Forex News

Forex Weekly Trading Forecast - 09.27.10

2010-09-25T10:55:00.004+02:00

US Dollar at Risk of Declines as Fed Hints at Fresh Quantitative Easing

Fundamental Outlook for US Dollar: Bullish

- US Federal Reserve hints at further Quantitative Easing, Sinks US Dollar
- Home Sales data remains near record-lows, bodes poorly for economic outlook
- Positioning and signs of reversal nonetheless warn of potential US Dollar recovery

The US Dollar finished sharply lower against all major forex counterparts on a week of mediocre economic data and a noteworthy shift in rhetoric from the US Federal Reserve. The highly-anticipated Federal Open Market Committee (FOMC) interest rate announcement and statement forced sharp moves across financial markets. Officials strongly suggested that they stood ready to restart Quantitative Easing (QE) measures if the need presented itself, and an especially dovish tone on inflation implied that such a move could come sooner than later. Given that the US Dollar fell precipitously on the first wave of QE, the prospect of QE Part 2 could spark continued USD weakness against major counterparts.

Market focus on the Fed’s next moves will make US economic data especially market moving, and a relatively busy calendar in the week ahead could bring sharp US Dollar volatility. Second revisions to Q2 Gross Domestic Product data may be the highlight of the coming days of trading, but traders should likewise watch for surprises out of earlier-week Consumer Confidence figures and end-of-week ISM Manufacturing data.

Market reactions will likely be linked to implications for the Fed’s next monetary policy moves. US Dollar moves on Consumer Confidence and GDP results should subsequently be straightforward; disappointments should force USD declines while positive surprises would likely see the Greenback rally. This should also roughly prove true for market reactions to ISM Manufacturing data, but any particularly large shifts in the “Prices Paid” index could blur implications for the Dollar. Consensus forecasts for all of these economic releases point to deterioration in economic conditions. Such bearish expectations leave plenty of room for positive surprises, but continued disappointments in US economic data hardly inspires confidence in prospects for the week ahead.

Short and medium-term momentum favors US Dollar declines, but the threat of sharp upward corrections grows as sentiment hits further USD-bearish extremes. Our most recent FX Options and Futures weekly report underlines the fact that many speculators are betting on further Greenback weakness. Said traders are usually in the right direction of the trend, and we have accordingly called for USD weakness. Yet traders should be careful of chasing US Dollar declines amidst high risk for corrections and monitor position risk accordingly.

Euro Rally Increasingly Suspicious as Fundamentals Remain Anchored

Fundamental Forecast for Euro: Neutral

- European Union members continue to issue debt at exorbitant rates; but investors ignore this concern
- Germany’s IFO Business sentiment survey provides the euro temporary fundamental footing
- How far can EURUSD run? After forging four-month highs, overhead resistance has lightened up

For those that follow the macro trends behind the currency market, it is difficult to reconcile the euro’s remarkable climb to new highs with the lingering financial and economic troubles that this economy continues to face. Nonetheless, the currency managed a week-end rally against its benchmark counterpart (the US dollar) Friday to close at its highest level in five months. Now, with EURUSD standing just below the highly visible 1.3500 psychological level (and 50 percent Fibonacci retracement for you technical traders), there is a distinct bite of speculative momentum to the otherwise remarkable two-week bullish bias the market was already touting. However, traders are a flippant crowd; and considering the euro is leveraging much of its performance on the sentiment of the crowd, forging further ground when the unit is already at such extraordinary highs will carry with it exceptional level risk.

There are a few primary drivers that can sustain or undermine the euro’s performance going forward. One uncertainty that seems to have lost much of its potential influence over future price action is the financial predicament individual EU members and the region as a whole faces going forward. Though there are few scenarios going forward where the euro-region will find itself unscathed in its fight against budget deficits balanced against slowing economic activity, market participants are proving to defer to the here-and-now rather than concern themselves with what lies further down the road. This is fortunate for bulls as it diverts attention away from lingering concerns over Portugal’s lack of progress on cutting its own budget gap (the government recently upgraded its deficit assessment) and Ireland’s liability in preventing Allied Irish from sinking its entire financial system. Helping to remove an otherwise consistent threat, there are few scheduled sovereign debt sales by the most troubled EU member economies. Italy has penciled in three consecutive days of auctions and Spain is on the books for one.

If we want to ascertain the euro’s bearing and pace, the best place to look is the dollar. Or, more specifically, we should be looking at EURUSD. Though the shared currency has shown significant progress against many of its counterparts (positive sentiment arguably helps this particular currency the most because investor concern was the cause of its deterioration), a considerable share of its strength can be ascribed to the outflow of capital from the greenback. Investors are moving out of the dollar (or more precisely Treasuries and other dollar-based assets) for fear that the extraordinarily loose monetary policies the Fed has adopted will devalue the nation’s assets. For bulk investment funds and reserve assets, liquidity is essential. Naturally EURUSD being the most liquid currency pair and considering Europe maintains one of the most open markets in the world, it is a natural destination for capital.

As for scheduled event risk, the docket is loaded with notable market-movers and subtle backdrop performers. If we are looking for short-term volatility, the German GfK consumer confidence survey, CPI and unemployment change figures all have a level of prestige. If we want to follow long-term trends, we will look to the M3 figure as an objective inflation gauge and EZ sentiment readings for growth potential.

Japanese Yen Could Strengthen On Safety Flows Despite Active BoJ

Fundamental Forecast for Japanese Yen: Neutral

- BoJ Intervenes for Second Time?
- All Industry Activity Index Rises 1.0% as Expected
- Technicals Point Toward Continued Yen Strength

Reported BoJ intervention during Friday’s Asian session generated a brief bout of across the board yen weakness, but the move was quickly retraced as cautious markets were favoring safety. The Asian currency would ultimately lose ground against several counterparts, as a positive U.S. durable goods orders report generated broad based risk appetite. A disappointing U.S. new home sales report would add to the prevailing outlook for additional QE from the Fed, the potential for additional stimulus only added to support for equity markets, and succeeding where the central bank failed. However, the dollar continued to be punished by the prospect of FOMC purchases, causing it to remain flat on the day against the Yen.

The Yen’s strength against the dollar has raised concerns amongst policy makers with Governor Masaaki Shirakawa stating in an interview that the central bank needs to monitor risks to Japan’s economy, exports, and corporate profitability. Board member Ryuzo Miyao also expressed concerns in a speech stating that “We’re entering a situation where we need to pay more attention to downside risks.” He would also acknowledge that the buying of Japanese Government bonds is one policy action that the central bank will consider at their next meeting. It could be an interesting meeting considering the recent activity of the central bank, especially since today’s Yen weakness has also been attributed to the possible resignation of Governor Masaaki Shirakawa. The monetary authority head is scheduled to speak on September 25th and 27th which could present event risk for the yen if he sheds light on his status, intervention or QE.

Continued risk appetite could be the best case scenario for policy makers as it will lead to flows out of the safe haven currency as traders look for higher yields. However, the potential for growth concerns to re-emerge is high considering central banks are beginning to lean toward additional stimulus. The fundamental calendar is full of key gauges that will provide insight into the economy, despite their lack of market moving potential. The prospect of action from the central bank may give additional weight especially the CPI report. Signs that deflationary pressure are growing could force the central bank’s hand, especially if the Tankan readings point toward slower activity. Early forecasts are for consumer prices to remain unchanged at -0.9% with manufacturers becoming more optimistic. A lower jobless rate, higher retail trade, plus improvements in industrial production and housing starts are expected. If a rosier growth picture emerges, then the monetary authority could stay on the sidelines, leaving the yen at the mercy of broader trends.

British Pound Rally Could Falter As Economic Outlook Deteriorates

Fundamental Forecast for British Pound: Neutral

- Mortgage Approvals By Major U.K. Banks Expand Less-Than-Expected
- Public Sector Borrowing Rises At Record Pace in August
- BoE Votes 8-1 to Maintain Current Policy, Andrew Sentance Dissents

The British Pound advanced to a fresh monthly high of 1.5815 on Friday and the exchange rate may continue to trend higher going into October as it breaks out of a narrow range. The GBP/USD cleared the 38.2% Fibonacci retracement from the 2009 low to high around 1.5700, and the pound-dollar may work its way back towards 1.6000 as it pares the decline from August. However, as the economic docket is expected to reinforce a weakening outlook for the region, the developments could curtail the recent strength in the sterling as investors weigh the prospects for a sustainable recovery in the U.K.

The final 2Q GDP reading for the U.K. is expected to show the economy expanding at an annualized rate of 1.7%, while total business investments is projected to contract 1.6% from the first three-months of the year. In addition, separate reports by the Bank of England are anticipated to show a GBP 2.9B decline in housing equity withdrawals, while mortgage approvals are forecasted to increase 47.0K in August after expanding 48.7K in the previous month. The data could spark a bearish reaction in the British Pound as growth prospects deteriorate, and an unexpectedly downward revision in the growth report or a smaller-than-anticipated rise in mortgage lending could stoke a reversal in the GBP/USD. If we see a retracement unfold over the following week, we would expect an initial test of the 38.2% Fib at 1.5700, but a sharp decline could lead the exchange rate to fall back towards the lower bound of its recent range around 1.5300.

Nevertheless, members of the BoE may change their tone towards future policy as inflation continues to hold above the government’s 3% limit for inflation, and hawkish comments from U.K. policy makers could stoke a rise in interest rate expectations over the coming months. MPC board member Andrew Sentence argued the central bank should gradually normalize monetary policy “soon” as the recovery takes hold, while his former colleague Kate Barker said the scope to increase quantitative easing looks “less certain” given the stickiness price growth. As the risks for inflation become an increased concern, members of the MPC may heed to Mr. Sentence’s call in order to give the central bank increased flexibility in managing monetary policy over the medium-term.

Canadian Dollar Underperforms and Outlook Remains Bearish

Fundamental Forecast for Canadian Dollar: Bearish

- Canadian Retail Sales disappoint markets
- Technical studies suggest Canadian Dollar may lose further

Pronounced US Dollar weakness meant that the Canadian Dollar finished the week higher against its namesake, but the Canadian currency underperformed all other G10 counterparts and relative weakness suggests risks remain to the downside in the week ahead. Relative disappointments in Canadian Retail Sales and Consumer Price Index data affected market expectations for the future of domestic interest rates. Overnight Index Swaps now price in a 20 percent probability that the Bank of Canada will raise interest rates at their next meeting—down from a 50 percent chance at the end of last week. Bearish US Dollar momentum suggests that the USDCAD could fall further, but the Canadian Dollar’s inability to capitalize on Greenback weakness raises risks of upward correction in the USDCAD.

A relatively empty week of Canadian economic event risk means that the USDCAD will likely trade off of US economic developments and moves in very highly correlated Oil prices. A potential exception comes in the form of monthly Canadian Gross Domestic Product data due the morning of the 30th. Though the month-on-month GDP figures are not known to move currencies, recent focus on Canada’s economic fundamentals may make any surprises market-moving. On the US economic docket, a slew of end-of-month economic data could potentially alter forecasts for US growth and affect financial markets.

The Canadian Dollar previously rallied against the Greenback and other major currencies on evidence that it was decoupling from a slowed US economy and showed solid growth prospects. Yet more recent economic data reminded markets that Canada remains fairly sensitive to economic developments in its southern neighbor. Disappointments in US economic data would likely force the USDCAD lower, but any especially strong surprises would likely mean that the Canadian Dollar could continue underperforming against other major counterparts.

As it stands, it is difficult to call for substantial US Dollar recovery against any major currency. Yet the Canadian Dollar may continue to underperform more broadly as markets digest a relative slowdown in Canadian economic recovery. Such underperformance would likely mean that the USDCAD continues to trade in a wide range through the foreseeable future.

Australian Dollar: Trends Higher But a Reversal May Be On the Horizon

Fundamental Outlook for US Dollar: Neutral

- Australian Dollar 9650 Is Resistance
- Australia Ready to Raise Rates if Growth Trends Hold, RBA Minutes Show

The Australian dollar has rallied against the U.S. dollar this week, climbing some 2.36 percent, and finishing as the sixth best performing G-10 currency through Friday’s close. The economic docket in Australia was relatively light this week but the RBA’s minutes from September suggests that policy makers may hike rates twenty five basis points at its next rate decision meeting on October 4th. At the same time, the single currency is benefiting from a change in sentiment as concerns of another downturn in the global economy fade (for now).

The minutes from the Reserve Bank of Australia this past week showed an aggressive stance towards further tightening by the central bank. The RBA stated that they see slightly stronger domestic conditions versus the previous month, and went onto add that higher rates are likely if growth trends continues its course. The increase in borrowing costs will ensure that inflation remains consistent the bank’s target, RBA said. In turn, the Aussie rallied against the struggling U.S. dollar as traders’ priced in an increased chance that policy makers will raise its key overnight lending rate next month. According to the Credit Suisse overnight index swaps, traders believe that there is a 60 percent chance of a rate hike to 4.75 percent from its current level of 4.50 percent. It is also important to look at the Sino-Australian relations due to the fact that China is Australia’s largest trading partner because of China’s demand for iron ore, natural gas, and coal. Though China is not ready to tighten policy, the economy looks to be heading the right direction as growth continues to be supported by its exports market, which has climbed 34.4 percent in August. However, disappointing Chinese PMI manufacturing and leading index reports may weigh on the Yuan in addition to the Aussie. Strength in the Australian dollar is not solely due its domestic strength, but is also attributed to optimism in the global economy as fears of a double dip recession dissipate.

Taking a look at price action, the AUDUSD has rallied to the highest level since 2008. In turn, the exchange rate continues to trade in overbought territory, which is indicative of a correction to the downside. However, traders should not overlook a period of consolidation followed by another rally as recent developments points to additional gains. For example, my user defined the Parabolic SAR crossover signaled for an advancement in the pair on September 1st, and has yet to reverse course, while our speculative sentiment index now stands at -3.7, pointing to further increases in the pair.

New Zealand Dollar Unable to Join Rally as Rates, Growth Dim

Fundamental Forecast for New Zealand Dollar: Bearish

- New Zealand growth sharply underperforms, drives the kiwi dollar lower
- NZDUSD advance can’t surpass resistance. Is this technical ceiling too much too conquer?

Risk appetite was ramped up this past week; and many assets capitalized on the improved sentiment. However, there was a distinct performance difference between those assets that rallied in the face of fundamental concerns and those that are natural optimism bedfellows due to their investment status. The former crowd marked true breakouts and showed an effort to jump start new trends while the latter struggled to extend their performance. The kiwi dollar has its feet in both pool; but that doesn’t mean the currency comes out with a net benefit. Against the worst performing unit though the period (the US dollar), the commodity currency has found itself walled in by 0.74 resistance. Heading into the new weeks, speculative interests have already passed the breakout phase and are now going to have to stir up momentum. Will the New Zealand unit find enough of a risk current to carry it to its own rally?

First and foremost, the concern for the kiwi is the intensity of risk trends. The remarkable breakout from the S&P 500 and EURUSD was perhaps the best catalyst the broader FX market could have asked for in terms of speculative leverage. Missing the opportunity to produce a critical break on NZDUSD through this momentum is a significant oversight. From here, speculative interest will be responsible for carrying optimism to new heights; and considering there are few legitimate sources for positive sentiment, the conviction that does develop will lack. Furthermore, we see that the relatively high-yield currency is sliding fast against the fundamentally-unstable euro, the pound and even the low-yield Japanese yen. If there isn’t a spark of demand from one of this pairs, there certainly won’t be a wave of kiwi buying across the broader market.

Another interesting assessment of the kiwi can be made in its comparison to the Aussie dollar. Both are investment currencies; but we have seen the RBA maintain a hawkish bias whereas the RBNZ this past week threw the breaks on its hawkish commentary. Furthermore, growth in Australia is still running at a robust pace as the gas station to China while New Zealand has seen its growth pace slashed. Yield isn’t the only concern for the markets at this point. The demand is for those investments that can produce the highest yield or have the greatest potential for appreciating from depressed levels. Why establish a yield position with the kiwi when the Aussie is more stable and maintains a higher yield? And, why go long the New Zealand dollar when it is already at marked highs and currencies like the euro are still significantly depressed. In the absence of overwhelming momentum for yield and risk, the kiwi may flounder.

Gold Likely to Extend Gains Amid Uncertainty, $1300 Looms Ahead

Fundamental Forecast for Gold: Bullish

- Gold Vulnerable as ETF Holdings Lag Price Gains
- Dovish FOMC Pushes Gold to New Record High

Gold prices continued to edge higher last week, touching a new record high of $1300 in Friday’s trade. The yellow metal seems to reflect the shaky climate prevailing across financial markets more than any other trading instrument. Indeed, short-term correlation studies show only tenuous links between gold and most other benchmark assets as investors bank on its store-of-value properties amid continued uncertainty about global growth and inflation trends. In fact, gold ETF holdings rose to a record-high 67.2 million ounces last week.

Looking ahead, next week’s economic calendar promises plenty of scheduled event risk to keep markets engaged in the debate about the depth of the likely slowdown on tap in the second half of the year and its implications for the recovery at large. US releases remain of central concern as the health of the world’s largest consumer market remains a proxy for worldwide performance. The final revision of second-quarter GDP figures is expected to confirm previous estimates of a 1.6 percent annualized increase in the three months through June, but timelier indicators offer a mixed picture. Personal Income is set to tick higher for the second month while Personal Spending matches the largest increase in four months in August. However, it’s tough to feel sanguine about such results considering Consumer Confidence is due to decline in September having advanced in the preceding month, hinting the gains in income and spending may not prove lasting. On balance, September’s ISM outcome may prove to define the trading week, with the report set to show US manufacturing growth has faded to the slowest pace in 10 months.

Beyond the States, the Tankan Survey of sentiment among Japan’s export-sensitive manufacturers will offer a reading on the vitality of global demand, with expectations pointing to relative optimism on the forward-looking Outlook gauge and a continued acceleration in capital expenditures. China’s Manufacturing PMI will serve much the same purpose, with forecasts calling for the pace of industrial-sector growth to rise for the second consecutive month in September. While seemingly encouraging, these outcomes may not prove to meaningfully underpin optimism considering the murky US economic landscape coupled with signs of European slowdown evidenced the last batch of PMI figures and the steady slide in the Baltic Dry Index – a measure of international trade activity – which finished last week at the lowest in over a month.

On balance, it seems the path of least resistance points toward a continuation of gold’s gradual ascent, with conflicting economic data flow seemingly assuring steady investment demand as markets remain wanting of trend-defining clarity on the medium-term path of global growth.

By David Rodriguez, Quantitative Strategist; John Kicklighter, Currency Strategist; John Rivera, Currency Analyst; Ilya Spivak, Currency Strategist; David Song, Currency Analyst and Michael Wright, Currency Analyst
Article Source - Forex Weekly Trading Forecast - 09.27.10

EUR to Benefit from American and Japanese Bank Moves?

2010-09-24T09:56:00.003+02:00

With rising fears about additional monetary easing by the Federal Reserve, speculators have begun to exit many of their USD positions in favor of higher yielding assets. Bank intervention in Japan also has many investors weary of entering yen positions in the near future, but poor fundamentals out of Europe have traders just as concerned about their investments in the euro zone, but have the added benefit of less government tinkering. The EUR's best bet for the moment could be to lie low and reap the benefits of a rapidly dropping USD and JPY.

USD - USD Stable despite Monetary Easing Speculations

The US dollar has been holding steady against most of its currency rivals, despite fundamentals showing a shift away from the safety of the greenback. A positive jobs report pushed the USD/CAD towards 1.0380, while conflicting reports out of Europe have the EUR/USD stalling at 1.3340 and the GBP/USD appearing to consolidate just below 1.5700.

With rising fears about further monetary easing by the Federal Reserve, speculators have begun to exit many of their USD positions in favor of higher yielding assets. A narrowing of the yield gap between the US and Japanese bonds also put pressure on the greenback as traders exited their carry trades, adding downward momentum to the dollar.

Today's durable goods orders out of the United States have a chance to add modest support to the USD if the figure is in line, or above, expectations. Rising durable goods orders is representative of increased demand for US manufacturing goods and services, which has a residual effect across the American economy.

EUR - EUR Gaining Amid Global Monetary Changes

The euro's rise continued in today's Asian trading sessions, but some analysts have begun to anticipate a softening of the EUR in the hours ahead. The EUR/USD saw a healthy 60 pip gain since the opening of the Asian session, currently trading at 1.3350. The EUR/GBP also rose modestly, sitting just above 0.8505.

Bank intervention in Japan has many investors weary of entering yen positions in the near future, but poor fundamentals out of Europe have traders just as concerned about their investments in the euro zone. Today's German Ifo Business Climate report could show a minor decline in economic sentiment in the region's largest economy. However, most analysts do not expect the Ifo report to carry much weight given the load of speculation emerging from the US and Japan.

With Japanese bank interventions and potential monetary easing by the US Federal Reserve, the euro's best chances of weathering the storm may be to lie low and do what it can to downplay its negative data releases. No news may be the best news for the euro zone's single currency for the moment.

