Discount Rate Discussions Keeping Floor Under Bonds

Once again bond markets are having a hard time maintaining a rally after the Fed’s earlier stand on its policy of maintaining low interest rates. Dealers continue to mull the potential for a second nudge higher in the Fed’s discount rate, which is overhanging market sentiment. As much as investors want to see a continuation of near-zero interest rates the threat of increases at the Fed’s symbolic rate serves to remind fixed income investors that benchmark interest rates may not be going up today, but that’s the general direction at some unspecified point. The relief rally in the Eurozone that’s helped push yields towards record lows also appears to be running tired of the story that Greek woes will splinter the Eurozone.

Eurodollar futures – There is nothing on the U.S. data calendar today and the dominant theme seems to be coming from north of the border where Canadian inflation data threw down the gauntlet to the Bank of Canada. Although U.S. prices remain contained, rising Canadian price pressures serve to remind fixed income investors of exactly what happens when growth resumes and resource slack is gradually taken back. Bond futures fell following the report with the June contract sliding to an intraday low of 116-245 before rallying to 116-30. The 10-year yield stands at 3.69%.

European short futures – Euribor futures are unchanged once again and remain unfazed by the growing schism in the Eurozone over whether or not the member states should finance Greek problems or whether they should simply refer the government of Greece to work out a package with the IMF. June German bunds are marginally lower on the day at 123.08, where the yield reads 3.12%.

Australian rate futures – Aussie bills prices shed six basis points overnight possibly in response to the firmer tone to regional stock markets. While economies are buzzing in the region and confidence has resumed, investors remain conscious at least of what the Chinese central bank and government might yet do to stem growth. The yield at the 10-year Aussie government bond added two basis points to stand at 5.66%.

Canada’s 90-day BA’s – The Canadian yield curve took an earlier pounding after the release of February data for consumer prices, which showed an unexpected 2.1% year-over-year reading in the core rate inflation. Investors’ nerves were frayed and bets were stepped up that the Bank of Canada might need to abandon a frozen policy promised through mid-year. The February reading was supposed to decline from 2% to 1.7% yet now stands above the central bank’s target level. The sensitive two-year bond yield surged eight basis points to 1.63% and the five year yield jumped by five basis points to 2.85%. The June 10-year bond future slumped 18 ticks to 118.33 sending the yield one basis point higher to 3.47%. Bond prices are rebounding somewhat as analysts ponder whether the recent Olympic games may have temporarily boosted certain seasonal prices.

A surging Canadian dollar now looks set to test parity ahead of the next policy-setting meeting, while three-month bill prices slid following today’s report. And while the bond curve may have flattened, calendar spreads widened out watching bill prices as futures contracts lost more ground at later expirations. The December bill contract sliced through support at 98.47 and put in a low at 98.37, while the June 2011 contract shed 10 basis points to imply a yield of 2.36%. Current short term rates in Canada stand at 0.25%. The calendar spread spanning the year starting in June widened by five basis points to 170 basis points.

British interest rate futures – Short sterling futures are lower and running contrary to the action in the pound today, which fell after comments from Bank of England policymaker Andrew Sentance, who discussed the prospects for a double-dip recession. Gilt prices are higher with the yield dropping just one basis point to 3.96%. June gilts are up by five ticks on the day at 115.01 but are currently the only major rising bond market at this hour.

Japan – Bond yields at the 10-year area of the curve pared earlier in the week losses to close at a yield of 1.35%.

Andrew Wilkinson
Senior Market Analyst

Interactive Brokers

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Daily Technical Analysis

EURUSD Outlook

The EURUSD had a significant bearish momentum yesterday, break below the bullish channel indicating potential bullish failure testing 1.3530 area even 1.3450/30 key support level. The bias is bearish in nearest term however note that the bullish reversal scenario triggered by the triple bottom formation technically still provide technical bullish scenario. Only a break below 1.3450/35 area could be seen as ‘the real’ bullish failure targeting 1.3100 area. Immediate resistance at 1.3670 area. Break above that area should trigger further bullish momentum re-testing 1.3800/50 region.

