Average fell 0.5 percent and the S&P 500 Index fell 2.2 percent on Friday. The AUD/USD gained also for a second day after it touched its psychological support around 0.90. The NZD/USD has got support around 0.71 and pulled up to a high of 0.7170 before coming back to 0.7158

Technical analysis

EUR/JPY

On a long term view, the EUR/JPY has reached its support level around 127.00. It is the forth touch around this level since the middle of Mai 2009. As you can see, the Auto Regression Bands are signalizing an oversold market. If the market doesn’t make a break trough the strong long term support it may turn back and start a bullish phase (more…)

Dollar Falls As Fed Keeps Loose Monetary Stance

The dollar fell on Wednesday as the Federal Open Market Committee reiterated that US economic conditions ‘are likely to warrant exceptionally low levels of the federal funds rate for an extended period.’ The FOMC also said inflationary expectations are well anchored and consumer spending is improving. Bond yields and commodity prices rose following the Fed statement, but US stocks pared strong gains at the close and the S&P 500 closed just 1.09 points higher at 1,046.50. The yen fell for a third consecutive day. The euro, supported by improved risk sentiment, rallied after finding support at the 1.47 handle. Sterling rose on strong UK consumer confidence and services PMI data. The Australian and Canadian dollars gained as commodity prices advanced and gold made a new record high.

The dollar index fell as risk appetite increased. Negatively correlated with the equity market, the dollar index fell as stocks rose. The dollar index’ long-term downtrend was broken last week. The 76-area support was broken today as the Fed promised to keep its highly accommodative monetary stance. The Fed’s stance makes it difficult to see any upside on the dollar; still, shorting dollar is a crowded trade, so there could be sharp short covering rallies. There are support at the 75-handle and resistance in the 77-78 area.

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European Market Update

India’s Central Bank begins exit from stimulus measures; Financial sector concerns continue to hamper equity sentiment

ECONOMIC DATA

(SZ) Swiss UBS Consumption Index: 0.632 v 0.623 prior

(FI) Finland Oct Business Confidence: -15 v -13e; Consumer confidence: 12.3 v 12.0e

(FR) France Oct Business Survey Overall Demand: -15v -41
(FR) France Oct Consumer Confidence Indicator: -35 v -35e

(TT) Taiwan Sept leading Indicator M/M: 1.7% v 1.9% prior; Coincident Indicator M/M: 1/7% v 0.6% prior

(SP) Spain Aug Mortgages on Houses Y/Y: -6.6% v -19.1% prior; Mortgages on Capital Loaned Y/Y: -14.9% v -26.2% prior

(TU) Turkey Aug Industrial Production M/M: -0.1% v 0.9% prior, Y/Y: -8.9% v -9.2% prior

(IT) Italian Oct Consumer Confidence 111.7 v 113.7e

(SW) Swedish Sept PPI M/M: -0.9% v -0.5%e; Y/Y: -1.6% v -1.5%e
(SW) Swedish Sept Household Lending Y/Y: 8.2% v 8.0% prior

(NV) Netherlands Oct Producer Confidence: -7.8 v -9.0e

(HK) Hong Kong Sept Trade Balance (HKD): -29.1B v -19.9Be

(EU) Euro-zone Sept M3 Y/Y: 1.8% v 2.2%e; 3-Month Average 2.5% v 2.5%e

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

In equities: European markets have traded erratically through the first 90 minutes of action. The pre-market session was dominated by corporate earnings highlighted by a smashing BP [BP.UK] that beat on all metrics and maintained its y/y quarterly dividend. BP’s earnings rallied the broader major integrated names. Other earnings included Bayer [BAYN.GE] that reiterated FY09 Rev guidance, but missed on some first call Q3 figures. Vestas [VWS.DC], BBVA [BBVA.SP] and Akzo Nobel [AKZO.NV] also reported figures broadly in line with targets. Earnings sentiment mixed with yesterday’s sharp equity sell off that initiated at 11:00EST. Following positive opening levels, markets have traded lower in linear fashion, moving through the unchanged mark before 5:00EST. Weight in markets has been heavily focused in financial names with ING [INGA.NV] under intense pressure for the second straight session, Commerzbank [CBK.GE] trading lower following rumors of revised guidance and RBS [RBS.UK] and Lloyds [LLOY.UK] moving lower due to capital raise, APS and the effects of the ING split up weighing the names.

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Where To This Week

In recent trade the global forex market moved up, down, and ultimately sideways against the Usd, following the expectancy and concern over three interest rate decisions from major central banks. Add to that earning season getting underway in the equity market, supply and demand ratios questioned in the crude oil market as global growth forecasts once again came under the macroeconomic microscope, gold bugs doing the jive over inflation hedge possibilities, and traders can get to see why the currency markets are divided.