JPY - JPY on Shaky Ground; Traders Awaiting Second Wave of Bank Intervention

The Japanese yen slumped against the US dollar and the EUR in today's early trading on speculation Japan is selling its currency after intervening in the market last week. The yen slid 1% to 85.22 per dollar from 84.38 in New York yesterday, however, it since stabilized back around $85.

Japan has yet to express satisfaction at the current value of its currency. This has led many speculators to anticipate a second wave of bank intervention sometime in the near future. The speculation alone has helped drop the yen against many of its currency counterparts. But should the Bank of Japan (BOJ) intervene in the market once more, traders are likely to see a very sharp drop in the value of the yen, primarily against the US dollar.

With no news expected out of Japan before the weekend's close, European and American reports will likely control today's movements, setting the pace for early next week. Traders would be wise to follow today's two leading events, the German Ifo Business Climate and the US Core Durable Goods Orders report.

Crude Oil - Crude Oil Fundamentals Could Be Weaker than Many Expected

The price of Crude Oil continues to float between $73.50 and $76.50 as markets digest the impact of Japan's bank interventions and speculation about further monetary easing in the United States. The summer driving season in Europe and America did little to support oil prices this year. Fundamentals remain weak for Crude Oil, and few expect growth levels to return to pre-2007 levels anytime soon.

With the current price of Crude Oil trading just below $75.00 a barrel, there appears to be technical pressures mounting to push the price higher in today's trading. Retreating optimism in Europe and a possible boost to American manufacturing growth both provide fundamental support to oil prices, but the specter of additional quantitative easing in the United States remains overhead.

Traders appear weary of purchasing the dollar, and the expected result should be a rise in oil prices. On the contrary, though, the support currently being experienced seems softer than expected and has many analysts concerned that fundamentals are in fact weaker than most have forecast.

Technical News

EUR/USD

The price of this pair has been floating in the over-bought territory on the daily RSI for some time now, suggesting strong downward pressure. A fresh bearish cross on the daily Stochastic (slow) supports this notion. As the price tests an important psychological barrier near 1.3350, going short may be a wise tactic for fast profits today.

GBP/USD

The recent uptick on this currency pair has just pushed the price into the over-bought territory on the daily RSI, suggesting an increase in downward pressure today. The price has also recently turned downward and exited the over-bought territory on the weekly RSI, suggesting that a cascading downward movement may have already been initiated on a larger time-scale. Going short may turn out to be the preferred strategy before the weekend's close.

USD/JPY

The price on the USD/JPY has recently shifted into an upward direction on the weekly RSI, also just exiting the over-sold territory, suggesting a rise in upward momentum. With impending bullish crosses on the daily and weekly MACDs, it may turn out that bullishness is on the way. Traders may want to take advantage of this movement by entering long positions on this pair throughout the day.

USD/CHF

This pair continues to decline, pushing the price into the over-sold region on the daily RSI, and even deeper into the weekly RSI, indicating that an upward correction is expected. An impending bullish cross on the daily Stochastic (slow) supports this notion. Going long may not be a bad idea.

CHF/JPY

The movements of this pair seem to suggest that the price has reached a recent high which is unsupported. The 4-hour, daily and weekly RSI show the price as over-bought, while the daily Stochastic (slow) and MACD have impending bearish crosses. Forex traders may want to evaluate their positions on this pair, especially since it appears that a bearish correction may be imminent. Going short on this pair could turn out to be an excellent gamble before the weekend's close.

Article Source - EUR to Benefit from American and Japanese Bank Moves?

Dollar Declines to 5-Month Low Against the EUR

2010-09-23T16:12:00.003+02:00

The US dollar traded near a five-month low versus the EUR before a U.S. report today that may show existing home sales are close to a 10-year low, adding to signs the world's largest economy is struggling to recover.

USD - US Dollar Extends Losses

The US dollar fell against most of the major currencies on Wednesday, a day after the Federal Reserve said it was ready to take further action to boost the U.S. economy and fend off any deflationary threats. As a result, the dollar fell to its lowest level versus the yen since Japan intervened last week and closed around 84.50. The dollar experienced similar behavior against the EUR to trade at session highs above 1.3400.

The U.S. Federal Reserve's policy-making open market committee on Tuesday set the tone after it said it was prepared to take new stimulus measures if necessary. While the Fed left interest rates at record lows, it suggested further credit easing in a statement. Those measures would likely include buying treasury bonds, causing the market to brace for further dollar losses. The Fed comments will likely keep the dollar weak in the near-term, as the bank's stance is expected to keep downward pressure on U.S. interest rates, analysts said.

Today's Unemployment Claims and Existing Home Sales releases are expected to have a strong impact on the US currency. Any result could be a surprise, and the dollar could go either way as a result. In any case, traders are unsure how the market will react to today's data. A weak report could feed risk aversion, boost Treasuries and actually aid the US dollar. Then again, a better than expected result might be seen as a sign of relative US economic strength, and lift the dollar. Or it could also encourage risk-taking and aid commodities and higher-yielding currencies at the dollar's expense.

EUR - EUR/USD Hits 5-Month High

The EUR experienced a bullish trading session yesterday, as it appreciated in most of its major currency pairs. The 16-nation currency extended gains versus the dollar during yesterday's trading session, rising to its highest level in five months to trade above 1.3400 amid a broad sell-off in the USD. The European currency finished around 60 pips higher against the JPY to finish yesterday's trading session at the 113.30 level.

The pound slipped against the EUR on Wednesday to the lowest level since May, after the report showed the British budget deficit widened in August more than expected, increasing the possibility of further budget spending cuts. The EUR/GBP reached today 0.8560, the highest level since May 28th, after it dropped to the intraday low of 0.8462.

The UK public sector net borrowing was £15.9 billion in August, compared to the borrowing of £14.1 billion in a year ago. The current budget posted the deficit of £13.3 billion in August. Analysts say that the pound may fall further versus the EUR.

JPY - Yen Makes Big Gains on Dollar

The Yen rose on Wednesday to its highest level against the dollar since Japan intervened last week, fuelling speculation of more intervention after the Federal Reserve raised expectations it would print more dollars to help the U.S. economy. The USD/JPY fell yesterday as low as 84.26 before correcting itself. Currently the pair is trading around the 84.60 level.

Top Bank of Japan officials flagged rising risks to the nation's growth as the yen climbed in the aftermath of the US Federal Reserve signaled its willingness to consider more monetary stimulus. The remarks came a week after Japan sold yen for the first time in six years in response to a strengthening currency that threatened to derail the economy's recovery. The BOJ may be pressured to consider further liquidity injections after the government's decision to intervene and the Fed's signal it may ease more.

Many traders expect Japan to step in between 83.00 and 85.00 yen. They said the authorities had called banks to ask if they will be staffed on Thursday, a Japanese national holiday, in an apparent attempt to keep traders cautious over intervention.

OIL - Crude Oil Rises Above $75 a barrel

Oil prices rose above $75 a barrel Wednesday, boosted by a weaker dollar. But gains were limited by a report showing an unexpected rise in US supplies last week, a sign demand for crude oil may not be improving.

Oil and other commodities denominated in dollars for global trading tend to rise when the U.S. currency falls as they become cheaper for holders of other currencies. A move away from dollar-based pricing of the world's leading commodity could further weaken the greenback.

As for today, traders should pay attention to the US Crude Oil Inventories report as it tends to have a large impact on Crude Oil prices recently, especially for the short-term.

Technical News

EUR/USD

After a strong rally over the last few days, the pair is finally seeing some downward correction with some room for the trend to continue. Looking at the daily chart, a breach of the upper Bollinger Band is evident with the RSI for the pair floating in the overbought territory. A bearish cross is evident on the 4 hour and 8 hour chart's Slow Stochastic. Going short with tight stops may be preferred for the day.

GBP/USD

The pair is currently range trading between 1.5630 and 1.5690 with most indicators in neutral territory. The RSI for the pair floats near the overbought territory on the 4 hour and daily chart indicating some downward movement may still be expected from the pair. Going short with tight stops for the day may be advised.

USD/JPY

After a strong downward move some correction may be expected for the pair as the RSI is floating in the oversold territory on the 4 hour and 8 hour charts and a bullish cross is evident on the 8 hour chart's Slow Stochastic. Going long for the day may be a good option.

USD/CHF

A breach of the lower Bollinger Band is evident on the daily chart with the RSI for the pair floating in the oversold territory on the 8, 4 and 2 hour charts. Furthermore, a bullish cross is evident on the 8 hour chart's Slow Stochastic. Going long with tight stops may be advised for the day.

AUD/CAD

After a long bullish run, some correction may be in store for the pair. A bearish cross is evident on the daily chart's Slow Stochastic with the RSI for the pair floating in the overbought territory on the 4 hour, 8 hour and daily charts. Moreover, a breach of the upper Bollinger Band can be seen on the daily chart, indicating an imminent downward move. Forex traders are advised to go short for the day.

Article Source - Dollar Declines to 5-Month Low Against the EUR

USD/JPY Declines Below 85 yen

2010-09-22T09:59:00.003+02:00

The U.S. dollar continued to decline in early morning trading Wednesday, buying less than 85 Japanese yen after the U.S. Federal Reserve said it was ready to take further action to boost the economy.

USD - Dollar Falls Broadly on Fed's Comments

The U.S. dollar hit its lowest level in seven weeks against a basket of currencies, following the FOMC statement Tuesday night. Furthermore, the USD dropped below 85.00 yen, which in turn generated speculation that Japanese authorities may intervene to curb yen gains after the BoJ resumed intervention for the first time since 2004 last week.

The dollar fell about 1% against the euro on Tuesday, after the Federal Reserve said it would provide additional accommodation if needed to support the economy. The FOMC also said inflation is currently running below its target and sounded gloomier on its growth outlook, laying the groundwork for quantitative easing. Quantitative easing is considered by many economists as akin to printing money and therefore weakens a country's currency.

Against the Japanese yen the dollar fell to its weakest level since Japan intervened last week, fueling speculation further Japanese intervention in the marketplace. Some market players do not rule out another push by Japanese authorities to try and send the greenback above 86 yen. Many doubt they would let the dollar fall below 84.00. That being said, the prospect of quantitative easing from the Fed does not bode well for a bullish USD/JPY pair.

EUR - Euro Near 6 Week High vs. USD

The euro rose against the greenback on Tuesday, largely due to solid demand at sales of peripheral euro zone debt. At the same time, expectations that the U.S. Federal Reserve may debate more monetary easing kept investors away from the greenback. Irish, Greek and Spanish government debt auctions attracted decent demand, easing concerns about whether the euro zone's highly indebted countries can obtain the funding they need.

Analysts said that the fact that the auctions were relatively well-received helped the euro develop some bullish momentum and it has broken through resistance at $1.3120.

The euro rose as high as $1.3312 in overnight trading, up 0.4%, after climbing 1.5% on Tuesday. It climbed through its 200-day moving average on Tuesday and chartists have said the next target is its August high of $1.3334.

JPY - Yen Gains After Fed Statement

Japan's Nikkei average slipped 0.5 percent on Wednesday, as the yen edged higher after the Federal Reserve's latest statement on the U.S. economy intensified speculation that it would take more quantitative easing steps later this year. The yen rose above the 85 level vs. the greenback, with market players saying that uncertainty about the likelihood of more intervention was keeping investors sidelined, particularly ahead of a Thursday holiday in Japan.

Despite the gains made against the dollar, the yen continues to fall against the euro. The EUR/JPY pair has shot up some 85 pips since yesterday afternoon. Following the news of euro-zone debt, it appears that investors are willing to bet on the European currency vs. the safe haven yen.

Crude Oil - Oil Weakens before Inventories Report

Crude oil prices fell for the 5th time in six days on Tuesday, amid high oil inventories and the Federal Reserve's continued concern about the sluggish economic recovery. Oil prices failed to garner any support from a weak dollar, which can lift dollar-denominated crude oil prices because it makes the commodity less expensive in countries using currencies other than the greenback.

An analyst survey ahead of the API report had yielded a forecast for crude inventories to be down 1.9 million barrels last week because of lower imports from Canada. This is largely due to the Enbridge pipeline outage and the stormy weather that hindered oil tankers navigation. Oil traders are now waiting for the first glimpse of the prior week's crude inventories. The U.S. Energy Information Administration will release its oil inventory data on Wednesday at 14:30 GMT. An increase in inventories is expected, which if true, would likely pull prices further down.

Technical News

EUR/USD

Virtually all technical indicators are showing this pair in overbought territory. The Williams Percent Range on the 8-hour chart is currently at the -5 level. Typically anything above the -20 level is a sign that the pair could experience downward pressure. The Stochastic Slow on the daily chart has formed a bearish cross, meaning a correction could take place in the near future. Traders are advised to go short with tight stops today.

GBP/USD

Most technical indicators are showing this pair in overbought territory, meaning the possibility of a downward correction is likely. The Williams Percent Range on the 4-hour chart is currently at -10, while the Relative Strength Index is approaching the upper resistance line. Traders may want to go short in their positions today.

USD/JPY

Technical indicators are currently mixed for this pair. While the Stochastic Slow on the daily chart shows that a bearish cross has formed, the Williams Percent Range on the 8-hour chart shows the pair in the oversold region, meaning an upward correction could occur. Traders are advised to take a wait and see approach for this pair today.

USD/CHF

Most technical indicators are showing this pair in the oversold region. The Williams Percent Range on the daily chart is at the -90 level, meaning upward pressure is likely. The Stochastic Slow on the 8-hour chart is showing a bullish cross forming right now. Traders are advised to go long with tight stops today, as an upward correction may occur.

Silver

Technical indicators on the daily chart including the Stochastic Slow and Relative Strength Index show that silver is currently in overbought territory. The Williams Percent Range on the 8-hour chart confirms this theory. Forex traders may want to go short with tight stops today, as a downward correction is likely to occur.

Article Source - USD/JPY Declines Below 85 yen

Markets Cautious Ahead of FOMC Meeting Statements

2010-09-21T15:38:00.003+02:00

The Dollar is under pressure ahead of the Federal Reserve meeting statements later today, as the possibility of further quantitative easing measures by the Fed weigh on the greenback.

USD - Markets Await the FOMC Meeting Statements

The U.S Dollar fell against most counterparts Monday over concerns ahead of today's Federal Reserve meeting. Speculations regarding another round of economic stimulus put investors in a cautious mood. The FOMC meeting minutes has overshadowed lingering Euro-Zone sovereign-debt issues, allowing the EUR and other counterparts to advance versus the USD as the possibility of additional asset purchasing programs weighed on the Dollar.

The U.S. Dollar did make gains on the U.K Pound, gaining around 0.5%, after Bank of England lending data measuring broad money supply for July was flat and mortgage approvals dropped to the lowest level since April 2009.

Investors were exercising caution ahead of an FOMC announcement and most currencies remained within narrow ranges. While it is not expected that more quantitative easing programs will be announced, there is the possibility the Fed will surprise the markets and be more proactive.

While the FOMC statement is the most highly anticipated news release for today, traders should also follow the release of the Building Permits and Housing Starts, both due at 12:30 GMT. The housing market remains one of the most important and highly followed indicators as a measure of economic recovery.

EUR - Renewed Sovereign Debt Concerns Weigh on EUR

The single currency came under modest pressure at the end of last week as worries about European sovereign debt increased. The EUR's strength will be further tested this week with Irish and Portuguese debt auctions Tuesday and Wednesday, respectively.

The Pound fell against the EUR and the greenback after a report showed mortgage approvals dropped to the lowest level since April 2009. The GBP declined versus all of its major counterparts as signs the U.K.'s housing market weakened, threatened to undermine the country's recovery from the recession.

Late Monday, the EUR was at $1.3064 from $1.3039 from late Friday and at 111.96 Yen from 112.89 Yen. The U.K. Pound was at $1.5547 from $1.5626.

The EUR/USD pair is currently trading within a tight range and is likely to remain between $1.30 and $1.31 ahead of the FOMC meeting minutes.

JPY - The AUD at a 2 year high

A Japanese holiday Monday kept Yen trading light as investors still keep an eye out for more Japanese intervention.

The Australian Dollar, a growth linked currency, gained more than 1% against the greenback. Reserve Bank of Australia Governor Glenn Stevens's strong assessment of the Australian economy boosted the AUD higher versus the Dollar. The hawkish remarks lifted expectations of an impending interest rate hike boosting the currency.
The Australian Dollar Monday hit a series of two-year highs, topping out at $0.9495 from $0.9372 late Friday.

Crude Oil - Crude Recovers on Rising Equities

Crude Oil futures settled higher Monday as rising U.S. equities boosted optimism about the economic outlook. Light, sweet Crude for October delivery settled $1.20 higher at $74.86 a barrel on the New York Mercantile Exchange after trading as high as $75.45 earlier in the session. Spot crude is currently trading around $76 a barrel. The October crude contract is due to expire at the end of trading today.

Future economic growth and demand remain the main drivers behind oil prices. For today the focus will be on economic data as well as comments from the Federal Reserve. With Oil Inventories remaining high, the strength of the U.S economy is the most valuable tool to gauge future oil demand.

Technical News

EUR/USD

The EUR/USD cross has experienced a bullish trend for the past week. However, it seems that this trend may be coming to an end. For example, the daily chart's Stochastic Slow signals that a bearish reversal is imminent. A downward trend today is also supported by the hourly chart's Slow Stochastic. Going short with tight stops may turn out to pay off today.

GBP/USD

There is a bearish cross forming on the daily chart's Slow Stochastic indicating a bearish correction might take place in the nearest future. The downward direction on the hourly chart's Slow Stochastic also supports this notion. When the downward breach occurs, going short with tight stops appears to be preferable strategy.

USD/JPY

The 4-hour chart is showing mixed signals with its Slow Stochastic fluctuating at the neutral territory. However, a bearish cross forming on the daily chart's Slow Stochastic implies that downwards correction might take place in the nearest time frame. Going short with tight stops might be the right strategy today.

USD/CHF

The typical range trading on the hourly chart continues. The daily chart Slow Stochastic is floating in neutral territory. However, the 4-hour Chart's RSI is already floating in the oversold territory indicating that a bullish correction might take place in the nearest future. Going long with tight stops might be the right strategy today.

Gold

Gold prices rose significantly in the last week and peaked at $1283 an ounce. However, the daily charts' RSI is floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage.

Article Source - Markets Cautious Ahead of FOMC Meeting Statements

Will The Yen's Bearish Momentum Continue?

2010-09-20T08:58:00.003+02:00

A very fascinating event took place last week as the Japanese leadership decided to intervene in the national currency's trading. As planned, the Japanese yen fell against all the major currencies. At the moment, Japan is promising to fight the strong yen, and admits that further interventions could take place. Is the yen likely to fall further?

USD - Positive U.S. Economic Data Spurs Demand for Risky Assets and Weakens the Dollar

The U.S. dollar fell against most of the major currencies during last week's trading session. The dollar fell about 400 pips against the euro, and the EUR/USD pair is once again trading above the 1.3000 level. The dollar fell about 200 pips against the British pound as well.

The greenback fell last week as several economic publications signaled that the U.S. economy is recovering. This in turn boosted investor confidence in the global economic recovery. The Unemployment Claims report showed that applications for unemployment benefits unexpectedly fell last week to the lowest level in two months, indicating that the labor market is improving. In addition, the Long-Term Purchases report, released on Thursday, showed that global demand for U.S. stocks, bonds and other long-term financial assets was stronger than forecast in July. Net buying of equities, notes and bonds totaled $61.2 billion in July compared with net buying of $44.4 billion in June. The positive data has boosted optimism for risker assets, and as a result decreased demand for the dollar, which is considered to be a relatively safe investment.

Looking ahead to this week, the most significant release from the U.S. economy looks to be the Federal Funds Rate, which is scheduled for Tuesday at 18:15 GMT. This is in fact the U.S. Interest Rates announcement for the next month. Analysts expect the Fed to leave rates at a record low of less than 0.25%. However, if the Fed will surprise and hike rates, unusual volatility will likely take place as a result.

EUR - Euro Bullish On All Fronts

The euro saw a bullish trend against all the major currencies during last week's trading. The euro gained about 400 pips against the U.S. dollar and about 600 pips against the Japanese yen. Additionally, EUR/GBP went up about 100 pips.

The euro shot up despite several rather disappointing economic releases from the euro-zone. The most significant publication from the euro-zone last week was the German ZEW Economic Sentiment survey. In the survey, about 350 German institutional investors and analysts rate the economic outlook for Germany, which holds the largest economy within the euro-zone. The survey showed that investor confidence fell more than economists had predicted, and in fact, reached a 19-month low in September. The drop in confidence is believed to be the result of budget cuts across the region and slowing global growth.

Despite the negative data, the euro gained against the major currencies. The euro's bullishness however was the direct result of better-than-expected U.S. releases, especially regarding the employment situation. Investors are confident that solid U.S. economic trends will eventually make their way to Europe.