GBPUSD Outlook

The GBPUSD failed to continue its bullish momentum yesterday, bottomed at 1.5215 and closed at 1.5244 after unable to consistently move above 1.5350 area. This fact could trigger further bearish pressure but we need a consistent move below 1.5200 – 1.5185 psychological support area to confirm further bearish scenario targeting 1.5000/50 area. Immediate resistance at 1.5300. Break above that area should keep the bullish scenario after violation to the major bearish channel intact but again, we need a consistent move above 1.5350 to continue the bullish scenario targeting 1.5530 area.

USDJPY Outlook

The USDJPY was volatile but indecisive (again) yesterday. On h4 chart below we can see that price is struggling around the upper line of the bearish channel but can not really convincingly move above the channel. While the major bearish scenario remains intact as long as price still move below the major trendline resistance, the bullish scenario is still alive and kicking especially if price manage to break above 91.50 area, take us into a new bullish phase. Immediate support at 90.00 followed by 89.50.

USDCHF Outlook

The USDCHF attempted to push higher yesterday, topped at 1.0646 but closed lower at 1.0579. This fact should keep the bearish correction scenario intact but note that the major trend remains bullish. A clear break above 1.0640 area should bring the direction back to its major trend, bullish, towards 1.0888 area. Immediate support at 1.0507. Break below that area should trigger further bearish momentum targeting 1.0420 region.

EURJPY Outlook

The EURJPY had a significant bearish momentum yesterday, break below the bullish channel indicating potential threat to the bullish scenario. The bias is bearish in nearest term but we need a consistent move below 123.00 – 122.50 area to confirm the bearish scenario targeting 121.70 even 119.70 area. From a longer term point of view, I believe that only a break below 119.70 area could be seen as the continuation of the major bearish scenario testing 117.50 even 112.10 area. Immediate resistance at 123.90. Break above that area should trigger further bullish momentum re-testing 125.15 region.

GBPJPY Outlook

The GBPJPY didn’t make significant movement yesterday. The fact that price still move inside the minor bullish channel indicating the bullish correction remains intact, but so far price is unable to stay consistently above 138.30 area indicating potential false breakout scenario which could trigger bearish momentum testing the lower line of the minor bullish channel as bullish momentum wanes. Another movement above 138.30 should keep the bullish correction intact testing 141.50 region. Immediate support at 137.00. Break below that area should trigger further bearish momentum testing 136.00 area and could be a serious threat to the bullish correction scenario re-testing key support level at 132.50/00 region.

AUDUSD Outlook

The AUDUSD didn’t make significant movement yesterday, still trapped in range area of 0.9250 – 0.9140. The bias is neutral in nearest term. We need a clear break on either side to see clearer direction towards 0.9326 or 0.9040. However, as long as price still move above the major trendline support (white) I still prefer a bullish scenario as the major trend is bullish. Technically, 0.9140 and 0.9040 area is the best places for a long position.

FX Instructor LLC
www.fxinstructor.com

The information has been prepared for information purposes only. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. This information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. FXInstructor LLC assumes no responsibilities for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. FXInstructor LLC does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FXInstructor LLC shall not be liable for any indirect, incidental, or consequential damages including without limitation losses, lost revenues or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results

USD Higher, Consumer Prices Flat, Continuing Claims Rise

• USD: Higher, Greek fiscal worries and tensions with China over Yuan revaluation, Philly Fed rises
• JPY: Mixed, manufacturing sentiment improves, gains limited as US equities rally
• EUR: Lower, Greece may seek IMF aid as EU aid to Greece appears less likely
• GBP: Lower, February budget deficit smaller than expected, CBI orders decline
• CAD and AUD: AUD & CAD lower, Canadian net foreign investment flows rise

Overview

The USD traded higher Thursday supported by concern about the Greek fiscal outlook and in reaction to increasing tensions between the US and China over the value of the Yuan. EUR was pressured by a Dow Jones report that Greece may seek IMF aid as aid from the EU seems less likely. Greek PM says it will give the EU one month to decide on an aid plan. US officials tell China that the value of the Yuan is a real concern. There is a movement in U.S. Congress to name China as a currency manipulator. Chinese officials continue to push back against pressure to revalue the Yuan and state that a rise in the Yuan would be a disaster for Chinese exports. US and Chinese rift over the Yuan dampens risk appetite and sparked selling of the commodity currencies. CAD outperformed supported by report of strong net foreign investment flows to Canada and diminished threat of BOC intervention. JPY traded higher in reaction to today’s drop in risk appetite and by report of improving manufacturing sentiment in Japan. GBP traded lower in reaction to a decline in UK CBI orders with downside limited by report of smaller than expected UK February budget deficit. Today’s US economic data was mixed with February CPI unchanged and jobless claims came in slightly higher than expected. Continuing claims unexpectedly rose by 12k. The US current account deficit widened by less than expected in the fourth quarter. LEI was reported a bit weaker than expected and the Philly Fed came in above expectation. Today’s US economic data points to a slow US recovery with low inflation and USD consolidated early gains.