The European pairs finished the week where they had started, as did the yen (Usd/Jpy), with the two commodity based pairs, cad (Usd/Cad) and aussie (Aud/Usd) finding bids quite easily. Cable (Gbp/Usd) looks completely oversold, and may get a bout of bids ahead of Tuesday’s Inflation Letter from the Bank of England, as well as CPI reads looking to hit at 1.3%.

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Markets Stalls, But Yen Moves

Overall, the forex market continued to trade with very thin momentum during the U.S. session. The only exception was the yen, but the rest of the market traded far below the ATR of the last few weeks. This comes, as investors prepare for the Bank of England and for the European Central Bank to announce the latest monetary policy developments tomorrow, during the late European/early U.S. session.

Dollar Index Technical View:

Daily chart trend: Long possibilities. Main price points: 75.83. Looking for: Wave V low

Prices on the dollar index chart were recently testing the upper resistance line of a trading channel, where a possible long break-out will confirm that wave V of a black C is done. However, this is not the case yet, and as such move into much deeper levels is still possible over the coming days, especially once the current 75.83 low is taken out. In this case, we will be looking for a new wave V target somewhere around 74.00 support zone.

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Dollar Declines On Momentum-less Market

Overall, Monday trade proved to be very slow in the forex market, with most pairs having very weak momentum. As has been the case recently, the strongest two pairs of the day were the aussie and cad, while the pound was the only major currency that did not gained any ground against the dollar. Still, the pound was Monday’s most active pair, and in relative terms no pair made much headway on a day that was ripe for a channel break that just did not come. Ahead, the market is preparing for RBA interest rate decision at 23:30 EDT, which is likely to have an important impact on the forex market.

Dollar Index Technical View:

Daily chart trend: Long possibilities. Main price points: 75.00-76.00. Looking for: Wave V low

Prices on the dollar index chart are currently testing the upper resistance line of a trading channel, where a long break-out will confirm that wave V of a black C is done. If so, then a move higher over the next few weeks should follow, especially if S&P futures stay below their 1075 highs. In this case we will be looking for a move on the dollar index chart, near to the 78 area of the previous wave E), of the fourth wave triangle.

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Daily Technical Analysis

EURUSD Outlook

The EURUSD had a volatile but indecisive market on Friday. The pair attempted to push lower, bottomed at 1.4479 but found support at trendline support (orange), bounced to the upside, topped at 1.4646 and closed at 1.4574. The fact that the trendline support still hold should keep the bullish scenario intact. On the upside price seems to find resistance around minor trendline resistance (red). These trendlines is the key area at this phase and we need trendline break to see clearer direction. Break above the trendline resistance should trigger further bullish momentum testing 1.4720 and 1.4850 area. Break below the trendline support would have a bigger impact on longer term perspective, testing 1.4440 even 1.4280 and the bullish scenario could be in serious threat. Immediate resistance at 1.4650/70. Immediate support at 1.4575 followed by 1.4440.

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Dollar Weakens After Employment Reports

Overall:

The forex market saw a large amount of volatility during the U.S. session. After the U.S. employment reports were released most major pairs quickly reversed the trend that had been put in place during the earlier European session. The major pairs are going through swing changes at the moment so volatility is increasing while momentum shifts.

Dollar Index Technical View:

4 Hour Chart: Long possibilities. Main price points: 75.83, and 77.25. Looking for: Break through the 77.25

The index has bounced higher from our Fibonacci support area, discussed recently. Wave c of wave II) has found the bottom somewhere around the 76.50 area, which must hold for an up-trend continuation. If the 77.25 highs is taken out over the next sessions, then we will look for a higher wave III) move with the first target at 78.00 area.

Any break of 75.83 support will invalidate the wave count.

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Across the last week, the Forex markets have been abuzz with chatter about how the US recession will soon come to and end, followed by a quick and healthy recovery. According to investor logic, the result would be move up in inflation and interest rates. This optimism was partially deflated today, as the Federal Reserve bank conducted its annual monetary policy meeting.

Excluding a brief uptick in June (see chart below courtesy of the Cleveland Fed), investors had long come to expect that the Fed would leave its benchmark Federal Funds rate unchanged, at 0-.25%. At the same time, there was a strong belief that the Fed would begin to hike rates at the end of 2009, and comment accordingly in the press release that accompanied its monetary policy decision. Barron’s predicted yesterday: “The financial statement will acknowledge some improvement in the U.S. economy, although it will imply that this nascent growth reflected in recent gross domestic product reports is fragile and will be monitored closely. This will leave open the specter that interest rates could be increased at some point in the future.” (more…)

The US Dollar is set to go highly volatile today on the release of Advance GDP figures for the second quarter from the U.S. economy at 12:30 GMT. The forecasted results are -1.4%, significantly better than the first quarter results of -5.5%. The other matters that are expected to move the market today are the issue of the CPI Flash Estimate and the Unemployment Rate from the Euro-Zone. In order to earn some big profits today, open you positions in the USD, EUR, GBP, and JPY now, as Friday’s trading gets under way.

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