As for this week, a batch of data is expected from the euro-zone, with the most interesting trading day likely to be on Thursday, when several significant economic indicators will be released from Germany and France. Analysts currently have rather gloomy expectations, but if the end results will provide better figures, the euro could strengthen further against the majors.

JPY - Central Bank's Intervention Succeeds In Weakening the Yen

Last week's most significant development in global currencies was without a doubt the Bank of Japan's (BoJ) decision to intervene in the national currency's trading for the first time since 2004. As a result, the yen fell about 150 pips vs. the U.S. dollar, and about 500 pips against both the euro and the British pound.

The Bank of Japan's decision came after the yen reached a 15-year high against the U.S. dollar. The Japanese economy largely depends on its export industry, which is hit hard when the yen is overvalued. Experts say that the BoJ has ordered to sell as much as 1.8 trillion yen ($21 billion). As a result, the yen had its biggest weekly decline against the greenback since April. In addition, Finance Minister Noda said that the government will continue to intervene if necessary, hinting that Japan will take actions to prevent the yen from reaching record highs again.

As for the week ahead, investors are curious as what the long term effects of the BoJ intervention will be. Will the yen continue to weaken, or will investors try to fight off the aggressive sell off? In case the yen will begin to erase last week's losses, traders are advised to ready themselves for additional intervention from the Japanese government.

Crude Oil - Crude Oil Halts Is Fall at $75 a Barrel

Crude oil dropped sharply during last week's trading session. Crude began last week's trading at $77.30 a barrel, and then promptly dropped to as low as $74.05 a barrel. However, the commodity managed to slightly correct its losses, and is currently trading around $75.00 a barrel.

Crude oil prices fell last week after the U.S. announced on Friday the restart of Enbridge's Line 6A pipeline, which carries up to a third of Canada's U.S. bound crude oil shipments. The expected larger amount of supplies has decreased demand for oil, causing prices to fall.

Looking ahead to this week, traders are advised to follow the main publications from the U.S. and the euro-zone, as those tend to have a large impact on oil prices. In addition, traders are advised to follow the U.S. Crude Oil Inventories report, scheduled for Wednesday, as it tends to have an instant impact on the market.

Technical News

EUR/USD

Technical indicators show that this pair, after trading above the 1.3000 level for some time, may be ready for a downward correction. The Stochastic Slow on the daily chart shows a cross has formed above the resistance line, indicating downward movement is likely to occur. The Relative Strength Index on the 8-hour chart is above the 70 level, which means downward pressure is predicted. Traders may want to go short with tight stops today.

GBP/USD

Technical data is showing mixed signals for this pair at the moment. While both the Relative Strength Index and Williams Percent Range on the 8-hour chart show the pair in overbought territory, the Stochastic Slow on the same chart is trading in neutral territory. Indicators on the daily chart are following a similar pattern. Traders may want to take a wait and see approach for this pair today.

USD/JPY

Following the jump this pair made last week, technical indicators are showing it may finally have reached overbought territory. The Relative Strength Index on the 8-hour chart is currently around the 80 level, well above the upper resistance line. Furthermore, the Williams Percent Range on the daily chart is at around -5. Typically, anything above -20 means the pair will face downward pressure. Traders may want to go short in their positions today.

USD/CHF

Technical indicators across the board are showing this pair trading in neutral territory at the moment. Typically, this means that no clear direction for the pair exists at the moment. Traders will want to take a wait and see approach for this pair, as the trend is likely to change later in the day.

Silver

After last week's spike in silver prices, the commodity may have finally reached overbought territory. The Williams Percent Range on the daily chart is around the -5 level, while the Relative Strength Index on the same chart has been trading above the upper resistance line for some time. Forex traders may want to go short in their positions today, as a bearish correction is likely.

Article Source - Will The Yen's Bearish Momentum Continue?

Forex Weekly Trading Forecast - 09.20.10

2010-09-18T11:08:00.002+02:00

Dollar Turns to FOMC Meeting to Confirm or Counter New Bear Trend

Fundamental Outlook for US Dollar: Bullish

- US Dollar marks a critical break as speculation of a new round of Fed stimulus grows
- Consumer confidence stumbles and retail sales slips as the economy’s primary engine stalls
- IF the dollar can curb its tumble against the euro, the rest of the majors could follow

The benchmark dollar put in for a critical bearish break this past week. Though, the odd thing about this slip is that the complimentary speculative markets weren’t following the risk appetite track that would normally have catalyzed this move. In fact, it seems the greenback’s sudden drop would develop completely outside of the risk arena. Has the dollar broken free of its overbearing (negative) correlation to investor optimism? The answer to this question is the essential first step to reasonably projecting the dollar’s future. If the currency’s appeal as a liquid harbor for capital diminishes, its primary fundamental driver will be open to interpretation and therefore lacking the necessary influence to develop a meaningful trend.

So, our first question heading into next week is whether the dollar has indeed made the break from risk appetite trends. The rationale behind this scenario was the sharp, bearish for the single currency whilst other speculative-sensitive markets held steady. However, if we ignore the technical implications of this move for a second, we can see more clearly that this was a decline after a month-long period of congestion. In the first two weeks of the month, when the dollar was still holding to its range, the S&P 500 was actually putting in for a marked advance. Perhaps the surge by the dollar this past week was merely an overdue reconciliation between currency and market theme? This makes sense in the context that when the fundamental force behind the capital markets eases, well-established correlations weaken. If this is indeed the case, a lack of a clear trend in risk will keep the dollar from developing its own bear trend. At the same time, should optimism or pessimism unify traders, the dollar will tumble or rally correspondingly.

At the same time, there is a chance that the dollar could permanently lose its appeal as a safe haven and turn to a longer-term deterioration in its fundamental health that has to this point been ignored. In the government’s effort to encourage growth, the expansion of stimulus in turn boosts the money supply. This is a natural burden on the value of the domestic currency. However, to this point, the role of safe haven has been more important to traders. Now, in this period of respite for risk, investors can be shaken in their confidence as the Federal Reserve has the ability to abruptly increase stimulus. Last week, speculation that the central bank will increase its lending program ushered the dollar lower. The Fed will actually have this chance this week at the policy meeting. Will they increase stimulus beyond the $2 trillion floor? Unlikely. And, such an outcome would solidify the correlation and perhaps lower speculative confidence.

Aside from this big ticket event risk, it is worthwhile to keep a close eye on the factory and housing related data due through the week. The former has proven a sieve for consumer confidence and the latter is the last hope for a recovery that is quickly deflating.

Euro Failure at 1.3150 Warns Sentiment May Have Hit Extreme

Fundamental Forecast for Euro: Neutral

- Second quarter European economic growth beats expectations, Euro strengthens
- Euro, British Pound advance against the US Dollar as risky assets gain
- Our Technical Strategist believes Euro longs against the Australian Dollar, Swiss Franc attractive

Fresh multi-month highs in the US S&P 500 and other financial asset classes made the risk-sensitive Euro top-performing G10 currency through the past week of trade, but a late-week reversal warns of a potential turnaround after significant gains. The EURUSD finally broke out of its tight month-long range on a surprisingly sharp US Dollar tumble. There was ostensibly little ‘reason’ for US Dollar losses, but we had earlier warned that currencies were poised for breakouts after an extended lull in volatility. The Euro’s next moves may be especially important as it has thus far shown relative inability to challenge multi-month highs against the US Dollar.

A relatively empty European economic calendar suggests that the Euro will need to take its cues from broader financial market sentiment and price swings. Traders should nonetheless watch for any especially large surprises out of upcoming German IFO business confidence results, while Euro Zone Consumer Confidence and other second-tier economic reports could also affect markets. The recent upswing in the US S&P 500 and broader financial market risk sentiment favors Euro gains against the safe-haven US Dollar. Yet examination of FX Options market sentiment suggests that the Euro may have reached an important sentiment extreme through very recent trading.

The speed with which the Euro broke out of its long-standing range warns that markets can and will shift direction at a moment’s notice. As such, EURUSD behavior near important congestion resistance at 1.3150 may prove especially significant. If we do see the single currency trade above said resistance level, there is little in the way of a test of 5-month highs above 1.33. Otherwise, a retest of recent congestion support closer to 1.2800 seems the more likely outcome.

Japanese Yen: Will The Intervention By the Bank of Japan Work?

Fundamental Forecast for Japanese Yen: Bearish

- Japanese Yen Collapses on BoJ Intervention
- Yen Drops as Japan Intervenes, Dollar’s Fate Clouded on Neutral Risk Trends
- Policy Makers Keep Trades Off Balance with Intervention Threat

After maintaining its descending channel for more than three months, the USDJPY finally crossed over the upper bounds of its range, and now looks poised to test 87.50 in the near term. Indeed, the yen was the biggest loser against the U.S. dollar amongst the G-10 currencies as the Bank of Japan intervened in the FX markets for the first time since 2004. Going forward, the Japanese yen may continue to lose ground against the greenback as the recent technical and fundamental developments points to further gains in the exchange rate.

Subsequent to much anticipation, and entering into a period in which markets discounted intervention by policy makers in Japan following the re-election of Prime Minister Naoto Kan, the central bank stepped in to stem the appreciation of the yen. The day prior to the BoJ’s move, Mr. Kan was re-elected the head of the ruling Democratic party in Japan. Preceding his re election, the Prime Minister did not show an aggressive stance toward currency intervention, which lead to the immediate rally in all major currencies against the yen. The weaker yen does more than just support exporters; it can also solve Japan’s deflationary issues. With the BoJ’s action now behind us, the question that now arises is, whether the yen will continue to deteriorate or return back to recent highs? For Japan, next month’s monetary policy meeting will be extremely important in that the intervention will need to be supported by additional quantitative easing. Until October, the yen may display a lackluster performance or weaken further if the FOMC minutes next week is more optimistic than the previous meeting, and in turn fuels risk appetite.

For this upcoming week, the economic docket for the world’s third largest economy is relatively weak as traders face the nationwide department store sales, machine tool orders, and the all industry activity index. However, it is worth noting that the final reading for the leading index is on tap. Movements in these figures usually precede larger developments in the domestic economy. The reading is widely expected to stay above 50, but will likely contract from June’s reading of 99.0, which does not bode well for the region. Away from the docket, traders should not overlook another intervention by the central bank as Japan’s Finance Minster Noda pledged to take bold action in the yen if necessary.

With regards to price action, technical analysis favors a weaker Japanese yen against the U.S. dollar. The USDJPY recently broke above its descending channel which remained intact for over three months. At the same time, our speculative sentiment index now stands at 2.10, which is off of its extreme of 7.0. Going forward, we could possibly see a test towards 87.50.

British Pound Lull to Persist on Flat Rates Outlook, Risk Decoupling

Fundamental Forecast for the British Pound: Neutral

- Pound Fails to Capitalize on CPI as BOE’s Weale Sounds Off
- UK Labor Market Unexpectedly Weakens as Jobless Claims Rise
- RICS: UK House Prices Fell Most in 15 Months in August

The British Pound was little changed last week, adding a meager 0.03 percent against a trade-weighted average of its major counterparts. Prices have been confined to a narrow range since the beginning of the month, with volatility readings lagging the spectrum of major currencies. The relative standstill has owed to a fairly stable monetary policy outlook, with traders seeing virtually no changes on the horizon for the foreseeable future, as well as a rapidly fading correlation with risk sentiment. Indeed, the link between the aforementioned trade-weighted average and the MSCI World Stock Index is now virtually nil while that of equities and typically risk-sensitive pairs like GBPJPY and GBPUSD has dropped below significant levels on 20-day percent change correlation studies.

Turning to scheduled event risk, the release of minutes from the last Bank of England policy meeting takes top billing. While traders will certainly pay close attention to the vote break-down on the rate-setting MPC committee as well as the rhetoric presented in the discussion leading up to the announcement, the likelihood of a material shift in the markets’ established outlook seems unlikely. The central bank has argued for some time that the upswing in prices since the beginning of 2010 owes to temporary factors, with the annualized inflation set to fall back below 2 percent by 2012. Given such a prolonged time frame, Mervyn King and company are surely going nowhere fast despite a promise to shift policy “in either direction” as needed, a comment likely directed at the domestic audience amid jitters about economic headwinds from the government’s austerity program. Indeed, a Credit Suisse gauge of rate hike expectations points to a static monetary policy for the coming year.

The remainder of the economic calendar is filled out with low-level releases, hinting that absent a re-coupling with risk appetite, range-bound conditions are likely to persist for the time being. Indeed, 1-week implied volatility readings suggest sterling price action will remain relatively quiet compared with the remainder of G10 FX space.

Canadian Dollar May Be Weighed By Dimming Yield Expectations

Fundamental Forecast for Canadian Dollar: Bearish

- Inverse Head & Shoulders Points To Upside Potential
- Canadian Consumer Prices Offer Potential Volatility

The Canadian Dollar finished the week on a sour note as it lost ground to the dollar and yen which retraced earlier losses from QE speculation and intervention respectively. The commodity dollar has also been weighed by a more dovish outlook from policy makers. Concerns over the impact from U.S. weakness and a slowing global economy have led to the BoC lowering their growth forecasts. Bullish, momentum from the central bank’s rate hike carried into the start of the week. Comments following the policy meeting, that financial conditions remain “exceptionally stimulative” signaled that prior tightening wasn’t restricting the flow of credit, opening the door for additional tightening. The upcoming retail sales and inflation reports may impact interest rate expectations going forward and could dictate loonie direction for the upcoming week.

Governor Carney speaking in Berlin on Friday stated that he central bank will set policy appropriate for their inflation target of 2-3%. The lead monetary authority also showed concern over the loonie’s strength as it will have a detrimental effect on demand for exports. The comments weighed on yield expectations as additional rate hikes could lead to further appreciation. Meanwhile, deputy governor Lane speaking in St John’s cautioned that the recovery will be more modest than past cycles. The BoC also holds an unusual uncertainty on the outlook for growth, with the economy having “significant” excess supply. An unexpected fall in July factory sales supported the dimming growth outlook, as the 0.9% decline warned of slumping demand from abroad.

Inflation is forecasted to have accelerated to 1.9% in August with core prices holding at 1.6%, adding to the case for the central bank to pause their tightening cycle. Prior rate hikes should help dampen consumer price growth and allowing inflation to remain within target levels. Meanwhile, an expected 0.5% improvement in retail sales could raise yield expectations in the short-term as strong domestic demand will continue to put upward pressure on prices. However, the impact may be limited given the dovish statements from policy makers, especially of inflation remains below target levels. Despite the packed fundamental calendar, price direction could come from broader trends for the USD/CAD as it is currently holding an 83% correlation with U.S. equity markets.

Australian Dollar: Will RBA Rhetoric Pave The Way For Parity?

Fundamental Outlook for US Dollar: Neutral

- Business Confidence Rebounds
- Consumer Confidence Weakens The Most In Three-Months
- Inflation Expectations Gather Pace in September

The Australian dollar extended the rally from earlier this month to reach a fresh yearly high of 0.9467, and the high-yielding currency could face increased volatility over the following week as the Reserve Bank of Australia is scheduled to release its policy meeting minutes on September 21. As the AUD/USD continues to pare the decline from the 2008 high (0.9849), the exchange rate may make another run at parity as policy makers maintain an improved outlook for the $1T economy.

RBA Governor Glenn Stevens expects growth and inflation to trend close to target after holding the benchmark interest rate at 4.50% earlier this month, and sees strong growth in business investment as the region benefits from the marked expansion in China, Australia’s largest trading partner. At the same time, assistant Governor Philip Lowe sees the economy operating close to full-capacity in the following year and expects the labor market to improve going forward as firms increase production and employment. With the economic recovery gathering pace, the central bank may adopt a hawkish tone for future policy and see scope to tighten monetary policy further as the risks for inflation intensify. Increased speculation for a rate hike in October could support the underlying strength behind the Australian dollar and the lead the exchange rate to push higher over the near-term.

The AUD/USD looks posed to test 0.9500 for psychological resistance as price action continues to trade above the 10-Day moving average at 0.9281, but there could be a short-term phase of consolidation over the following week as the daily relative strength index falls back from a high of 70. If a corrective retracement unfolds in the days ahead, we would expect price action to fall back towards the lower bounds of its recent range roughly around 0.9300, but a bigger below the 10-Day SMA would expose the August highs around 0.9200. However, hawkish comments from the RBA could lead the rally to gather pace and drive the exchange rate to make another attempt at parity.

New Zealand Dollar Traders Keep Tabs on RBNZ’s Fundamental Prompts

Fundamental Forecast for New Zealand Dollar: Bearish

- RBNZ surprises bullish kiwi traders with dovish commentary to compliment hold on rates
- NZD/USD rally stalled by resistance, maintains range despite volatility

With the capital markets on a slow but steady advance, it would seem a point of certainty that the high-yield New Zealand dollar would appreciate. However, a taste for risk alone may not be enough to keep the kiwi buoyant. Certainly, if investor sentiment soared and demand for return far outstripped the risks that accompanied such an income, then the currency would most likely fall right back into its paces. However, if confidence merely flounders (or worse yet, if it actually broke down), then the New Zealand dollar will find itself especially exposed.

Where does this bearish tendency come from? If we consider the primary appeal of the kiwi dollar as a major; it is quickly apparent that a high yield is the only appealing feature that this currency possesses to command such liquidity. Therefore, when the capacity of producing return is diminished, it quickly drops off the charts. In this framework, we can understand why the RBNZ’s dovish commentary last week has had such a heavy influence over the outlook. Governor Bollard commented that global uncertainties presented a significant hurdle for the domestic economy, he wrote off immediate inflation pressures as a potential side effect of the quake that struck this month, and he explicitly stated that future rate hikes would come at a slower pace. With the Aussie dollar touting a positive benchmark differential of 1.50 percent, there is an immediate and attractive alternative to the kiwi.

Going forward, fundamental traders will monitor the same indicators and economic symptoms that Bollard will be watching to establish the timing for monetary policy. And, it just so happens that this week we will see a key economic indicator with immediately implications for deciphering the health and stability of New Zealand: the second quarter GDP reading. There is no official consensus to work with yet; so the door is still wide open to speculative interpretation. That being said, Australia’s strong 3.3 percent annual will be likely used as a benchmark – unfortunately for the kiwi. Furthermore, data that covers capital flows across the border, consumer confidence and credit health will all mark significant fundamental benchmarks if not encourage a meaningful price response.

Gold Prices Hit Record Highs, FOMC Decision Could Fuel Further Rallies

Fundamental Forecast for Gold: Neutral

- Gold prices continue to hit record-highs
- Technical forecasts point to further rallies in Gold prices

Gold prices set fresh record-highs amidst broader US Dollar weakness, but the precious metal actually remained relatively unchanged against other major currencies. The US Dollar itself fell against all but two G10 counterparts and remains stuck in a fairly pronounced downtrend against commodity currencies such as the Australian and Canadian Dollars. That gold would set fresh all-time highs in USD terms may subsequently come of little surprise, but that does not take away from the fact that the trend favors further gains in precious metals.

The key question rolling forward is whether we can expect the US currency to continue lower through coming trade. According to the most recent CFTC Commitment of Traders data, Non-Commercial traders are the most net-short the USD since July. Medium-term trends and sentiment suggests risks remain to the downside for the Greenback. Yet increasingly one-sided positioning warns that any subsequent corrections could come quickly as traders cover their USD-short positions. Gold prices may likewise see noteworthy volatility on the upcoming US Federal Open Market Committee interest rate announcement due Tuesday afternoon. All eyes will be on whether the central bank hints at renewed efforts to boost monetary supply via Quantitative Easing. Continued signs of slow economic growth and languishing employment trends have heightened speculation the FOMC will move to “Quantitative Easing Part 2”. Given that any such moves would be inherently inflationary, we could once again see gold prices rally substantially on any such announcement. How the US Dollar trades in the week ahead may ultimately decide the medium-term trajectory for gold prices.

Written by John Kicklighter, Currency Strategist; David Rodriguez, Quantitative Strategist; Ilya Spivak, Currency Strategist; John Rivera, Currency Analyst; David Song, Currency Analyst and Michael Wright, Currency Analyst
Article Source - Forex Weekly Trading Forecast - 09.20.10

US Economic Recovery Not So Bleak, Data Shows

2010-09-17T09:46:00.004+02:00

This past week's news has given some investors hope that an economic recovery is indeed underway in America, even if recent news has begun to comment about a pause. The US IBD/TIPP Economic Optimism gauge on Tuesday was 1.2 points higher than expected, while American retail sales also beat forecasts. Wednesday saw a minor slowdown in industrial production, but yesterday's PPI, unemployment claims, and TIC long-term purchases reports all showed forecast-beating growth in the US economy.

USD - USD Declines as Data Shows Growth and Risk Appetite Returning

The USD appears to have declined against the bulk of its currency counterparts, with a few exceptions. The EUR/USD has climbed above 1.3100 as of late-Asian trading, while the GBP/USD is climbing towards 1.5650. It appears as if the stronger currencies of the early months of summer are now seeing an autumn correction. The dollar, Swiss franc, and Japanese yen are all losing ground while riskier assets are on the rise.