Today’s US data:

February CPI was unchanged, a reading of 0.1% was expected. Initial jobless claims for the week ending 03/13 declined by 5k to 457k, a reading of 455k was expected. February LEI rose by 0.1%, a reading of 0.2% was expected. March Philly Fed came in at 18.9, a reading of 18 was expected. US current account deficit widened to $115.59bln.

Upcoming US data:

No major US data is due for release Friday.

JPY

JPY traded mixed to higher supported by report of improving manufacturing sentiment in Japan and by gains in cross trade sparked by concern about the Greek fiscal outlook and growing rift between the US and China over the value of the Yuan. Japan’s March Reuters manufacturing index rose to its highest level since June of 2008. The rise in Japan’s manufacturing sentiment index follows recent economic data from Japan which suggests Japan’s economy is improving. JPY gained in cross trade versus the EUR supported by safe haven demand and in reaction to report that a rift over Greek aid between Germany and Greece has deepened. The Greek prime minister warns that the Greek debt may spiral higher because of rising costs to finance the debt. JPY traded higher versus the AUD with the AUD pressured by concern that the US rift with China over the Yuan value could increase the risk protectionism. Protectionism would add additional risk to the global recovery outlook. Wednesday the BOJ kept interest rates unchanged at 0.1% and announced a plan to double its lending program. The BOJ will expand its lending program to ¥20trln from ¥10trln announced in December. The vote to expand the BOJ’s lending operation was split with two board members opposing expansion of quantitative ease. The fact that the vote was split may reduce the risk of future BOJ monetary ease. Today’s report of stronger manufacturing sentiment from Japan will also reduce the risk of additional monetary ease from the BOJ. Diminished the BOJ ease speculation may be a modest positive for the JPY.

On March 19th January all industry activity will be released expected at 0.8% compared to -0.3% last month.

Key technical levels to watch in USD/JPY include support at 89.63 the March 9th low with resistance at 91.30 the February 23rd high.

EUR

EUR traded lower pressured by worries about the Greek fiscal outlook. It’s becoming less likely that the EU will agree to an aid package for Greece. European press reports that the rift between Germany and Greece has deepened and Greece may turn to the IMF for help. If Greece is forced to go to the IMF for aid it would generate concern that the EU does not have a plan to deal with sovereign debt risk in the other peripheral EU nations. This means that the Greek fiscal crisis may turn into a contagion and spread to other parts of Europe. The Greek fiscal crisis is seen as a challenge to the unity of European Monetary Union and a possible threat to the EU economic recovery. EUR was also pressured by report of widening of the EU trade deficit. The January trade balance widened to -8.9bln a reading -4bln was expected. Concern about the Greek debt crisis impact on the EU economy is a major focus for EUR trade. New York University economist Roubini says that he sovereign debt crisis in Europe increases the risk of a double dip recession for the EU. The risk of weaker economic outlook in the EU will encourage the ECB to maintain steady rate policy and delay its exit strategy. The EUR may be vulnerable widening of yield and growth differential as the US recovery appears to be on track and the Fed is believed to be closer to a shift in monetary policy.

The technical outlook for the EUR is mixed as support holds above 1.3600. Expect EUR support at 1.3530 the March 5th low with resistance at 1.3740 the March18th high.

GBP

GBP traded lower but outperformed supported by report the UK February net government borrowing was less than expected. UK public borrowing rose by 12.4bln in February, a 14bln deficit was expected. Despite the fact that the February deficit was smaller than expected it still set a new record for UK monthly borrowing in February. Recent weakness of the GBP has partly reflected concern that rising UK budget deficit increases the risk that the UK could lose its AAA sovereign debt rating. GBP was pressured by report that January net lending to businesses declined by 6.5bln compared to 3.5bln in December and in reaction report that March CBI orders dropped to -37 from -36 last month. In addition, mortgage approvals in February declined to a nine-month low. The weak lending and mortgage approvals data and weaker CBI orders may encourage speculation that the BOE will be forced to expand quantitative ease to boost the UK economy. Recent weakness of the GBP has partly reflected BOE ease speculation. GBP experienced a sharp rally Wednesday sparked by report of a sharp drop in UK claimant count and in reaction to the BOE minutes for the March policy meeting which suggest that the BOE is becoming concerned with increasing inflation pressures in the UK. The claimant count report and BOE minutes dampened BOE ease speculation. In light of today’s weaker than expected UK data this BOE policy uncertainty may encourage new selling of the GBP.

The technical outlook for GBP is positive as GBP trades above 1.5300. Expect near-term support at 1.5209 the March 17th low with resistance at 1.5475 the February 23rd high.

CAD

CAD traded mixed initially supported by report of strong investment flows to Canada and in reaction to diminished threat of BOC intervention. January net investment flows to Canada were 11.83bln, a reading of 8bln was expected. Canada’s PM Harper downplayed recent strength of the CAD. His comments appear to reduce the risk that Canada is considering intervention to try to slow the rate of the CAD rally. Harper said that Canada is competitive with CAD at parity with the USD. CAD is consolidating near a two year high versus the USD supported by improving Canadian economic outlook and speculation that the BOC may hike interest rates ahead of the Fed. Canadian wholesale trade surged by 3%, a 0.5% rise was expected. The surge in wholesale trade follows yesterday’s release of strong Canadian manufacturing shipments and productivity data. Canada’s January manufacturing shipments surged by 2.4% and Q4 productivity increased by 1.4%. The stronger manufacturing shipments and productivity data follows last week’s report of better than expected employment growth in Canada. These reports may encourage speculation that the BOC will hike interest rates earlier than expected. CAD has been outperforming supported by last week’s decision by the BOC to maintain steady monetary policy and signal a shift in its policy bias. In the BOC policy statement the BOC dropped reference to inflation risks being to the downside. This has encouraged speculation that the BOC may hike interest rates sooner than the Fed. Today’s benign US CPI and as expected jobs data will encourage the Fed to continue to hold monetary policy steady as the US recovery appears to be weak. The BOC pledged to maintain low yields through June of 2010 provided inflation remains in check. This week’s main focus is the CPI report due for release Friday. A higher than expected inflation reading would fuel speculation of an earlier BOC rate hike.

On March 19th January retail sales will be released expected at 0.7% compared 0.4% last month along with February CPI. CPI is expected at 0.4% compared to 0.3%.

The technical outlook for CAD is positive as USD/CAD trades below 1.0200. Look for near-term support at 1.0071 the March17th low with resistance at 1.0334 the March 5th high.

AUD

AUD traded lower mainly pressured by selling in cross trade to the JPY. JPY was supported by repatriation flows ahead of Japan’s fiscal year end on March 31st, stronger Japanese manufacturing sentiment and safe haven demand sparked by a growing rift between the US and China over the value of the Yuan. As noted above, tensions between the US and China over the value of the Yuan have intensified. US officials believe that the Yuan is undervalued and that this undervaluation contributes to widening global trade imbalances. There is a movement in the U.S. Congress to label China as a currency manipulator. If the rift between the US and China over the Yuan escalates it could generate concern about trade protectionism and the outlook for the global recovery. Today’s Australian economic data was mixed with Q1 industrial trends reported up 6.3 points to 56.7 and February merchandise imports rose by 2%. The RBA confirmed that it sold A$424mln in February compared to A$295mln and January. AUD has held firm but remains reluctant to build on recent strength as uncertainty about the outlook for China’s economy and RBA policy limit demand. RBA watcher McCrann said that the odds slightly favor a RBA positive April. At the beginning of the month the RBA hiked interest rates 25bps to 4%. The RBA is expected to raise interest rates to 5% by the end of the year so a pause in April should not be a major deterrent to demand for the AUD. The trade will be closely monitoring developments in regard to the Yuan and China’s efforts to curb lending and slow growth.

The technical outlook for the AUD is positive as the AUD trades above 9200. Expect AUD support at 9175 the March 17th low with resistance at 9378 the November 17th high.