This past week's news has given some investors hope that an economic recovery is indeed underway, even if recent news has begun to comment about a pause. The US IBD/TIPP Economic Optimism gauge on Tuesday was 1.2 points higher than expected, while American retail sales also beat forecasts. Wednesday saw a minor slowdown in industrial production, but yesterday's PPI, unemployment claims, and TIC long-term purchases reports all showed forecast-beating growth in the US economic recovery.

If inflationary figures and economic optimism continue into today's reports of the same nature, we should see current USD trends continue. Expected today is the US release of its Consumer Price Index (CPI) data, measuring the growth of consumer inflation. If the CPI data is released in-line with yesterday's Producer Price Index (PPI) growth, then we should see riskier assets continue to rule the market.

The University of Michigan (UoM) is also set to release its Preliminary Consumer Sentiment report which is expected to show confidence on the rise in the United States, fueling the return of risk appetite further.

EUR - Poor European Data Offset by Japanese Currency Intervention

Since the start of the Asian trading session this morning, the EUR has climbed against 15 of its 16 major counterparts. The only currency appearing to outpace the EUR's recent ascent has been the Australian dollar. Against the US dollar, the euro has soared above 1.3100 and looks to have the momentum to carry on higher. Against the Japanese yen, the 16-nation single currency has risen to as high as 112.35 in late-Asian trading.

Europe's light news week has helped other economies take the lead in global currency valuation. The United States has released a heavy stream of economic reports which appeared to have dominated market attention. The trend in America seems to be a modest return to growth, for this week's data at least, while in Europe the few reports published appear to have been far worse than expected.

The shocking drop in the ZEW economic sentiment reports on Tuesday pushed many traders in the direction of safe-haven investments. But the euro was able to rebound sharply following Japan's intervention in the currency market, devaluing one of the primary global safe-havens, and after the US released report after report showing positive growth. The result was an offsetting jump in the value of riskier assets such as the EUR, despite its own economic woes.

JPY - JPY Plummeting; Will There Be Further Intervention from BOJ?

The Japanese yen remains under the pressure of Wednesday's intervention by the Bank of Japan (BOJ). The JPY fell to a 5-week low against the US dollar, hitting just below 86.00 after appreciating 71 pips. Against the euro, the JPY has seen a much sharper drop, falling 181 pips to a recent low of 112.35; the GBP/JPY, likewise, has climbed modestly, with a current price just over 134.10.

Despite the absence of further intervention by the BOJ, many speculate that the yen-selling by the central bank may not have yet come to an end. Analysts have recommended keeping an eye on JPY pairs for the second sell-wave, which many claim could happen as early as next week.

Crude Oil - Crude Oil Price Pares Losses, Trading Over $76 a Barrel

The start of this past week saw a rather sharp boom in the price of Crude Oil as a pipeline delivering oil from Canada to the American mid-west suffered a leak, forcing the pipe to be shut down. The resulting speculation of a dip in supply, both from the pipeline leak and from hurricanes in the Gulf of Mexico, led to strong support for oil prices. News that the leak would be fixed by the end of this week has resulted in a paring of those gains, however, as concerns of an over-supply are now hitting the market.

Analysts have begun to claim that despite minor setbacks in production, the fundamentals for Crude Oil remain weak. Even with a short-term decline in supply, inventories remain at record highs. This has been the case especially since the world's major energy consumers are experiencing a minor pause in recovery. Without a major shift in fundamentals, few are expecting oil prices to break out of the current range between $72 and $77 a barrel.

Technical News

EUR/USD

The pair has recorded much bullish behavior in the past several days. However, the technical data indicates that this trend may reverse anytime soon. For example, the daily chart's Stochastic Slow signals that a bearish reversal is imminent. A downward trend today is also supported by the 4-hour chart's RSI. Going short with tight stops may turn out to pay off today.

GBP/USD

The price of this pair appears to be floating in the over-bought territory on the 4-hour chart's RSI indicating a downward correction may be imminent. The downward direction on the daily chart's Momentum oscillator also supports this notion. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.

USD/JPY

The USD/JPY cross has experienced a bullish trend for the past 3 days. However, it seems that this trend may be coming to an end. The RSI of the 4-hour chart shows the pair floating in the overbought territory, indicating that a downward correction will happen anytime soon. Going short with tight stops might be a wise choice.

USD/CHF

The daily chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, there is a fresh bearish cross forming on the 4-hour chart's Slow Stochastic indicating a bearish correction might take place in the nearest future. Going short might be a wise choice.

Gold

Gold prices rose significantly in the last week and peaked at $1279 for an ounce. However, the 8-hour chart's RSI is floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage.

Article Source - US Economic Recovery Not So Bleak, Data Shows

Rare Japanese Intervention in Yen Trading Manages to Halt Yen's Bullish Trend

2010-09-16T20:31:00.003+02:00

The most significant economic event yesterday was beyond any doubt Japan's ‎confirmation of a unilateral intervention in yen trading in order to put a stop to the ‎soaring currency. The consequences were seen immediately and the yen saw its ‎biggest daily loss in 22 months. Unusual trading is expected today as well. ‎

USD - Dollar Sees Mixed Results Vs. The Majors

The U.S. dollar saw mixed results against most of the major currencies during ‎yesterday's session. The dollar fell about 80 pips vs. the British pound, causing the ‎GBP/USD pair to reach the 1.5650 level. The dollar also saw an irregular 250 pips gain ‎against the Japanese yen, following the recent 15-year low the USD/JPY pair hit ‎earlier this week. The dollar did not show a clear trend against the euro.‎

The dollar was boosted against the yen yesterday following Japan's decision to ‎actively intervene in devaluing the national currency. It was only a couple of days ago ‎the yen reached a 15-year high against the dollar. This in turn caused the bank of ‎Japan to unexpectedly buy dollars in order to halt the soaring yen. As a result the JPY ‎sharply fell against all the major currencies, including the greenback. ‎

Against the rest of the major currencies the dollar failed to see similar results ‎following disappointing U.S. economic releases. The Empire State Manufacturing ‎Index showed that manufacturing in the New York region expanded at a slower pace ‎than forecast in September. In addition, the Industrial Production report showed that ‎total value of output produced by manufacturers rose by 0.2% in August. Analysts ‎had originally predicted the figure to come in at 0.3%. As a result, the dollar dropped ‎slightly against the euro and pound.‎

As for today, a batch of data is expected from the U.S. economy. The most significant ‎releases are likely to be the Producer Price Index, the weekly Unemployment Claims ‎and the Philadelphia Manufacturing Index. Each one of these publications is likely to ‎have a large impact on USD trading. ‎

EUR - Euro Slips Against the Pound; Soars Vs. The Yen

The euro saw a volatile session during trading yesterday. The currency mainly saw ups ‎and downs vs. the U.S. dollar, without marking a clear direction. Against the British ‎pound the euro fell about 100 pips. On the other hand, it gained over 350 pips against ‎the Japanese yen.‎

The euro fell against the pound yesterday following the European Consumer Price ‎Index figure for August. The report showed that the euro-zone's annual inflation rate ‎eased to 1.6% from 1.7% in July, indicating that the European Central Bank has ‎enough room to maintain its loose monetary policy, and to keep interest rates at a ‎record low of 1.00%. Investors interpreted this as an opportunity to open short ‎positions against the euro, especially against high yielding assets, such as the pound.‎
Nevertheless, the euro saw an extraordinary bullish move against the yen. The yen fell ‎against all the major currencies due to the Japanese government's intervention in JPY ‎trading. ‎

Looking ahead to today, the most significant economic release from the euro-zone ‎seems to be the European Trade Balance figure. Trade balance measures the difference ‎in value between imported and exported goods and services over the previous month. ‎A positive figure might support the euro.‎

JPY - Yen Free-falls Following BoJ Intervention in Yen Trading

The yen tumbled against all the major currencies yesterday. It slipped about 250 pips ‎against the dollar, causing the USD/JPY pair to rise from a 15-year low to the 85.50 ‎level. The yen also lost about 350 pips against the euro and about 500 pips against the ‎British pound.‎

The JPY saw its largest daily loss in 22 months after Japan's Finance Minister ‎Yoshihiko Noda said the Bank of Japan actively devalued the currency. This was the ‎first time since 2004 that the Japanese leadership decided to intervene in the forex ‎market. The decision came after the yen saw a 15-year high against the dollar. The fear ‎was that the strong yen would damage Japan's export industry. ‎

As for today, the yen is likely to remain the most volatile currency of all the majors. ‎Traders are advised to look for notifications regarding the BoJ's actions in the market, ‎and take under consideration that if the Japanese leadership will continue to intervene, ‎the yen may see another bearish session.‎

OIL - Crude Oil Falls For the 3rd Day to $74.70 a Barrel

Crude oil fell to a session low of $74.70 a barrel yesterday. After starting out at ‎around $76.50 a barrel, oil saw a sharp drop before correcting some of its losses to end ‎the day around $75.50 a barrel.‎

Crude fell yesterday after U.S. regulators agreed to a Friday Restart of Enbridge's ‎biggest pipeline from Canada, restoring crude supplies to Midwest refineries. In ‎addition, reports showed that demand for gasoline in the U.S, the world's largest oil ‎consumer, fell by 2.6% lately. The combination of bigger supplies and lower demand ‎typically lead to a drop in prices.‎

Looking ahead to today, traders are advised to follow the leading economic ‎publications, especially from the U.S. and the euro-zone, as they tend to have a large ‎impact on crude oil trading. Traders should keep in mind that positive results are likely ‎to support crude oil prices.
‎
Technical News

EUR/USD

The bullish trend is losing its steam and the pair seems to be consolidating around the ‎‎1.2990 level. There is a bearish cross forming on the 4-hour Slow Stochastic, ‎indicating a bearish correction might take place in the nearest future. When the ‎downward breach occurs, going short with tight stops appears to be the preferable ‎strategy.

GBP/USD

The daily chart is showing mixed signals with its RSI fluctuating in neutral territory. ‎However, the 4-hour chart's RSI is already floating in the over-sold territory ‎suggesting that the recent downward trend is losing steam and a bullish correction is ‎impending. Going long with tight stops might be the right strategy today.‎

USD/JPY

The volatility this pair has seen recently has created a number of contradictory signals. ‎The hourly chart shows a bullish cross on the Slow Stochastic, indicating an upward ‎movement may be coming. Contrary to this is the bearish cross on the 4-hour chart, ‎signaling an impending upward movement. Waiting for a clear signal might be wise ‎today. ‎

USD/CHF

The pair has been range-trading for a while now, with no specific direction. The Daily ‎chart's Slow Stochastic providing us with mixed signals. The 4 hour charts do not ‎provide a clear direction as well. Waiting for a clearer sign on the hourlies chart might ‎be a good strategy today.‎

CAD/CHF

This pair has been trading very flat these past few weeks, but has now begun to show ‎signs of life. The MACD on the hourly and 4-hour chart shows clear bullish crosses, ‎signaling an impending bullish move. The daily chart also has a bullish cross on the ‎Slow Stochastic, which supports this notion. Forex traders can join this upcoming ‎trend by entering early buy positions and riding the upcoming spike for profits this ‎week. ‎

Article Source - Rare Japanese Intervention in Yen Trading Manages to Halt Yen's Bullish Trend

Yen Reaches 15-Year High

2010-09-15T17:04:00.003+02:00

The Yen rose to a 15- year high against the dollar on Tuesday after Japan's prime ‎minister won a ruling party leadership vote, reducing the chances Japanese authorities ‎would attempt to stem yen gains. The USD/JPY fell as low as 82.91, its lowest level ‎since mid-1995.‎

USD - Dollar Drops against the Majors

The U.S. dollar fell against most of its major currencies on Tuesday, touching a 15-‎year low below 83 yen as a break of technical support levels in several currency pairs ‎sparked a stampede out of the greenback. Also the AUD/USD pair rose as high as ‎‎0.9456, its highest level since July 2008 before correcting itself. Currently the pair is ‎trading around the 0.9370 level.‎

The significant break came in late morning New York trade on market talk that ‎Goldman Sachs said in a research note that while it suspects the Federal Reserve will ‎ratchet down growth forecasts, the revision is unlikely to be enough to spark ‎additional easing.‎

Another leading indicator released yesterday was U.S. Core Retail Sales. This number ‎handedly beat last month's results but failed to provide strength to the Dollar as ‎investors may be waiting for key data due to be released today to implement their ‎trading strategies.‎

Looking ahead today, the two main news events that may have a very large impact on ‎the Dollar and its main currency pairs are the Industrial Production and Crude Oil ‎Inventories at 13:15 GMT and 14:30 GMT respectively. These reports are very ‎important and are likely to impact dollar volatility. Traders should pay close attention ‎to the market as there is an opportunity to capitalize on the fluctuations which are ‎likely to follow this release.‎

EUR - EUR Traded Near One-Month High against Dollar

The EUR strengthened against most of its major counterparts yesterday, continuing to ‎prove that for the time being the euro is the solid currency that traders can rely on to ‎provide them with steady profits. The 16-nation currency extended gains versus the ‎USD on Tuesday, to close at around 1.2980 amid a broad sell-off in the U.S. dollar. ‎

The euro experienced similar behavior against the JPY and closed at 109.90.‎
The euro's advance began after U.S. retail sales rose more than ‎expected in August, ‎notching the largest gain in 5-months. Once the euro broke above ‎‎$1.2920-30 area, the ‎level that was the top of the range since August, it kept going to a ‎one-month high of ‎‎$1.3033. The move may be accelerated, as ‎being at parity was a key technical point ‎which may encourage more selling of dollars, ‎analysts said. ‎

In addition, the single currency, which slid below $1.19 in June on euro-zone debt ‎trouble, has since risen by more than 8% after smooth government debt auctions in ‎Greece, Portugal, Spain and Ireland eased concerns.‎

JPY - Yen at 15-Years High vs. Dollar

The yen rose to a 15- year high against the dollar on Tuesday after Japan's prime ‎minister won a ruling party leadership vote, reducing the chances Japanese authorities ‎would attempt to stem yen gains. The USD/JPY fell as low as 82.91, its lowest level ‎since mid-1995 before correcting itself. Currently the pair is trading around the 84.60 ‎level.‎

The yen has gained more than 10% against the dollar this year as recent weak U.S. ‎data and record low bond yields drove money away from U.S. assets.‎

Investors worry over a recent rise in the JPY as it makes Japanese products less ‎competitive abroad and hurts the value of overseas sales when translated back into the ‎Japanese currency. With steady gains primarily against the dollar, much of the yen's ‎bullish movement could be contributed to the repatriation of overseas earnings by ‎Japanese companies into the local economy. This has had a positive effect on major ‎JPY currency pairings, as the rising turmoil in the market is leading to greater ‎investment in the Japanese currency.‎

Oil - Traders Await Crude Oil Inventory Report

Oil settled below $77 a barrel Tuesday as the stock market swung between losses and ‎gains on mixed economic news. After a run-up from $72 a barrel at the end of August, ‎crude oil has again slowed its advance, mainly on concerns about the strength of the ‎global economy. While positive news on China's economy has tended to push prices ‎up, data from the U.S. and Europe has been a mixed bag, keeping a lid on price ‎increases.‎

Today, the release of the crude oil inventory report is likely to help determine the ‎market's next direction for black gold. Moreover, a release of a string of positive ‎economic figures from U.S. could help its bullishness. Therefore, traders are advised ‎now to make some profits as the price of crude oil is set to remain volatile in the short ‎term.‎

Technical News

EUR/USD

There appears to be a bullish cross on the hourly chart's Slow Stochastic for this pair, ‎indicating an upward correction may be imminent. The recent bullish cross on the ‎daily chart's Slow Stochastic supports this notion. Going long might not be a bad idea ‎today.‎

GBP/USD

The price of this pair appears to be floating in the over-sold territory on the RSI of ‎both the hourly and daily charts, indicating that we could see an upward correction in ‎the nearest future. The bullish cross on the hourly chart's Slow Stochastic supports this ‎notion. Going long might be a good strategy today.

USD/JPY

After yesterday's volatile price movements, this pair appears to have temporarily ‎calmed down. The price appears to be floating in neutral territory on most oscillators ‎and momentum appears to be showing a flat price movement. Waiting for a clearer ‎signal might be the right choice today.

USD/CHF

The Bollinger Bands on the hourly and daily charts appear to be tightening in ‎anticipation of a volatile movement. With the recent bullish cross on the 4-hour chart's ‎Slow Stochastic oscillator, the impending movement may be a downward correction. ‎Going long with tight stops might be the right choice today.

Platinum

The continuous upward trend in this commodity appears to be running out of steam ‎lately. The highs of the upswings have begun to diminish in size and the longer-term ‎oscillators are beginning indicate an imminent correction. There appears to be a bearish ‎cross on the daily chart's Slow Stochastic, and the weekly Momentum oscillator has ‎turned downwards. ‎ Forex traders have a great opportunity to enter this possible trend ‎reversal at a fantastic price and capture the impending price swing.

Article Source - Yen Reaches 15-Year High

USD/JPY Hits New 15-year Low

2010-09-15T17:00:00.003+02:00

The U.S. dollar fell to a fresh 15-year low against the Japanese yen ahead of a big leadership election in Japan. The greenback also sank against the euro during Tuesday's trading.

USD - Dollar Falls Ahead of Japan Leadership Vote

The U.S. currency was near a 1-month low against a basket of currencies after suffering its steepest fall against the euro in two months as rising investor risk appetite helped the European currency.

The dollar fell to a 9-month low against the Swiss franc on Tuesday as market players scaled back investments in risk currencies and poured funds into low-yielding currencies such as the yen and the franc. The dollar fell 0.2% to 1.0050 franc, its lowest since December of last year.

The greenback traded broadly flat against the euro on Tuesday, at $1.2870, after losing more than 1% against the common currency on Monday. The dollar touched 83.23 yen, the lowest level in 15 years, but later recovered slightly to 83.43, but still down from 83.66 in late trading on Monday. The move came ahead of an election to decide the leader of the Democratic Party of Japan, with the winner widely expected to serve as the nation's prime minister. Analysts said that dollar-yen pair may firm and could strengthen toward 85 should Japan's political situation stabilize.

EUR - Euro Gains on Risk-Asset Demand

The euro rose the most in 10 weeks against the U.S. dollar after regulators gave European banks more time than analysts expected to meet new capital requirements. The euro also strengthened after the European Commission said the region's economy may grow almost twice as fast this year as previously forecasted. Against the Japanese yen however, the euro lost ground, hitting 107.42, down from 107.63 Monday.

The euro strengthened 1.6% against the dollar to $1.2878. It climbed earlier as much as 1.7% to $1.2893 in the biggest intraday gain since July 1. The euro rebounded 12% from a four-year low on June 7 through Aug. 6 as investors focused on worse-than-forecasted U.S. economic data as European statistics surpassed predictions. Still, the euro may be unable to sustain its gains against the dollar as renewed concern over the solvency of nations from Portugal to Ireland points to another slump for the common European currency.

JPY - Yen Extends Gains Versus Dollar Before Election

The yen rose to a 15-year high on Tuesday ahead of a decisive vote in Japan, weighing on Japanese equities and leaving traders wondering whether a rally that has lifted global stock markets to their highest levels in a month can be sustained.

The yen rallied versus the dollar on speculation Prime Minister Naoto Kan will beat his rival Ichiro Ozawa in a party vote today; reducing the likelihood the government will intervene to weaken the currency. Japan's currency also strengthened against all the major currencies as the Japanese stocks dropped, boosting demand for safer assets.

OIL - Oil Rises on Improved Global Economic Outlook

Crude Oil closed above $77 a barrel Monday after upbeat data from China stoked optimism about the global economy, while the closure of a pipeline in the Midwest disrupted supplies to refineries in the region. Oil traders were cheered by increasing industrial production in China, which over the weekend reported manufacturing gains of nearly 14% in August from a year ago, with the data signaling the world's second-biggest economy is growing.

Crude prices earlier reached an intraday high of $78.07 a barrel, the first time a front-month contract breached the $78 mark since Aug. 11. On Friday, Oil gained $2.20 to end at $76.45 a barrel, closing the week higher by 2.5%. A softer U.S. dollar also supported the dollar-denominated commodity by making it less costly for holders of other currencies.

Technical News

EUR/USD

The pair has been rising constantly since the beginning of the week and is currently trading around the 1.2870 level. As the MACD on the 4-hour chart continues to point up, the pair could rise further, with potential to reach the 1.2950 level.

GBP/USD

The pair failed to breach the 1.5500 level yesterday, and as a result saw a sharp fall which took it as low as the 1.5365 level. The bearish move might continue today, with a key-target level of 1.5300.

USD/JPY

The bearish trend continues with full steam as the USD/JPY has reached a 15-year low on yesterday's trading. The RSI on the weekly chart remains within the over-sold section, suggesting that the pair might drop even further. Going short might be preferable today.

USD/CHF

Ever since peaking at the 1.275 level, the pair is dropping with no apparent stops. The MACD and the RSI on the 4-hour chart continue to point down, indicating that the bearish move has more room to go. Going short might be a good strategy today.

Oil

A swift rise in the price of spot crude oil by $5 may have left the commodity oversold. A bearish cross has formed on the daily chart's Slow Stochastic oscillator, indicating that the price may fall in the near term. Another sign supporting an end to the price rally is the doji candlestick from yesterday's trading. The price climbed to a high of $77, a previous resistance level from early February. CFD traders may want to liquidate any long positions they may have in spot crude oil. Support is found at $75.60.

Article Source - USD/JPY Hits New 15-year Low

Euro Maintains Bullish Trend as We Start the Week

2010-09-13T08:35:00.000+02:00

Following solid economic news out of China released last Friday, the euro, as well as other so-called riskier currencies, has maintained an upward trend going into this week. That being said, analysts are warning that these gains may only be temporary. Overall economic sentiment regarding the euro zone is still fairly pessimistic. The slightest bit of bad news could cause investors to revert back to the safe haven US dollar and yen, which would lead to a drop for euro pairs.

USD - USD Starts Busy Week Down vs. Majors

Despite the significant gains the US dollar made in the first half of last week, a sudden switch to risk-taking among investors eventually caused the currency to slide back into a bearish trajectory. As we start off the week, the greenback continues to lose ground. The EUR/USD pair has gone up over 100 pips since markets opened, and is currently trading around the 1.2790 level. The USD/CAD dropped over 50 pips in overnight trading, reaching as low as 1.0311 before making a slight recovery. Currently the pair stands at around the 1.0325 level.

Today, USD crosses will likely fluctuate based on what ECB President Jean-Claude Trichet says in his speech. Pessimism in the euro zone economies is still relatively high. Should the ECB's president reflect this sentiment in his speech, the dollar is likely to make steady gains as investors return to safer assets like the greenback.

As for the week ahead, traders will want to pay attention to a batch of potentially significant US economic data. Tuesday's Retail Sales reports, as well as Thursday's PPI figure and Unemployment Claims, will likely dictate the direction of dollar pairs for some time. Any gains made in the US economy will likely lead to bullish movement for the buck.

EUR - Analysts Question How Long Euro Can Maintain Current Trend

The euro was able to move up against most of its main currency rivals, including the Japanese yen and UK pound, in overnight trading. The gains can largely be attributed to renewed investor confidence, following positive Chinese data released last week. Since markets opened for the week, the EUR/JPY has gone up around 90 pips, while the EUR/GBP moved up close to 50 pips.

While the euro has been able to make some fairly significant gains as of late, most analysts are questioning how long the currency can maintain this trend. Confidence in the euro zone economic recovery remains particularly low. Today's speech from ECB President Trichet may highlight these concerns; in which case euro crosses may correct themselves later in the day.

As for the week ahead, traders will want to pay attention to a number of potentially impacting news events. Tuesday's German ZEW Economic Sentiment figure as well as Wednesday's CPI and Core CPI figures are all predicted to create market volatility. Traders will want to note that should any of these results come in below analyst predictions, the euro will likely move down as a result.

JPY - Yen Corrects Earlier Gains as Risk Taking Returns

The yen corrected much of its recent gains in trading late last week and into overnight trading today. Positive Chinese economic news, as well as better than expected American labor news are seen as the leading causes for the return to risk taking.

As a result, the yen took some heavy losses against the euro and Swiss franc beginning last Friday. The one exception appears to be the US dollar. After beginning the week with slight upward movement, the USD/JPY pair has since dropped close to 30 pips and is currently trading around the 84.05 level.

This week, yen traders will want to pay attention to European and US economic news. Positive news is likely to give further confidence to investors in the global economic recovery. If so, then the yen will likely continue to lose ground against its main currency rivals.

Crude Oil - Optimism in US Recovery Causes Crude Prices to Soar

Positive US economic news, as well as the most recent US Crude Oil Inventories report has led to a prolonged upward trend for crude prices that appears to be continuing into this week. Crude prices are largely determined by the state of the US economy. Following a number of positive indicators last week, oil demand in the world's largest energy consuming nation appears to be on the rise.

Since beginning its most recent bullish trend late last week, oil prices have shot up over 300 pips. Currently, a barrel of crude goes for around $77.10. Traders will want to pay careful attention to US economic indicators this week in order to determine the direction crude is likely to take. Should the news again come in above expectations, prices are likely move up further.

Technical News

EUR/USD

There appears to be a fresh bearish cross on the hourly Stochastic (slow), indicating an impending short-term correction for the pair. The 4-hour Stochastic (slow) is also climbing towards the over-bought region and could also form a bearish cross later in the day if upward momentum does not change in the next few hours. Going short with tight stops may be a wise way to gain quick profits in intra-day trading today.

GBP/USD

This pair appears to be trading within a distinct bearish channel, and has recently touched the upper border of this trend. The hourly Stochastic (slow) has a fresh bearish cross, while its RSI may also be just entering the over-bought territory. Short-term downward movements may be expected throughout the first half of the trading day. Selling this pair for short-term profits may be a wise move today.

USD/JPY

Most indicators on this pair appear to be floating in the neutral territory, suggesting the current trend may continue. The long-term movement of this pair is in a very distinct bearish channel spanning the last few months. The only indicator which appears to suggest an upward correction is the weekly chart's RSI, which has the price of the pair floating just within the over-sold territory. Continuing with the downward direction by opening short positions may prove a smart decision for this pair.

USD/CHF

The hourly Stochastic (slow) on this pair appears to be showing a recent bullish cross, suggesting upward movement may be imminent. The hourly RSI also floats in the over-sold territory, which supports this notion. Additionally, the weekly chart's RSI has the price of this pair floating deep within the over-sold region and beginning to turn upward. Longer-term upward movements may be expected on this pair.

Crude Oil

The recent bullish movements on this pair have pushed many indicators into corrective territory. The hourly, 4-hourly, and daily charts' RSIs all have the price in the over-bought territory. The Stochastic (slow) on all three of these charts also shows either a fresh or an impending bearish cross. Forex traders can usually be certain that after such strong movements there will be similarly strong counter-movements, and Crude Oil is no exception. Going short on oil today may not be a bad idea.

Article Source - Euro Maintains Bullish Trend as We Start the Week

Forex Weekly Trading Forecast - 09.13.10

2010-09-11T13:51:00.002+02:00

US Dollar Could Strengthen if Advance Retail Sales Data Disappoints

Fundamental Outlook for US Dollar: Bullish

- US Dollar starts the week strong as Dow Jones tumbles push it to highs vs. Euro
- Subsequent rebound in US S&P 500 weighs on the US Dollar
- View our monthly Euro/US Dollar Exchange Rate Forecast

The US Dollar traded slightly higher against major forex counterparts in an uneventful week of trading, showing little impetus to break important support or resistance levels on similarly lackluster price action across broader financial markets. A pickup in US economic event risk promises stronger volatility in the week ahead, however, and it seems only a matter of time before currency pairs break out of narrow ranges. Relatively steady gains in the US S&P 500 and a multi-month downtrend in the US Dollar suggest that risks remain to the downside. Yet a fragile recovery in financial market risk sentiment could just as easily falter and send the safe-haven USD higher against the Euro and other currencies.

Calendar highlights in the week ahead include an often market-moving Advance Retail Sales report, Industrial Production numbers, Consumer and Producer Price Index inflation results, and University of Michigan Consumer Confidence survey data. The Retail Sales release may be especially contentious given its strong influence on the US S&P 500 and broader risk sentiment; recent fears of faltering US economic recovery could make disappointments especially market-moving. CPI and PPI data could likewise influence market expectations on the future of US Federal Reserve monetary policy.

The US Dollar lost substantially when the Fed first announced and implemented Quantitative Easing measures to boost monetary supply and stave off the risk of deflation. Fed Chairman Ben Bernanke has openly discussed various tools at the central bank’s disposal to counteract sluggish growth and promote price stability. If CPI and PPI surprise to the downside, pressure may increase on the Fed to announce fresh QE measures—likely driving the US Dollar lower against major counterparts.

One gets the sense that risks remains to the downside ahead of these key US consumer-centric economic releases, and significant disappointments could easily jolt the fragile recovery in financial market risk sentiment. Any such deterioration in ‘risk’—especially as seen through the S&P 500—could be enough to force the US Dollar through key resistance levels against the Euro and British Pound in the week ahead. Yet traders should likewise watch CPI and PPI data; any significant downgrades in inflation could just as easily force US dollar declines.

Euro Won’t be able to Hold Back the Fundamental Tide for Much Longer

Fundamental Forecast for Euro: Bearish

- Ireland to split Anglo Irish Bank in an effort to defuse a financial bomb
- Norway Sovereign Wealth Fund invests in shunned Greek and other trouble EU countries’ debt
- Greek consumers and businesses withdraw 4.2 billion euros from national bank accounts

It would be a stretch to simply imply that the euro experienced elevated volatility this past week. Considering European traders were returning from their summer holidays and US-based speculators rushed back after an extended holiday weekend, there was wave of risk-sensitive capital that washed over the market and offered the best opportunity for a meaningful breakout that we have seen in a month. And yet, EURUSD would hold its sideway track. Now we turn to the coming week and attempt to gauge the potential of that long-awaited breakout that will provide finally establish a meaningful direction for the capital markets and shared currency. Considering the euro’s bearing is heavily dependent on its performance against the US dollar and risk appetite in general, the fundamental trends to encourage this market along are perhaps larger than the currency itself. That being said, global investor sentiment itself could actually establish its bearings on European financial and economic developments.

It should come as no surprise that policy officials are singing the praises of their respective economists and financial markets. It is their job to be cheerleaders and encourage confidence as much as possible. However, these assurances ring hollow when we consider the growing troubles of the region. At the forefront of our concerns for Europe are the cracks in the effort to balance economic growth and fiscal prudence. From Ireland, the deputy director of the country’s debt office said the nation was fully funded until June of 2011; but does this assessment account for the burden that the Anglo Irish bank could place on the coffers? The plan to split the troubled back (which has already required 22.9 billion in bailout capital) is a design that has failed in other instances and will not magically erase the costs of nationalization. For Greece, the IMF’s approval of another 2.57 billion euros tranche of its three-year bailout program should serve to remind of the incredible level of capital it will have to repay in the future, the economic pain the nation will have to suffer to reach fiscal targets and the inequity of countries with higher debt costs having to bailout this particular nation. To add to the precarious picture, Greece is scheduled to auction off short-term bills. Then there is the Basel III capital ratio. There is a reason Germany has loudly rebuffed calls for higher reserves and a five-year implementation; because this and other European nations are the furthest from meeting the suggested targets. If the bar is raised, European banks (dependent on ECB liquidity) could be forced to raise more capital and suffer painful yields.

If we are looking for the spark to feed fear of a financial crisis or accelerant to an economic slowdown, we have an entire fuse box in Europe. However, speculators’ attention is a fickle and unpredictable thing; and they can remain unfocused for longer than we would expect. So, we must wait. In the meantime, it will be worthwhile to keep an eye on scheduled event risk to see if there any volatility to be had from the docket. The top tier data for the period is Tuesday’s investor sentiment survey’s imperative to establishing the market’s tolerance for the region’s financial instability. One step down, we have Eurozone employment and inflation for the ECB to consider as bearings for monetary policy. After that trade, industrial production and factory prices will struggle to garner attention.

Japanese Yen: Will FX Traders Curb Speculation For BoJ Intervention?

Fundamental Forecast for Japanese Yen: Neutral

- BoJ Holds Rate at 0.10%
- Japanese Yen Traders Still Not Convinced of Invention as Noda Says Simulated Manipulation Tested
- Forex Strategy Outlook: Breakout Strategies Favored on Indecisive Currency Price Action

The Japanese yen rallied to a 15-year high against the U.S. dollar and the low-yielding currency may continue to gain ground over the following week as the Bank of Japan holds off on intervening in the foreign exchange market. The central bank’s attempt to talk down the appreciation in the exchange rate has certainly failed to materialize throughout the third-quarter, and investors may curb speculation for a currency intervention going forward as policy maker weigh various options to address the downside risks for the region.

The Japanese government unveiled a JPY 915B stimulus packaged to boost the domestic economy, and the expansion in fiscal policy could lead the central bank to stay out of the currency market over the near-term as BoJ Governor Masaaki Shirakawa sees the recent strength in the Japanese yen coming from the rise in safe-haven flows. However, there have been increased pressures on the BoJ to tackle the marked appreciation in the exchange rate, with Japan Finance Minister Yoshihiko Noda recently announcing that the central bank will jump into the currency market if conditions warrant. In addition, market participants see scope for the BoJ to expand monetary policy further over the coming months as the Organization for Economic Cooperation and Development expect a “more pronounced” slowdown in the recovery, and the central bank may look to increase its liquidity programs as it struggles to stem the risks for deflation.

However, speculation for an intervention could intensify if the USD/JPY tests 83.00 over the following week. As the dollar-yen maintains the downward trend from earlier this year, it seems as though the pair could fail to find psychological support around the 83.00 level as investors continue to scale back their appetite for risk. If investors become more risk adverse over the following week, we will favor a bearish outlook for the dollar-yen, but trading the pair may become increasingly difficult as the risks for a currency intervention remain on tap.

British Pound Volatility Depends On Slower Price Growth

Fundamental Forecast for British Pound: Neutral

- BoE Leaves Benchmark Rate, Asset Purchase Program Unchanged
- Industrial and Manufacturing Production in July Rose 0.3%, Led by Textiles
- Producer Prices Grow at Slowest Pace in Six-Months

The British pound remains range bound against most its counter parts as the Bank of England left their bench mark rate on hold for an eighteenth straight month. Policy makers also refrained from adding to their asset purchase program, which economists are expecting the MPC to re-start as credit conditions remain tight. The non-action wasn’t accompanied by a statement, leaving markets to guess whether Andrew Sentence remains the lone voice for tightening. The voting member’s concern over inflation above the government’s 3.0% threshold has raised the possibility that a rate hike could come in early 2011. However, if consumer prices follow the slower factory gate price growth seen in August, then more market participants could start to move into the “additional QE” camp.

The U.K. trade deficit in July widening to 8.7 billion pounds from 7.5 billion pounds as export demand slowed, will put added pressure on policy makers to fuel domestic growth. The central bank will face a difficult task as they have lowered growth forecasts, as they anticipate austerity measures from the new coalition government will become a weighing factor. Indeed, we may have seen a three way split at the last rate decision, with some members calling for a resumption of QE measures, as they look to ensure the recovery sustains. Industrial and manufacturing production growing 0.3% in July has helped erase fears of a double dip recession, potentially leaving the monetary authority on the sidelines through the end of the year. However, the National Institute of Economic and Social Research is forecasting growth slowed to 0.7% in the three months through August, from 1.3% the month prior, a trend that could spark action.

The upcoming economic calendar is full of event risk which could spark volatility but may not be enough to inspire breakouts for sterling crosses, with the BoE minutes scheduled for September 22nd. The most market moving release will be the consumer price report which is forecasted to ease to 3.0%, placing it at or above the government’s threshold for an eighth straight month. Inflation slowing below the level would open the door for additional QE and could be a catalyst for Sterling weakness. The employment report could stem pessimism, with forecast for jobless claims to decline for a seventh straight month by 3,000. Retail sales growth of 0.3% is also expected adding to sign that the recovery is sustaining. However, in line employment and consumption figures would reflect a lower measure of improvement for a third straight month, supporting broader growth concerns.

Canadian Dollar at Risk of Declines as it Fails to Set Fresh Highs

Fundamental Forecast for Canadian Dollar: Bearish

- Canadian Employment Report tops forecasts, Canadian Dollar bounces
- Bank of Canada raises interest rates and does not rule out further hikes

The Canadian Dollar finished the week marginally higher as the Bank of Canada raised interest rates and domestic employment numbers beat expectations. Yet a Friday reversal suggested traders are thus far unwilling to push the Loonie to fresh monthly highs against its US namesake. BoC officials matched consensus forecasts in raising their benchmark interest rates a further 25 basis points to 1.00 percent, and the bank struck a relatively hawkish tone in showing few signs it would pause in its tightening cycle. Whether this will be enough to push the Canadian Dollar to further highs is questionable, however; the USDCAD correlation to Crude Oil remains near record-highs and Canadian Dollar strength will almost certain depend on the trajectory of commodity prices.

Canadian economic event risk will be minimal in the week ahead, and traders are more likely to focus on movements in broader financial markets than individual pieces of fundamental data. A marginal exception may be Wednesday’s Manufacturing Shipments report. Though said news release has not historically forced noteworthy volatility in CAD pairs, a Canadian Trade Balance deficit at record highs means negative surprises may elicit CAD declines. An otherwise fairly empty calendar leaves the USDCAD at the whims of Crude Oil prices and a similarly slow week of US economic event risk.

The Canadian Dollar’s inability to hit fresh highs amidst an upward revision to interest rate expectations raises doubts on future gains. A key factor in determining the USDCAD’s next step will undoubtedly be the direction of Crude Oil prices, and the NYMEX WTI Contract’s close near monthly highs leaves momentum in the Canadian Dollar’s favor. Yet we will likely need to see a USDCAD break below key support near 1.0250 to instill confidence in the downtrend. According to our Senior Strategist, however, the USDCAD may have recently bottomed and is set to go higher through the medium term.

Australian Dollar May Appreciate Further as Growth Prospects Improve

Fundamental Outlook for US Dollar: Bullish

- Reserve Bank of Australia Keeps Rate on Hold
- Employment Rises More-Than-Expected
- Australian Dollar Risk of Reversal Increased

The Australian dollar rallied against its U.S. counterpart for the third week and the exchange rate looks poised to test the yearly high at 0.9383 as the economic recovery in the isle-nation gathers pace. The AUD/USD rallied to a fresh monthly high of 0.9276 following a larger-than-expect rise in employment paired with a rebound in mortgage lending, and the pair may continue to retrace the decline from earlier this year as the economic docket for the following week is anticipated to reinforce an improved outlook for future growth.

The Reserve Bank of Australia held a positive attitude toward the economy after holding the benchmark interest rate at 4.50% for the third time in September and said that monetary policy remains appropriate “for the time being” as the global outlook remains clouded with uncertainties. Central bank Governor Glenn Stevens expects the recovery to strengthen going forward as the labor market improves, with businesses investments increasing, and the central bank may tighten policy further in order to stem the risks for inflation. The RBA sees price growth rising above the 3% limit for a few quarters and the central bank may turn increasingly hawkish going forward as it maintains its dual mandate to ensure price stability while promoting full-employment. As the outlook for growth and inflation improve, market participants may raise speculation for a rate hike in October, and an upward shift in interest rate expectations would support a bullish outlook for the AUD/USD as investors weigh the prospects for future policy. Investors are currently pricing a 24% chance for a 25bp rate hike next month according to Credit Suisse overnight index swaps, and further increases

Nevertheless, the economic docket for the following week is expected to show a gradual improvement in the private sector, but a fifth consecutive drop in consumer inflation expectations could weigh on the exchange rate and bring the recent appreciation in the AUD/USD to a halt. If we see a consolidation in the aussie-dollar, price action may fall back towards the lower bounds of its recent range at 0.9100 to test for short-term support. However, as the 50-Day SMA (0.8952) crosses above the 200-Day SMA at 0.8939, the golden cross formation remains favorable for the high-yielding currency as it reinforces a bullish outlook for the exchange rate.

New Zealand Dollar Awaits RBNZ Rate Decision For Direction

Fundamental Forecast for New Zealand Dollar: Bearish

- New Zealand Manufacturing Activity increased 3.1% in the second quarter, led by meat and dairy
- NZD/USD Threatening Resistance Levels

The New Zealand dollar benefitted from broader trends as firm risk appetite on the back of easing concerns over a double dip recession benefitted the high yielder. However, the domestic picture may dictate upcoming direction with the RBNZ rate decision on tap. The second quarter increase in manufacturing activity of 3.1% is evidence that the commodity driven economy continues to enjoy solid growth. Strong demand for meats and dairy helped drive activity and improved the Terms of trade index for the period by 2.1%. However, a slowdown in manufacturing sales outside of the country’s main exports fell 2.2%, raising concerns that domestic growth is slowing. Therefore, it is expected that the central bank will keep their benchmark rate on hold at 3.00%.

The RBNZ rate decision will present major event risk for the “kiwi” as it could dictate medium term direction. An expected rate hold and dovish commentary could sink the commodity dollar as markets have been looking for the central bank to follow its Australian counterpart on a path of several increases. Policy makers in general have started to take a more cautious stance, as developed economies are struggling to maintain the current recovery pace, at a time when emerging markets begin steps to cool domestic growth. A rate hike and concerns over inflation could add to prevailing bullish momentum and have the pair look to test the channel bound. Retail sales data beforehand could shape the outlook for the rate decision and provide short-term volatility.

Gold Finally Breaks its Bullish Trend but Does that Guarantee Reversal?

Fundamental Forecast for Gold: Neutral

- Gold finally breaks is consistent bull trend after suffers its biggest daily loss in six weeks
- Is this commodity set to reverse just before setting a fresh record high?

After six weeks of a steady and unencumbered advance, gold seems to have finally reached the limits of its temperate momentum. Just this past week, not $5 from testing its record high, the precious metal would suffer its biggest daily loss since the exhaustion move jump started the bull wave. Subsequently, with this move, the rough technical trendline that defined the positive drift was broken. Is this a surefire sign that the commodity is set to reversal dramatically this coming week? After more than a month, there is certainly significant room for retracement; but the fundamental pressure for such a move is not necessarily there.

While gold represents a key safe haven asset for global investors – one of the few that can claim a low correlation to most of the other major asset classes and perhaps the only viable security that sets itself outside the influence of fiat (currency) fluctuations – the commodity doesn’t necessary follow sharp bullish or bearish moves in the broader capital markets. Therefore, if there is a breakdown in the S&P 500, EURUSD or some other risk-defined market; gold will not necessarily be encouraged back onto its trend. This is a discouraging development considering there are so many fundamental uncertainties (the European fiscal/growth balance, China’s trouble in deflating its bubble and the slowdown in global activity) that could trigger a mass exodus from the capital markets. On the other hand, it could help as a recovery in confidence will be buffered for its bearish influence on the metal.

What has hurt gold is the general stability in risk appetite trends this past month. While the commodity is not particularly sensitive to short-term fluctuations in risk appetite, there does need to be the general buzz of long-term uncertainty that encourages investors to seek the shelter of the recession, deflation and fiat instability-hedge. It is likely this extended bought of congestion that has broken the conviction of the gold bugs before the critical level. Therefore, we will need to find systemic troubles and tribulations to put this market back on pace. This kind of driver happens to be the type that does not often have foreseeable cues. Therefore, we will have to keep our eyes open for major financial news headlines and monitor cross market correlations that help to identify major shifts in speculative capital.

Written by David Rodriguez, Quantitative Strategist; John Kicklighter, Currency Strategist; John Rivera, Currency Analyst and David Song, Currency Analyst
Article Source - Forex Weekly Trading Forecast - 09.13.10

Encouraging US News Leads to Renewal in Risk Taking

2010-09-10T10:24:00.000+02:00

Riskier currencies made significant jumps in overnight trading, as positive news from the US economy led to renewed optimism in the global economic recovery. The most recent US Trade Balance and Unemployment figure both came in better than expected, and led to gains for the Canadian and Australian dollars. Still, the news was not enough to help the euro, which took some losses against the US dollar.

USD - Dollar Slowly Moving Away from Record Lows against JPY

The greenback has been slowly moving away from the 15-year low it recently hit against the Japanese yen. The USD/JPY pair has gone up over 65 pips since yesterday morning, and was largely helped by the positive US trade balance and unemployment figures. Currently the pair is trading around the 84.25 level. The positive news also helped the dollar gain on the euro. The EUR/USD pair has dropped close to 90 pips from yesterday's high and is currently trading around the 1.2675 level.

As we close out the week, traders can expect heavy volatility from the GBP/USD and USD/CAD pairs. While there is no US news scheduled to be released today, the UK PPI Input figure and the most recent Canadian employment data is likely to affect their respective dollar pairs. The USD/CAD in particular could see heavy volatility, following yesterday's trading. The pair dropped over 80 pips throughout the day, before bouncing back to its current level of 1.0326.

Next week, USD traders will want to prepare themselves for a batch of significant news that is likely to impact the dollar. This includes the latest retail sales report as well as the PPI and CPI figures. Whether or not the dollar can maintain its small gains on the euro and yen is yet to be seen, but significant market movements are assured.

EUR - EUR Fails to Gain From Positive US Data

The euro was not able to take advantage of the return to risk taking yesterday, following a batch of positive news from the US economy. Analysts attribute this to persistent concerns in the euro-zone banking sector. Still, it seemed odd that the return to risk taking did not help the ailing European currency.

EUR/USD has continued to drop in overnight trading, while EUR/JPY has remained relatively steady since yesterday afternoon. Furthermore, the EUR/AUD pair has dropped close to 160 pips since yesterday, and is currently trading around the 1.3710 level.

Today, traders will want to pay attention to the news coming out of the UK and Canada. Both are forecasted to show marked improvements in their respective economies, which may further fuel investor risk taking. This would typically lead to gains for the euro, but with pessimism in the euro-zone still dominating the market, that remains to be seen.

JPY - Yen Takes Losses against USD and GBP in Overnight Trading

The return to risk taking did not help the yen yesterday, as it decreased sharply against the UK pound and US dollar. USD/JPY has been slowly moving up from its record lows and is holding steady around the 84.25 level. GBP/JPY has gone up close to 100 pips in trading since yesterday afternoon, and is currently at the 129.70 level.

Today, in addition to the news being released from Canada and the UK, yen traders will want to pay attention to any indication that the Bank of Japan may be moving in to limit further yen growth in the forex marketplace. Recent yen gains have hurt Japan's export based economy, leading to increased speculation that the government will move in to devalue the currency. Should this occur, traders can assume that the JPY will see heavy losses against its main currency rivals.

Crude Oil - Crude Oil Sees Correction after US Data Released

Crude oil started yesterday's session by taking heavy losses, but following a report showing US oil stockpiles unexpectedly dropped last week, was able to rally in evening trading. The latest US Crude Oil Inventory figure showed that stockpiles dropped by 1.9 million barrels. Typically a drop in supplies is an indicator of increased demand among the world's biggest energy consuming nation; the United States.

Crude prices have gone up some 86 pips since yesterday evening, and currently stand at around the 74.75 level. Today, traders will want to pay particular attention to the Canadian news set to be released. News from Canada typically impact commodity prices, in particular oil. Should the latest employment figure, set to be released at 11:00 GMT, come in as expected, oil prices could rally in afternoon trading.

Technical News

EUR/USD

The EUR/USD has gone increasingly bearish yesterday, and currently stands at the 1.2670 level. The daily chart's Slow Stochastic supports this currency cross to fall further today. However, the 4-hour chart's RSI signals that a bullish reversal will take place today. Entering the pair when the signs are clearer seems to be the wise choice today.

GBP/USD

The pair has recorded much bearish behavior. However, the technical data indicates that this trend may reverse anytime soon. For example, the daily chart's MACD signals that a bullish reversal is imminent. An upward trend today is also supported by the hourly chart's Slow Stochastic. Going long with tight stops may turn out to pay off today.

USD/JPY

The pair has been range-trading for a while now, with no specific direction. The Daily chart's Slow Stochastic providing us with mixed signals. The 4 hour charts do not provide a clear direction as well. Waiting for a clearer sign on the hourlies chart might be a good strategy today.

USD/CHF

The typical range trading on the 4-hour chart continues. The 8-hour chart RSI is floating in neutral territory. However, the pair currently sits near the bottom border of the daily chart's RSI, suggesting an upward correction may be imminent. Going long with tight stops may turn out to be a good strategy today.

CAD/CHF

This pair's sustained upward movement has finally pushed its price into the over-bought territory on the 4-hour chart's RSI. Not only that, but there actually appears to be a bearish cross on the Slow Stochastic pointing to an imminent downward correction. Forex traders have the opportunity to wait for the downward breach on the hourlies and go short in order to ride out the impending wave.

Article Source - Encouraging US News Leads to Renewal in Risk Taking

EUR Gains on Successful Portugal and Poland Debt Auctions

2010-09-10T10:15:00.001+02:00

The EUR rose against the U.S. dollar on Wednesday, buoyed by successful bond auctions in Portugal and Poland that made the single currency's fall the prior session look overdone. The EUR rose 0.4% against the USD after an early fall as low as 1.2660.

USD - Dollar Drops against the Majors

The U.S. dollar fell against most of its major currencies on Wednesday after the Federal Reserve's Beige Book cited a slowing economy and limited inflation pressure, though stayed lower amid better news out of Canada and the U.K. As a result, by yesterday's close, the USD fell against the EUR, pushing the oft-traded currency pair to 1.2730. The dollar experienced similar behavior against the GBP and closed at 1.5470.

The greenback also remained under selling pressure on expectations that U.S. interest rates will stay at very low levels for some time. Low interest rates make the dollar less attractive to investors than higher-yielding currencies, stocks and commodities. In addition, economic recovery does not appear to be improving at the speed many investors were hoping for, and currencies appear to be tracing the movement of stocks as a result.

Looking ahead today, the two main news events that may have a very large impact on the greenback and its main currency pairs in today's trading are the Trade Balance and Unemployment Claims around 12:30 GMT. These reports are very important and likely to impact the dollar's volatility. Traders should pay close attention to the market as there is an opportunity for traders to capitalize on the fluctuations which are likely to follow this release.

EUR - EUR Gains on Successful Debt Auctions

The EUR rose against the dollar and Swiss franc on Wednesday, buoyed by successful bond auctions in Portugal and Poland that made the single currency's fall the prior session look overdone. By yesterday's close, the EUR rose against the USD, pushing the oft-traded currency pair to 1.2730. The 16-nation currency also rose against the CHF and closed around 1.2865.

The EUR also gained support after Ireland's finance ministry said nationalized lender, Anglo Irish Bank, would be split to wind down its assets. Concerns about how Ireland dealt with the troubled bank had weighed on investors recently.

The single euro zone currency tumbled 1.5% versus the dollar on Tuesday after a news report that recent stress tests of European banks sector underestimated some lenders' holdings of potentially risky government debt.

JPY - Yen Hits 15-Year High vs. the Dollar

The yen struck a fresh 15-year high against the dollar and edged closer to a 9-year peak against the EUR on early Wednesday on a flare-up in worries over euro zone banks, prompting market players to test the will of Japanese authorities to intervene. The USD/JPY fell as far as 83.35 before correcting itself. Currently the pair is trading around the 83.95 level.

Bank of Japan Governor Masaaki Shirakawa reiterated his reluctance to return to quantitative easing although he indicated the central bank was weighing its options on how to deal with the economic impact of the yen's strength.

Investors worry over a recent rise in the JPY as it makes Japanese products less competitive abroad and hurts the value of overseas sales when translated back into the Japanese currency. With steady gains primarily against the dollar, much of the yen's bullish movement could be contributed to the repatriation of overseas earnings by Japanese companies into the local economy. This has had a positive effect on major JPY currency pairings, as the rising turmoil in the market is leading to more investment in the Japanese currency.

Crude Oil - Crude Oil Inventories to be Released Today

Oil prices rose on Wednesday for the first time in three sessions to trade around $75 a barrel, bouncing with equities and supported by a weaker dollar as concerns over the European banking system eased and investors cautiously bought riskier assets.
A weaker U.S. dollar tends to boost the price of dollar-priced commodities as it lowers the price to holders of other currencies and reduces the value of the currency oil producers receive for their product.

Today, the release of crude oil inventories is likely to help determine the market's next direction for crude oil. Moreover, a release of a string of positive economic figures from the U.S. could help its bullishness. Therefore, traders are advised now to make some profits as the price of Crude Oil is set to remain volatile in the short-medium term.

Technical News

EUR/USD

The range-trading pattern on the hourly chart continues. The daily chart's Slow Stochastic is floating in neutral territory. However, the 4-hour chart's RSI is already floating in the over-sold territory, suggesting an upward correction may be imminent. When the upwards breach occurs, going long with tight stops appears to be a preferable strategy.

GBP/USD

The pair has been range-trading for a while now, with no specific direction. The daily chart's Slow Stochastic is providing us with mixed signals. The 4-hour chart does not provide a clear direction either. Waiting for a clearer sign on the hourlies chart might be a good strategy today.

USD/JPY

The pair has recorded much bearish behavior in the past several weeks. However, the technical data indicates that this trend may reverse anytime soon. For example, the weekly chart's RSI signals that a bullish reversal is imminent. An upward trend is also supported by the daily chart's RSI. Going long with tight stops may turn out to pay off today.

USD/CHF

The price of this pair appears to be floating in the over-sold territory on the daily chart's RSI, indicating an upward correction may be imminent. The upward direction on the weekly chart's Momentum oscillator also supports this notion. Going long might be a wise choice.

Gold

Gold prices rose significantly yesterday and peaked at $1,261 an ounce. However, the daily chart's RSI is floating in the over-bought territory suggesting that the recent upward trend is losing steam and a bearish correction may be impending. This might be a good opportunity for forex traders to enter a modest correction at a very early stage.

Article Source - EUR Gains on Successful Portugal and Poland Debt Auctions

Dollar Rallies on Weak German Data

2010-09-08T08:39:00.002+02:00

Less than expected German factory orders and worries over the Irish fiscal situation ‎had traders bidding equities lower and buying into safe haven assets as USD/JPY and ‎the EUR/CHF fell to new lows.‎

USD - Greenback Rises on Safe Haven Buying

The dollar put in a strong showing for a second day versus most of the major ‎currencies. Traders were quick to buy the dollar following a Wall Street Journal article ‎that highlighted European banks' exposure to risky government bonds that were ‎previously not reported in this summer's European banking stress tests. While the ‎article did not bring to light any new information that was not previously known in ‎the FX market, it did refocus the spotlight on weakness in the European financial ‎system.‎

Less than expected German factory orders hurt risk sentiment in the market. The ‎change in the in the total value of new purchase orders from manufactures fell by ‎‎2.2% over the previous month. Expectations were for an increase of 0.6%.‎

The lone data release from the US will be the Fed's Beige Book, set to be released at ‎‎18:00 GMT. The Fed's analysis of the markets helps the central bank set policy ‎decisions and interest rate levels. ‎

The EUR/USD has declined for the past two days, pulling back into the symmetrical ‎triangle pattern that had formed. Support is found at the rising lower leg of the ‎triangle pattern at a price of 1.2660 followed by 1.2580.‎

EUR - European Banking Fears Drops Euro

A lack of economic data from the US had traders looking to Europe for signals on the ‎direction of the major currencies. A Wall Street Journal article influenced traders and ‎reignited fears of the European fiscal crisis. Also weak German factory orders did ‎little to calm traders' nerves about the state of the euro zone economy. ‎

Fiscal troubles in Ireland also hurt the euro. The Irish Finance Minister said he does ‎not expect Ireland to seek emergency loans from the EU and Ireland will resume its ‎regular capital raising activities from the public debt markets. However, the market ‎reaction did not emphasize this statement. The spread between Irish government debt ‎and safe haven German debt rose to an all-time high.‎

Further signs of traders' aversion to risky assets were apparent as the DAX was down ‎‎0.6% and the euro was lower versus the major currencies. The EUR/USD fell to ‎‎1.2680, from an opening day price of 1.2806. The EUR/CHF fell to a fresh all-time ‎low at 1.2808. ‎

Significant data releases are on the British economic calendar for today. Traders will ‎be looking at the Halifax HPI and the monthly manufacturing production numbers. ‎Better than expected data may help support the weakening pound. Support and ‎resistance levels for the GBP/USD are found at 1.5320 and 1.5490.‎

JPY - Interest Rate Decisions from Japan and Australia

As expected, both the Bank of Japan (BOJ) and the Royal Bank of Australia (RBA) ‎left interest rates steady at 0.10% and 4.50% respectively. ‎

The BOJ stated the bank is continually monitoring the outlook for economic activity ‎and did not change its economic forecasts. The BOJ also sees a continued moderate ‎economic recovery in the Japanese economy.‎

The RBA also held its base rate steady while the accompanying rate statement ‎indicated that policy is appropriate for the time being but it did highlight some ‎uncertainty in the market. Also newly elected Prime Minister Julia Gillard successfully ‎formed a minority government. ‎

Continued European banking worries touched off a bout of safe haven buying. The ‎yen was one of the benefactors in yesterday's trading. The USD/JPY dropped to a 15-‎year low at 83.50 before finally closing at 83.79. Should safe haven buying continue, ‎the USD/JPY could push its all-time low at 79.70.‎

OIL - Recovery Fears Weaken Spot Crude Oil

The price of spot crude oil fell during yesterday's trading following renewed concerns ‎over the global economic recovery. This time around it was Europe that sparked fears ‎of a weakened banking system and fiscal concerns in Ireland. ‎

Spot crude oil prices fell to $73.80, after opening the day at $74.04.‎

Also affecting the price of spot crude oil was a strengthening dollar. As the dollar ‎appreciates, this makes it more expensive for holders of foreign currencies to by crude ‎oil. ‎

Traders may have been influenced by an explosion at a Mexican government owned ‎oil refinery near the US Mexico border. This sparked worries over short term supplies ‎and helped to reduce the overall drop in spot crude oil prices.‎

The weekly crude oil inventories release from the US Department of Energy ‎Administration is scheduled for Thursday due to the shortened holiday week in the ‎US. Expectations are for an increase of 300K barrels.‎
Support and resistance for spot crude oil prices come in at $71 and $75.70‎

Technical News

EUR/USD

The pair has recorded much bearish behavior in the last 2 days. However, the technical ‎data indicates that this trend may reverse anytime soon. For example, the daily chart's ‎Stochastic Slow signals that a bullish reversal is imminent. An upward trend today is ‎also supported by the RSI. Going long with tight stops may turn out to pay off today. ‎

GBP/USD

The cross has been dropping for the past month now, as it now stands at the 1.5380 ‎level. However, the daily chart's RSI is already floating in the oversold territory ‎indicating that a bullish correction might take place in the nearest future. Going long ‎with tight stops may turn out to be the right choice today.

USD/JPY

The USD/JPY has gone increasingly bearish yesterday, and currently stands at the ‎‎83.47 level. The daily chart's Slow Stochastic supports this currency cross to fall ‎further today. However, the hourly chart's Stochastic Slow signals that a bullish ‎reversal will take place today. Entering the pair when the signs are clearer seems to be ‎the wise choice today.‎

USD/CHF

This pair's sustained downward movement has finally pushed its price into the over-‎sold territory on the daily chart's RSI. Not only that, but there actually appears to be a ‎bullish cross on the Slow Stochastic pointing to an imminent downward correction. ‎Forex traders have the opportunity to wait for the upwardward breach on the hourlies ‎and go long in order to ride out the impending wave‎

Oil

Crude Oil is displaying significant bearish signals after yesterday's failed breach of the ‎‎$75 price level. The hourly chart has the pair trading in the overbought zone on the ‎pair's Relative Strength Index, indicating a possible move lower. The chart also shows ‎a bearish cross has formed on the Slow Stochastic Oscillator that may support this ‎downward move. Forex and commodity traders may want to be short on Crude Oil ‎today as a significant price move may be in the making.

Article Source - Dollar Rallies on Weak German Data

Japan's Currency Hits a 7 Month High

2009-09-28T08:40:00.001+02:00

The Yen rose to a 7 month high versus the Dollar as Japan's new government reiterated its opposition to pursuing deliberate currency devaluation strategy. The Sterling dropped to a 3 month low versus the Dollar last week after Bank of England Governor Mervyn King was quoted as saying the Pound's weakness is aiding in stabilizing the U.K.'s economy. Today's trading day will likely experience the markets reaction to the G20 leaders' decisions, mainly their pledge to continue supporting the stimulus efforts.

USD - USD Falls below 90.00 Yen

The Dollar weakened on Friday after a set of mixed U.S economic reports as well as reports that the G20 leaders will continue to provide support for the global economy. The Dollar index fell to 76.774 Friday, down from 76.901 late Thursday. The Dollar remained down more than 1% versus the Japanese Yen after statements by Japan's Finance Minister Hirohisa Fujii that he opposes intervening in the currency markets to curb the rise in the Yen.

Orders of durable goods unexpectedly fell 2.4% in August. Sales of new homes rose 0.7% to a 429,000 pace in August, much slower than the expected 442,000. On the other hand, the Reuters-University of Michigan consumer sentiment index was revised to 73.5 in September, compared to a previous estimate of 70.2 and 65.7 in August, beating analysts expectations.

No news events are expected today form the U.S; therefore, it is likely that Dollar sentiment will be determined by investors' reactions to the G20 concluding statements.

EUR - Sterling Trades at a 3 Month Low vs. USD

The Sterling dropped to a 3 month low below $1.60 last week after Bank of England (BOE) Governor Mervyn King was quoted stating the Pound's weakness is aiding in the recovery of the U.K economy. The EUR traded at $1.4665, up 0.2% from Thursday.

The Sterling slid 2.1% versus the Dollar last week following very dovish announcements by BOE Governor Mervyn King, calling the Pound's recent drop “very helpful.” The Pound fell Friday to $1.5918, the lowest level since June 8, and depreciated to 91.19 per ERU, the weakest level since April 1.

While a rather slow news day is expected today, ECB president Trichet's speech at 2:30 GMT is likely to provide volatility to the EUR as interest rate targets and exit strategies are likely to be discussed.

JPY - Yen at a 7 Month high versus the Dollar

The Yen registered sharp gains Friday, breaching the significant Y90.00 barrier against the Dollar and reaching the highest levels versus the greenback in over 7 months. Japan's currency benefited from supportive comments from Japan's finance minister Hirohisa Fujii who said that he opposes intentional devaluation of the Yen.

The JPY advanced 1.8% this week to 89.64 per Dollar from 91.29 on Sept. 18, briefly touching 89.51 Friday, the strongest level since Feb. 5. The currency also gained 2% to 131.70 per ERU, from 134.33.

Crude Oil - Crude Prices up Slightly on Mixed Data

At the end of a very volatile trading day Friday, Crude Oil futures rose slightly, for the first session in 3, following the release of mixed economic data from the U.S as well as on increased odds of broad based sanctions against Iran, the world's 4th largest Oil producer. Crude for November delivery rose 13 cents, or 0.2%, to end at $66.20 a barrel on the New York Mercantile Exchange, after dropping as low as $65.05, the lowest level since July 30. Overall futures tumbled more than 8% this week, the biggest weekly loss in more than two months.

The unexpected jump in the Reuters/UoM Consumer Sentiment Index to 73.5 in September helped push up Oil prices; however, concerns over weak demand dampened Friday's gains. Furthermore, several worse than expected economic data from the U.S stemmed further Oil's Gains.

With last Wednesday's report by the Energy Information Administration (EIA) stating that inventories of Crude Oil, gasoline and other petroleum products all rose last week and a lack of any significant economic news today, Oil prices will likely continue to stay subdued throughout today's trading day.

Article Source - Japan's Currency Hits a 7 Month High

Pound Tumbles, Dollar Surges as Risk Aversion Hits Currency Markets (Euro Open)

2009-09-28T08:35:00.003+02:00

The US Dollar surged higher to start the trading week as stocks sold off across Asian exchanges, boosting demand for the safety-linked currency. The British Pound bore the brunt of the greenback’s assault as risk aversion compounded last week’s dovish rhetoric from the Bank of England.

Key Overnight Developments

• Pound Tumbles Despite BOE Backtracking on King’s Comments
• Japanese Yen Surges on Safety Demand as Stocks Plunge in Asia

Critical Levels

The British Pound and the Euro both suffered sharp losses in overnight trading as stocks tumbled in Asia, driven lower by Friday’s disappointing US economic data, sending the MSCI Asia Pacific regional benchmark index down 1.2% and boosting demand for the safety-linked US Dollar.

Asia Session Highlights

The British Pound raced sharply lower in early trading as currency markets seemingly concluded that the Bank of England suspiciously “protests too much” after the UK Times Online cited unnamed sources at the central bank as saying King was trying to talk down sterling last week. The Pound began to accelerate lower last Monday after the BOE released an article titled “Interpreting Recent Movements in Sterling” as part of its quarterly bulletin which argued that the inability of drying up capital inflows to finance the current account deficit could mean a fall in the “the long-run sustainable real exchange rate”. Sterling bears were given extra fuel last Thursday when Governor Mervyn King said rebalancing the UK economy was “very necessary [and] the fall in the exchange rate that we have seen will be helpful to that process” in an interview with The Journal.

Reserve Bank of Australia Governor Glenn Stevens struck a hawkish tone at a testimony to the Senate Committee in Sydney. Stevens said that Australia’s recession has been mild and the economy has done “quite well” as government stimulus “materially” supported growth, adding 2-3% to local demand. On interest rates, Stevens said that benchmark borrowing costs are “unusually low” and will need to go back to normal levels, adding that inflation targeting will guide the timing of adjustment to “more normal levels”.

Euro Session: What to Expect

A preliminary estimate of Germany’s Consumer Price Index is set to show that prices fell -0.2% in the year to September, marking the third consecutive month that the EU-harmonized metric has printed in negative territory. A reading in line with expectations is unlikely to prove market-moving: economists have called for year-on-year CPI to shrink -0.3% through the third quarter, and averaging September’s would-be reading with those recorded in the previous two months yields just about that outcome. The coming months present an opportunity for volatility, however: consensus forecasts have inflation coming back into positive territory in the fourth quarter and averaging around 1.2% through 2010; if this proves too rosy as the economy falters anew after the boost from fiscal stimulus (both at home and abroad) and the inventory cycle fizzles out, a drop in inflation expectations stands to prolong the slump in the Euro Zone’s largest economy. Indeed, consumers and businesses have little incentive to spend and invest in the present if they reckon prices will be lower in the future, bringing economic activity to a standstill. This will mean the ECB will keep interest rates at current lows longer than nearly all of its major counterparts (with the exception of Japan and Switzerland), weighing down the Euro.

Written by Ilya Spivak, Currency Analyst
Article Source - Pound Tumbles, Dollar Surges as Risk Aversion Hits Currency Markets (Euro Open)

Forex Weekly Trading Forecast - 09.28.09

2009-09-27T14:12:00.002+02:00

US Dollar: Optimistic Economic Outlooks to Meet Hard Facts This Week

Fundamental Outlook for US Dollar: Bullish

- The Federal Reserve left rates unchanged, but signaled a more optimistic outlook
- University of Michigan consumer confidence jumped to a 21-month high in September
- US durable goods orders tumbled 2.4% in August, marking the steepest drop since January

The US dollar ended the past week marginally higher after the Federal Reserve issued a more optimistic outlook on the economy. In the coming week, though, there will be a variety of growth indicators on hand that may help to signal whether the US recession really ended in Q2. That said, the US dollar index will have to contend with resistance just above 77.00 at the start of the week, but a break above there will likely coincide with a EURUSD drop below 1.4615.

Looking to the upcoming event risk, on Tuesday, the September reading of the Conference Board’s measure of US consumer confidence is expected to rise up to a one-year high of 57 from 54.1 in August, but overall, there are some upside risks for this report. Indeed, the final reading of the University of Michigan’s consumer confidence index show that sentiment improved greatly in September, with the index hitting a 21-month high of 73.5 from 65.7.

On Wednesday, the third round of US Q2 GDP estimates is due to hit the wires, but the results will only be market-moving if we see surprising revisions. The final reading is forecasted to be revised down to -1.2 percent from -1.0 percent, though this would still represent a sharp improvement from Q1, when GDP plunged 6.4 percent. Readings in line with expectations may not have a very big impact on price action, but better-than-anticipated results could lead carry trades higher, especially in light of speculation that the recession may have ended in Q2.

On Thursday, the ISM manufacturing index is projected to rise for the ninth straight month in September to 54 from 52.9, which would be the highest reading since April 2006. With 50 being the point of neutrality, this would also be the second month that the index signals an expansion in activity, adding to evidence that the sector is experiencing a recovery in business activity. The last release didn’t have much of an impact on the US dollar, as risk aversion dominated the day, leading the currency higher. However, the report will still be useful because of its employment component as a leading indicator for the big news on Friday: US non-farm payrolls.

The US non-farm payrolls (NFPs) index is forecasted to show job losses for the 21st straight month in September, though the rate of decline is anticipated to slow further. At the time of writing, Bloomberg News was calling for NFPs to decline by 187,000, which would be the smallest drop since August 2008. Meanwhile, the unemployment rate is projected to edge up to 9.8 percent from 9.7 percent, but ultimately, the NFP result will be the event to watch as it is extremely volatile and is one of the sole reports that impacts the US dollar from a pure fundamental point of view. A better-than-anticipated result is likely to provide a boost to the US dollar, but it will be interesting to see the impact of disappointing results as weak US data tends to weigh on risky assets and push the greenback higher amidst flight-to-quality.

Euro Shows Early Signs of Reversal – Week Ahead Critical to Trends

Fundamental Forecast for Euro: Neutral

- Euro breaks key technical short-term trendline
- Candlesticks likewise point to a potential Euro reversal
- German IFO improves for sixth month
- Risk trends remain most important EURUSD driver

The Euro showed early signs of technical reversal through an eventful week of trading, setting fresh yearly peaks versus the US Dollar yet finishing lower through Friday’s close. Strong rallies in the US S&P 500 and other key risk barometers led the single currency to impressive highs against most major counterparts. Yet a late-week breakdown in risk sentiment sparked a flight to safety across forex markets—much to the Euro’s detriment. Near-term Euro forecasts will very much depend on the trajectory of said asset classes, and a busy global economic calendar promises no shortage of volatility through the week ahead.

The Euro remains in fairly well-defined 6-month uptrend, and we would hardly argue that several days of declines signal that it has set a major top. Yet it is undeniable that the EUR/USD lost much of its short-term momentum—having broken below short-term technical support and threatening further declines. Fundamentals will likely play a fairly significant role in the days ahead as the combination of German and US Employment figures will shed a great deal of light on economic conditions in both key countries. The reports may confirm recent waves of economic optimism or cut celebrations short. Reasonably steady improvements in fundamental data have made for lofty market forecasts across most economic releases, and a string of disappointments could easily force noteworthy corrections across major financial markets.

Early-week German Consumer Price Index numbers and Euro Zone Consumer Confidence figures could produce surprises, but most traders look forward to market-moving German Unemployment Change figures due Wednesday. Previous results showed unemployment actually fell for the second consecutive month through August, but the numbers were clouded by government stimulus payments inducing firms to keep workers on their payrolls. Forecasts for September results call for a far less sanguine 20k jump in unemployment. Given that Germany is largely considered the bellwether for the broader Euro Zone economy, any disappointments could led to a noteworthy correction in the Euro exchange rate.

Friday’s US Nonfarm payrolls result could likewise have a pronounced effect on Euro pairs. US and European markets have proven especially sensitive to major surprises in the monthly payrolls number. Consensus forecasts call for the eighth-consecutive improvement in the jobs release, and any disappointments could clearly make a dent in broader forecasts for growth out of the world’s largest economy.

The critical question remains whether we can expect further equity market gains. Much like the Euro, the S&P 500 showed early signs of reversal through late-week trade. A continuation of said tumbles could easily force the Euro to move in kind.

Japanese Yen Momentum a Combination of Risk, Intervention and Data

Fundamental Forecast for Japanese Yen: Bullish

- Finance Minister Fujji reiterates his opposition to FX intervention
- Policy officials start reining in the stimulus that has supported the most aggressive rally in decades
- Exports shrink 36 percent in the year through August, exacerbated by sharp appreciation of the yen

The Japanese yen was the biggest mover and gainer amongst the majors this past week – by a long shot. However, we can’t idly attribute this appreciation to risk appetite alone. Indeed, we can see while other risk sensitive assets (equities, bonds funds, commodities, high-yield currencies) have pulled back over the same period; they certainly didn’t do so with the same gusto as the yen. Underlying sentiment no doubt prompted the trend; but early signs of policy withdrawal and confirmation from the new Japanese Finance Minister suggesting the days of FX intervention has passed provided the fuel for momentum. Will the market maintain its bearing and pace? That will depend on three dominant factors: interpretation of the G-20 commitments; weighing the fair value of the yen; and the outlook for the domestic recovery.

While the first concern is related to the G-20 meeting and commitments that were announced this past week, the fundamental relation to the yen is risk appetite. In the six-month rally from anything and everything that can bear a yield above the risk-free assets that traders took shelter in during the worst of the crisis, we have seen an early upsurge in demand for return and an elemental redistribution of capital. There have certainly been earlier adopters to the market reversal and those lured in by the steady capital gains; but most of the inflow of wealth is simply coming from the market sidelines and is seeking an investment with stability and steady returns. It wouldn’t take much to spark fear of a reversal and catalyze a wave of profit taking; but it is the money that is flowing back in for the long haul that will decide the larger trend. Both these short-term and long-term dynamics can be impacted by the G-20’s joint statement and individual government’s efforts going forward. The impressive recovery in market levels this past year is in large part due to the guarantees, liquidity injections and bailouts by the world’s policy makers. It is unclear whether speculator confidence in the balance of risk and reward will be anywhere as strong as it has been without the government safety net. However, with German and the US cutting down its programs last week while the global call for ‘exit strategies’ grows to a roar; we may well be testing those waters soon.

It is generally true that the majors are free-floating currencies and economics indeed sets exchange rates; but perfection only exists in academic theory. In reality, the Japanese yen has carried the burden for potential intervention from the Bank of Japan for years. As a major export nation, the former DPJ administration considered a ‘weak yen’ policy essential to economic stability. However, regimes have changed and new LDP Finance Minister Fujii has explicitly said that the currency should reflect economics. The first time, the policy makers made this statement the week before last, the yen responded with a sharp appreciation. With a reiteration of the same this past week (despite the yen being at relative highs), the currency moved on to another leg of its rally. How much pressure has been priced in due to intervention fears? Only time will tell. What’s more, how will the economy handle this steady appreciation? Domestic demand has long been lacking for Japan.

And, so we round out the story with more domestic considerations. As the currency appreciations, a critical artery of growth is slowly pinched off. In line with the G-20’s commitment to balance savings, domestic demand and trade; Japan will have to compensate for the potential loss in exports with domestic demand at a critical time for the economy. In the midst of a fragile recovery, we will now low to key economic data due over the coming week to see if Japan can lift itself out of its worst recession on record. The 3Q Tankan surveys, industrial production, employment, household spending, housing activity and inflation will offer a thorough assessment.

British Pound Losing its Risk Appeal as Conditions Deteriorate

Fundamental Forecast for British Pound: Bearish

- BoE Mervyn King says the weak pound “will be helpful” in supporting a feeble recovery
- Upcoming spending cuts and speculation of a cut in the deposit rate means the BoE is running out of options
- The Bank of England minutes show a unanimous vote to keep the bond purchasing program at 175 billion pounds

Some of the major currencies are showing strength against some pairs and weakness against others – a sign of underlying currents like risk appetite. However, the British pound was down across the board this past week, and in dramatic fashion. Prominent breakouts are starting to look the establishment of new trends as the struggling fundamental health of the United Kingdom begins to override the appeal the currency once held as a source for high yields. The next few weeks will be critical in establishing where the pound will head, and more importantly, where it fits in the market.

There is no doubt that risk trends will have an impact on what kind of direction and pace the British currency takes. However, it will likely start to be more of a one sided influence. Should risk tumble in the wake of the G-20 meeting as investors worry the capital markets can’t support their own weight without a government safety net, the pound will likely tumble. There is still a latent build up of risk appetite behind this currency that was fed by the belief that the recovery in the global economy and markets would be exceptionally beneficial for the United Kingdom which is generally considered to be the industrialized nation in the worst shape. As the outlook for a speedy recovery and fades, so too does the picture of London retaking its title of financial center of the world. Yet, what happens should sentiment actually improve? Even then, the pound will likely lag or even fade despite the positive turn.

Over the past weeks and months, it has become blatantly clear that Europe’s second largest economy is struggling to pull itself out of its deep recession; and the time frame for a return to growth is being continuously pushed back. Not only did the 2Q GDP numbers tell us that the slump was more intense than initially though; but we have also seen that policy officials are running out of options to support an orderly recovery. This past week, the minutes seemed to have a positive tilt in that there was a unanimous vote to keep the bond purchasing program at 175 billion pounds (whereas in the previous vote, the was minority dissention headed by Governor Mervyn King for a greater amount). Nonetheless, the central bank kept open the possibility of further expansion of this unorthodox policy. Another step that was speculated to under consideration was a cut to the deposit rate paid to banks that hold their capital with the BoE. This too was written off; but commentary by King and other MPC members continues to stoke speculation that either or both is still a considerable possibility. Without doubt, the central bank is running out of options to jump start the economy. The further the policy authority extends itself without a commensurate response from financial health or economic activity, the more dire the nation’s condition. Considering the government will have to follow through on a serious round of spending cuts in the near future (expected to be the biggest reduction in over three decades), time is certainly working against policy officials.

In the grand scheme of things, economic data is vital at this point; but a meaningful improvement in the outlook will come with time and a wide array of indicators. Nonetheless, there are a slew of indicators to account for next week – and perhaps even a few of them could help jump start optimism. Most prominent, but least likely to surprise, is the final reading of the 2Q GDP numbers. There is rarely a meaningful adjustment in this last recalculation of the data; but the new current account numbers, some spending adjustments or capital investment alterations would be notable. Among the other notable figures, mortgage approvals, net consumer credit and the money supply are important gauges for financial health. The BoE home equity withdrawal figure and PMI factory and construction data is growth focused.

Written by Terri Belkas, David Rodriguez, John Kicklighter, Ilya Spivak, John Rivera and David Song, Currency Analysts
Article Source - Forex Weekly Trading Forecast - 09.28.09

Dollar, Yen up Ahead of the G20 Meeting

2009-09-25T14:47:00.004+02:00

The Dollar snaps a two week decline versus the EUR after disappointing U.S Home Sales data and ahead of the G20 meeting. The USD and JPY are benefiting from the recent surge in risk aversion ahead of the G20 meeting and a concern that the group's leaders will pose stricter regulations on financial markets. The drop in Oil prices, which began Wednesday, only exacerbated yesterday as equity markets tumbled and the Dollar strengthened, putting pressure on the commodities market.

USD - Dollar Rebounds on Return to Risk Aversion

The Dollar came roaring back yesterday against its rivals as poor housing data and falling equity markets sapped traders appetite for risk. Existing home sales numbers were released to an unspectacular reception with the numbers failing to reach their expected targets. Only 5.10M existing homes were sold as compared with economists forecasts of 5.36M. This sent traders running from higher-yielding currencies and into long Dollar positions.

Yesterday's trading was notably volatile, with the EUR/USD climbing in early European trading hours to a daily high of 1.4789, only to end the day at 1.4650 from 1.4721. Driving the early appreciation for the EUR was a lower number of U.S. Unemployment Claims. These gains were later eroded after less than spectacular housing data was released. Against the Yen the Dollar was down as traders looked for the less risky currency. The pair closed at 90.82 from 91.30.

Looking ahead to today's trading, we can expect further volatility of the Dollar. The Group of Twenty (G20) meets for a second day today. Comments made by the global heads of finance can move the market fast so traders should be aware of their impact. U.S. New Home Sales data is due at 2:00pm GMT time. If the New Home Sales is anything like the Existing Homes Sales data from yesterday, the EUR/USD could continue its decline for the second day in a row to finish the week near the 1.4550 mark.

EUR - Pound Crumbles on Currency Comments

The Pound took a thrashing during yesterday's trading as comments by the Bank of England sank the British currency. A report surfaced that Bank of England (BOE) Governor Mervyn King stated a weaker Pound could be beneficial to the U.K. economic recovery. It is assumed the BOE prefers a weak Pound. The weaker currency could help boost British exports, making them relatively cheaper than their foreign counterparts.

Traders immediately began bidding the Pound lower, sinking the GBP/USD to 1.5947 from 1.6353, for a single day decline of 2.5%. The EUR also rose 2% on the Pound as the EUR/GBP ended at 0.9816 from 0.9004, and the GBP/AUD fell to 1.8467 from 1.8803.

If the BOE does prefer the Pound to depreciate, this could create an opportunity for those traders who feel the British currency is not properly valued. Perhaps the BOE sees the possibility for further weakening of the Pound. Will the bank take future action to help artificially deflate the nation's currency?

JPY - Yen Rises on Negative U.S. News

As the rally of riskier currencies puts on the breaks, demand for the Yen is increasing. Yesterday's news of lower U.S. housing data helped slow the rally for riskier assets, thereby boosting the Yen. This trend continues to go unabated, with the USD/JPY rising alongside riskier assets, and falling when risk sentiment diminishes. This was the case yesterday as the USD/JPY fell to 90.82 from 91.30

Traders should be watching today's data releases from the U.S. for today's direction of the Yen. If the negative news will continue further into the day, we could have another pullback of some of the higher yielding currencies. If so the USD/JPY could be looking to drop below the 90.00 support line.

Crude Oil - Economic Data Lowers Demand for Crude

The price of Crude Oil was significantly lower yesterday as poor U.S. housing data and a strong Dollar weighed on the commodities market. Traders took the information as a pullback to economic growth and a sustained economic recovery, thereby reducing demand for the commodity. Oil fell below a significant support line of $66 and finished the day down at $65.85 from $68.36.

Yesterday's 3.6% drop in price was the second day in a row for a pullback in Crude prices. The valuation seems to be taking hints from reported economic data. If this is the case, traders will be wise to follow today's U.S. Core Durable Goods Orders and New Home Sales numbers. We could see Crude Oil trading at $65 by the end of today.

Article Source - Dollar, Yen up Ahead of the G20 Meeting

Currency Markets Look to G20 Summit Outcome to Guide Price Action (Euro Open)

2009-09-25T14:39:00.002+02:00

Currency markets will be focused on the outcome of the G20 summit of world leaders in Pittsburg to guide directional momentum. A leaked draft communiqué hinted policymakers were in no rush to withdraw fiscal stimulus, but concerns remain about what measures will be taken against risk-taking in the financial markets.

Key Overnight Developments

• NZ Annual Trade Deficit Shrinks as Imports Fall for Fifth Month
• Bank of Japan Says Recovery After Stimulus, Restocking is “Uncertain”

Critical Levels

The Euro initially sold off but prices recovered late into the overnight session, adding much as 0.2% against the US Dollar. The British Pound continued to be sold, though prices recovered most of the drop in early trading that saw GBPUSD test as low as 1.5918, trading just below 1.60 ahead of the opening bell in Europe.

Asia Session Highlights

New Zealand’s annual Trade Balance deficit contracted to the narrowest in over six years, revealing a shortfall of –NZ$2.37 billion in August following a revised –NZ$2.49 billion result in the previous month as imports fell for the fifth straight month, shrinking -21.6% from a year before. The outcome speaks ill of domestic demand in the smaller antipodean nation, especially considering that the Kiwi Dollar has become considerably stronger over recent months, which should boost New Zealanders’ purchasing power of foreign goods and encourage imports. More of the same is likely going forward as unemployment continues to push higher, trimming incomes and discouraging spending. Indeed, a survey of economists conducted by Bloomberg forecasts the trade gap will shave just -6.6% on average off GDP this and next year, the smallest since 2004. To be fair, however, exchange rate movements take a long time to be reflected in trade figures, so it is possible that the currency’s recent gains may surface to widen the shortfall in the months ahead. The deficit grew –NZ$725 million from July, more than the –NZ$329 million expected, but monthly figures tend to be volatile and looking at annualized readings offers better gauge of trade flows’ direction.

Minutes from the August policy meeting of the Bank of Japan revealed that while policymakers agreed that “overseas economic conditions have stopped worsening,” but expressed concern that the pace and sustainability of recovery after the effects of fiscal stimulus and the inventory restocking cycle run their course “remained highly uncertain.” Members concurred that exports will probably continue to improve for the time being as overseas markets stabilize, but domestic consumption will remain weak as unemployment continues notwithstanding isolated policy-induced spikes in purchases of specific items such as cars and electrical appliances. On inflation, members concluded that year-on-year consumer price figures will remain weak largely because of the correction in high oil costs seen last year. On financial conditions, policymakers said that while funding access had improved for large firms, credit for small enterprises remained limited.

Euro Session: What to Expect

With little of importance on the economic calendar, currency markets will be focused on the outcome of the ongoing Group of 20 (G20) summit of world leaders going on in Pittsburg. Traders’ concerns are two-fold: first, there are worries that policymakers will take recent signs of economic stabilization to agree on a path to withdrawing fiscal stimulus measures, nipping the recovery in the bud; second, it remains unclear what, if anything, will be agreed upon regarding regulations of risk-taking in the financial markets. On the former point, a draft G20 communiqué leaked by Reuters contained language saying leaders will maintain expansionary policies until the global recovery is secured, alleviating at least some concern. Little is known on the latter point, however, and any actions that are perceived to be too strong (which, in fact, would be any kind of broad-based agreement considering the difficulty of building consensus in the G20) are likely to send capital feeing out of risky investments and into safety-correlated assets like the US Dollar and the Japanese Yen.

Article Source - Currency Markets Look to G20 Summit Outcome to Guide Price Action (Euro Open)

USD Up on Fed Statements; Oil Sinks on Demand Concerns

2009-09-24T11:09:00.001+02:00

The US Federal Reserve yesterday upgraded its assessment of the U.S. economy, saying growth had returned after a deep recession. As expected, the Fed kept its target for its federal funds rate set at a range of zero to 0.25%. The previously weakened Dollar had been propping up commodity prices. Following the US Crude Oil Inventory report yesterday, oil prices dropped nearly 4% to below $68.50 a barrel. The Fed statement, which pushed the US Dollar up, only helped extend these decreases in oil prices.

USD - Dollar Optimism High Following Fed Statements

The Dollar rallied yesterday against most of its major counterparts amid concern that the Federal Reserve is nearing the end of its efforts to lift the economy out of recession. The Dollar has been sold-off recently partially due to growing optimism about the outlook for the U.S. economy. The USD finished yesterday's trading session 100 pips higher against the EUR at the1.4700 level.

The Federal Reserve yesterday upgraded its assessment of the U.S. economy, saying growth had returned after a deep recession. As expected, the Fed kept its target for its federal funds rate set at a range of zero to 0.25%. The Fed repeated that it continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

The Fed also said it would slow its purchases of mortgage debt to extend that program's life until the end of March, in a move toward withdrawing the central bank's extraordinary support for the economy and markets during the contraction. Analysts had expected the move, which smoothes out the purchases.

Looking ahead to today, the most important economic indicators scheduled to be released from the U.S. are the Unemployment Claims and Existing Home Sales at 12:30 GMT and 14:00 GMT respectively. Traders will be paying close attention to today's announcement as a stronger than expected result may continue to boost the USD in the short-term. Traders are also advised to follow FOMC member Evan's speech at around 14:30 GMT. This speech is very important as it is likely to impact the Dollar's volatility. Traders are advised to watch closely, as this is likely to set the pace of the Dollar's movements going into the rest of the week's trading.

EUR - EUR Declines as Stock Market Falls

The EUR fell to session lows against the U.S. Dollar yesterday, weighed down by declines in stocks following early gains. This came after the Federal Reserve signaled that interest rates will remain low for some time. By yesterday's close, the EUR had fallen against the USD, pushing the oft-traded currency pair to 1.4700. The EUR experienced similar behavior against the GBP and closed at 0.9000.

Europe's manufacturing and service industries expanded for a second month in September, suggesting that the Euro-Zone regional economy is gathering strength and showing signs of emerging from its worst recession in more than six decades after governments stepped up stimulus measures and the European Central Bank (ECB) injected billions of euros into markets.

In addition, European economic confidence rose to a 10-month high in August but rising unemployment is a reason to remain prudent about the economic outlook.

Investors may look for the unusual price volatility to continue in the EUR/USD as the pair attempts to stabilize and find new support and resistance lines. Large price jumps such as these are not common place and present terrific opportunities to take advantage of the price swings for large profitable gains.

JPY - Yen Trading Down against Currency Rivals

The Japanese Yen saw a bearish trading session yesterday, losing ground against most of its currency crosses. The JPY fell against the USD after several days of recovery, while the GBP/JPY cross also rose to around 149.40. The only economic events out of Japan yesterday were the trade balance figures; only slightly changed from forecasts as volatility was kept to a minimum.

Japan's exports fell in August for an 11th consecutive month as recovery struggled to gain traction in the island economy. Bank of Japan Governor Shirakawa said last week that he is concerned the recovery may not outlast the worldwide stimulus packages that boosted demand for the country's cars and electronics. The central bank cited exports as the main reason for raising its assessment of the economy last week, as record unemployment and slumping wages weaken consumer spending.

Another headwind for Japanese exporters is an appreciating currency. The yen has gained more than 7% against the Dollar in the past six months, threatening to erode companies' profits earned abroad.

Crude Oil - Oil Drops as Inventory Rises; Demand Concern?

Oil prices dropped nearly 4% to below $68.50 a barrel during yesterday's trading session. This drop came after a U.S. government report showed Crude Oil inventories rose more than expected, rekindling worries that energy demand in the world's biggest consumer will be slow to recover in the wake of the recession.

The International Energy Agency (IEA) said that the inventories rose to 2.8 million barrels in the week September 18, against analysts' expectations of a 1.5 million barrel decline.

A weak Dollar had been propping up prices recently. The greenback was narrowly mixed against the JPY, EUR and GBP on Wednesday. Oil, like other commodities, is priced in dollars so when the U.S. currency weakens, commodities become cheaper for investors holding other currencies.

As for today, traders should pay attention to the U.S Unemployment Claims report as it has tended to have an impact on Crude Oil's prices recently, especially in the short-term.

Article Source - USD Up on Fed Statements; Oil Sinks on Demand Concerns

Euro in Play with German IFO to Show Business Outlook Rose for Third Month (Euro Open)

2009-09-24T10:53:00.003+02:00

The Euro may see near-term gains as Germany’s IFO Survey shows that business confidence in the Euro Zone’s largest economy rose for the third straight month to hit the highest level since May 2008, but sentiment may not be supportive in the longer term.

Key Overnight Developments

• Japanese Trade Surplus Shrinks on Export Weakness
• Australia's New Home Sales Matched Record Gain in August
• RBA Says Financial System Resilient But Risks Remain

Critical Levels

The Euro consolidated near the 1.47 level in overnight trading, yielding a flat result ahead of the opening bell in Europe. The British Pound advanced, adding as much as 0.3% against the greenback. We continue to hold a short GBPUSD position, initially targeting 1.6112.

Asia Session Highlights

Japan’s Merchandise Trade Balance surplus narrowed to 185.7 billion yen in August as overseas shrank -36% from the previous year, marking the 11th consecutive contraction. Economists had expected a greater decline, calling for a 157 billion result. Export volumes shrank for the first time since May, with shipments to the European Union leading the way lower. The data may be hinting that the $12 trillion or so in fiscal stimulus spent by the world’s governments to stabilize growth that had boosted demand for Japanese products may be running out of steam. Indeed Bank of Japan chief Maasaki Shirakawa expressed concern that his country’s economic rebound may survive once worldwide expansionary policies are reversed. A stronger currency may have also contributed to the outcome: the Yen strengthened by 1.9% in trade-weighted terms in August, the most since January. While this would typically raise fears that formerly activist Japanese policymakers will intervene into the markets to drive down the currency, incoming DPJ Finance Minister Hirohisa Fujii said last week that it was not the government’s job to set exchange rates and that a stronger Yen had its advantages, clearly signaling that Japanese authorities will stand aside from here. The trade balance is expected to continue to contract in the months, with a survey of economists polled by Bloomberg forecasting that net exports will add on average 2.4% to GDP through this year and in 2010, the least since 2001.

Australia’s Housing Industry Association (HIA) reported that New Home Sales surged 11.4% in August, matching the record-setting monthly gain in January 2008. However, property sales began to rebound in May after the government extended a scheme offering an A$21,000 grant for first-time home buyers, so it still remains suspect whether momentum can remain supported after the flow of stimulus cash dries up. Indeed, unemployment continues to climb, with expectations calling for the jobless rate to approach 8% next year, while the HIA’s own Housing Affordability Index fell for the first time in 15 months in the second quarter.

Separately, the RBA’s semi-annual Financial Stability Review was broadly balanced, saying that although the Australian financial system remains resilient and funding conditions for banks have improved, recent progress can owes significantly to government guarantees on lending and loan losses may still rise in the future. The central bank also cautioned that business borrowing has continued to decline (which spells trouble for employment) and the commercial property market has weakened, contributing to the possibility of renewed problems from bad loans ahead.

Euro Session: What to Expect

Germany’s IFO Survey of business confidence is expected to show that the pessimists about the economy’s six-month economic climate outlook among polled firms outnumbered the optimists by the narrowest margin since May last year, with the Expectations index rising to 96.6 in September. A reading above 100 suggests the majority of respondents were optimistic, and vice versa. While the improvement may engineer some short-term gains for the Euro in the aftermath of the announcement, it remains questionable whether sentiment will remain supportive as the effects of fiscal stimulus both in Germany and abroad that has boosted domestic demand and exports in recent months are exhausted. As it stands, a survey of economists conducted by Bloomberg suggests that the Euro Zone’s largest economy will underperform all of the G10 excluding Japan this year and remain behind the US and commodity bloc countries (Canada, Australia, New Zealand) into 2010. This suggests the ECB will be among the laggards as central banks begin to lift interest rates from current lows, an outcome that bodes well for business climate surveys (for surely businesses prefer lower borrowing costs to higher ones) but will likely weigh on the single currency.

Article Source - Euro in Play with German IFO to Show Business Outlook Rose for Third Month (Euro Open)

U.S. Interest Rates on Tap

2009-09-23T09:28:00.002+02:00

Following two relatively peaceful trading days, today is filled with news publications from the major economies. Starting at 06:45 and until 09:00 (GMT) traders are advised to follow the news events from the Euro-Zone. Later on, the Crude Oil Inventories will be published at 14:30 (GMT). This indicator tends to have an instant impact on Crude Oil prices, and traders should use it with their trading. Finally, at 18:15 (GMT), the Federal Reserve will announce the U.S Interest Rates for September. This promises to create hefty volatility in the market, which should provide various opportunities for traders to enlarge profits.

USD - The Dollar Falls before Federal Reserve Meeting

The U.S Dollar's weakness resumed, as global investors again embraced risks, reducing safe-haven demand for the U.S. currency, as traders took positions on the first day of the Federal Reserve monetary policy meeting. The U.S. Dollar also weakened on speculation that the Group of 20 leaders, meeting in Pittsburgh starting tomorrow, will call for a reduction in global trade imbalances that may cause further gains in the greenback's counterparts. The greenback traded at $1.4794 per EUR from $1.4790 yesterday, after declining to $1.4842 earlier on, the lowest level since September 22, 2008.

The hard-pressed Dollar had gained some ground Monday as equity markets weakened, with traders tying a decline in risk appetite to caution ahead of the Fed meeting, as well as the summit of Group of 20 leaders at the end of the week. But Tuesday's resumption of risk appetite may reflect views in the market that neither event is likely to produce meaningful changes analysts said.

Market sentiment toward the USD remains bearish. Analysts expect the Fed to signal its ultra-loose monetary policy will remain in place well into next year. Additionally, as the G20 to discusses rebalancing the global economy this will almost certainly further weaken the Dollar. The Federal Reserve is widely expected to leave Interest Rates unchanged. But markets will seek out clues on the Fed's asset purchases. Any sign that the Fed intends to continue its quantitative easing measures beyond this year could send the U.S Dollar to record lows.

EUR - Euro Hits $1.48 for the First Time in a Year

The EUR traded at a 1 year high against a sliding Dollar on Wednesday, as traders took advantage of the U.S. currency's rise the previous day to resume selling ahead of a Federal Reserve monetary policy meeting. The European currency advanced as hopes for a global recovery prompted investors to shift money to higher-yielding currencies from the safe-haven greenback.

In late trading, the EUR was up 0.8% at $1.4796 after options-related demand and strong Asian buying pushed it above $1.48 for the first time since September 2008. European Central Bank (ECB) Governing Council member Axel Weber said on Tuesday recent moves in currency markets were surprising given the Euro-Zone's economic performance relative to other major economies. Traders expect the $1.4870 level may be the next target in EUR/USD cross, with many predicting an eventual move back to $1.50.

The British Pound also gained against the U.S Dollar for the first time in 4 days, as stocks rallied around the world on evidence that the global economic recovery is accelerating. The British currency advanced 1% to $1.6376. The GBP rose 0.2% against the EUR to 90.33 pence, ending a 6 day losing streak. Against the EUR, the British currency rebounded from near the lowest level in more than 5 months after Goldman Sachs Group Inc. recommended selling the common European currency against Sterling.

JPY - Yen Gains as USD Remains Under Pressure

The Japanese Yen extended its gains on Wednesday vs. the greenback as investors unloaded the U.S. currency ahead of meetings by the Federal Reserve and the G20 leaders this week. The currency gained for a 2nd day against the U.S Dollar on speculation world leaders will discuss policies to rebalance global economic growth at the G20 meeting this week. The JPY climbed to 90.82 Yen per Dollar from 91.10, and rose to 134.40 Yen per EUR from 134.76.

The Japanese currency is likely to strengthen further before new Finance Minister Hirohisa Fujii takes office this month; he said a strong Yen was generally good as it boosted the purchasing power of Japan's economy. Fujii subsequently backed away from that comment, but speculation will remain that after sweeping to power last month, the Democratic Party of Japan may try to shift the country away from its reliance on exports and its opposition to Yen strength.

Crude Oil - Crude Rebounds as Inventories are Expected to Decline

Crude Oil prices rose Tuesday to above $72 a barrel, as pressure on the Dollar and expectations for a further drop in U.S. Crude inventories boosted market sentiment. Weekly petroleum data is likely to show that stockpiles of Crude fell again last week, as imports remained low analysts said. Last week, the EIA said Crude Oil Inventories decreased by 4.7 million barrels in the week ending Sept. 11, as imports dropped 2.1% from a week ago.

The move in Crude Oil today is likely to be supported by a fresh wave of selling of the U.S. Dollar. Traders will be waiting for U.S. Crude inventory data from the American Petroleum Institute and the U.S. Energy Information Administration. Also of interest to commodities traders is leaders of the world's most powerful economies will convene in Pittsburgh later this week for the G20 Summit.

Article Source - U.S. Interest Rates on Tap

British Pound Volatility Threat High as Currency Markets Focus on BOE Minutes (Euro Open)

2009-09-23T09:21:00.002+02:00

The British Pound may be in for a volatile session ahead as the release of minutes from this month’s Bank of England monetary policy meeting top the economic calendar in European hours. Currency markets were active in overnight after New Zealand GDP unexpectedly expanded and the Chinese central bank deputy governor sounded off against the US Dollar.

Key Overnight Developments

• Currency Surges as New Zealand GDP Unexpectedly Grows in Second Quarter
• USD Drops After PBOC’s Hu Says Dollar-Reserve System Must Change

Critical Levels

The Euro trended higher against the US Dollar in overnight trading, testing as high as 1.4842. The British Pound also advanced, adding as much as 0.4% against the greenback. We continue to hold a short GBPUSD position, initially targeting 1.6112.

Asia Session Highlights

New Zealand’s Gross Domestic Product unexpectedly added 0.1% in the three months to June, snapping five consecutive quarters of losses. Economists were forecasting a -0.2% result ahead of the release. The economy shrank -2.1% from a year before, less than the expected -2.6% decline. The Reserve Bank of New Zealand was among those calling for a contraction when Governor Alan Bollard said the bank expected to “keep [interest rates] at or below the current level…until the latter part of 2010” at the monetary policy announcement earlier this month, and traders seemingly took today’s release to mean the time table will now accelerate. Indeed, a Credit Suisse gauge of priced-in rate hike expectations for the coming year jumped 13 basis points to a record high and the New Zealand Dollar surged to a fresh 2009 high against a trade-weighted basket of top currencies.

The US Dollar Index (an average of the greenback’s value against six major counterparts) spiked to a fresh yearly low after the Chinese central bank’s deputy governor Hu Xiaolian wrote in a paper posted on the G20 website ahead of the group’s summit in Pittsburg this week that the current crisis was due in part to the Dollar’s role as global reserve currency. Hu, who is also the former director of China’s foreign-exchange authority, went on to say that the world stands at risk of an asset bubble and potentially another crisis akin to the current one if the global monetary system is not changed.

Euro Session: What to Expect

The release of minutes from this month’s Bank of England monetary policy meeting headline the economic calendar in European hours. The announcement itself produced no surprises with interest rates left at 0.5% and the magnitude of quantitative easing unchanged at 175 billion pounds. Just five days later, however, BOE chief Mervyn King gave resoundingly dovish testimony to House of Commons Treasury Committee, saying poor credit growth remains a direct drag on demand and revealing that policymakers are considering cutting the interest rate they pay on bank deposits to encourage idle reserves to be channeled into lending. The latter comment in particular sent the British Pound tumbling, with traders clearly caught off guard as the BOE was seemingly preparing for more, not less, monetary easing despite the recent uptick in leading economic indicators. This creates strong potential for sterling volatility as the markets dissect tonight’s release for any clues on how serious King and company are about the deposit rate idea and when (if ever) such an outcome may be expected. For our part, we speculated ahead of the September 10 rate announcement that the bank was preparing the markets for a change in policy after the asset-buying scheme largely failed to affect lending to the real economy. Indeed, although Mervyn King has said that the BOE was “beginning to see its impact on the supply of broad money,” the M4 measure of money stock grew at an annual pace of just 12.6% in August, the slowest in a year, while central bank’s own data showed net lending shrank for the first time in at least 16 years in July.

Separately, the British Bankers Association’s measure of Loans for House Purchase is set to show that mortgage approvals rose by 40,500 in August, the most since February 2008, hinting at stabilization in the property market. Earlier this week, a report from Rightmove Plc showed that UK house prices fell the least in a year in September, saying “confidence is up, stock is down and the number of people searching is high.” However, as we noted earlier, the rebound may have a hard time retaining traction with consumer sentiment apparently tracking equities and therefore is vulnerable to a (long overdue) correction in risky assets while unemployment continues to rise, with a survey of economists polled by Bloomberg calling for the jobless rate to top 9% next year.

Turning to the continent, a handful of Purchasing Manager Index releases are expected to come in broadly positive. In Germany, the manufacturing sector is expected to expand for the first time in 14 months while the pace of expansion in the service industry picks up to the fastest since April 2008. Manufacturing will likely continue to shrink in the Euro Zone as a whole but the rate of decline is set to moderate to the slowest since the sector first began to contract in May last year. The improvement can likely be attributed to the continued rebuilding of inventories after firms cut production and exhausted their stocks of goods last year and through the first quarter of 2009 amid the global economic downturn. Still, Industrial New Orders are expected to shrink -25.9% in the year to July, suggesting the pace of demand contraction will remain within the range noted since November of last year.

Written by Ilya Spivak, Currency Analyst
Article Source - British Pound Volatility Threat High as Currency Markets Focus on BOE Minutes (Euro Open)