By Michael J. Malpede

Easy Forex

Michael J. Malpede is Chief Market Analyst with Easy-Forex® and has previously been featured on Bloomberg TV, Bloomberg radio, Reuters, MarketWatch, Wall Street Journal, Chicago Tribune, Chicago Sun Times, Toronto Star and Nikkei press. In analyzing the markets, he draws from 29 years of Foreign Exchange Research as a Foreign Exchange Analyst.

Please note that Forex trading (OTC Trading) involves substantial risk of loss, and may not be suitable for everyone. This report is provided by Easy- Forex® for informative purposes only. In no way it is a recommendation by Easy-Forex® for you to engage in any trade. It is your sole responsibility and you will have no claims with regards to this report against Easy-Forex®. If you do not agree to this, you are strongly advised not to use this report. Hence, Easy-Forex® shall not be held responsible for any outcome of trading decisions, in regards with this report or similar reports.

Time to Regroup

Wednesday’s forex activity was notable for two things: The dollar weakened as risk appetite accelerated sending riskier asset classes and currencies to multi-month peaks. The euro failed to join the party closing down on the day. It should, like a strong derby favorite, have taken up the early running, but we all quickly noticed how hobbled it looked resting at the back of the pack. Sure enough we find today that the questions are starting to arise about the very existence of a financial rescue package for Greece in the event it can’t roll over spring bond maturities over the next two months. Overnight developments leave us with the mental imagery of politicians in Berlin holding up traffic signs emblazoned with the words, "U-turn here for IMF building."

Euro – We have become accustomed to hearing little substantive in the aftermath of EU ministerial meetings at which defense plans were supposedly discussed. Any press conferences or statements have been confined to merely stating facts surrounding the need for Greece to get its own house in order coupled with strong supportive words from fellow nations. However, the words yesterday from Germany’s chief finance minister telling Greece to pay a visit to the IMF if it feels the need for financial assistance is a real deviation from the previous script. It also leaves Chancellor Merkel treading a fine line between standing behind Greece and actual facing up to the nation as an opponent.

Needless to say the outcome is a reversion to ongoing fears for the euro, which slipped to around $1.3650 before rebounding to $1.3685. Headway for the single currency has suddenly become difficult to envisage. However, it has to be remembered that in the aftermath of the recent budget there was not only adequate but also ample demand for the €5 billion government bonds issued by Greece. The gradient of the uphill task facing the nation going forward evened out somewhat in the aftermath. Looking forward, IMF assistance is an option for Greece and looking beyond that the outlook might even improve. Arguably EU members won’t be dragged down by lending to Greece and may make a test case in sending the nation cap in hand to the IMF. For its part Greece is shored up by binding loans from the IMF, which could improve its credit-worthiness to future bond buyers.

For today, however, the perceived aversion to the euro was stepped up by investors as they sold it in favor of dollars, the pound and the yen.

U.S. Dollar – This morning’s dollar rebound on risk aversion fears continues to gather steam mid-morning while equity prices are contradicting the lack of risk appetite by putting in another positive performance. Weakness in the euro is the main reason behind today’s gyrations while in the big scheme of things, the dollar is currently confined to a narrow range.

British pound - Aside from a rebound in the dollar to $1.5307 the pound is holding onto recent gains. A midweek employment report showing far fewer job claimants seems to be the tonic sterling needed, while a smaller hole in the public finances was revealed today, which further boosted sentiment towards the pound.

Japanese yen – The yen is rising alongside the dollar after an overnight story carried by the Chinese Securities Journal reportedly stated that the Peoples Bank of China banned banks from lending to unscrupulous developers who hoarded land and withheld apartments from sales in the hope that land and property prices would rise further. This story has gained traction with speculation growing that China is set to take further measures to cool its economy. The yen strengthened earlier per dollar reaching ¥89.75 before slipping to ¥90.35. Against the euro the yen appreciated to ¥123.60 from ¥124.00. Against the Australian dollar the yen rose marginally to ¥83.29.

Aussie dollar - The China story once again served to tarnish the shining Aussie dollar, which is weaker at 92.18 U.S. cents. In midweek trading the Aussie surged to 92.52 U.S. cents, while Thursday’s forewarnings of measures to slow Chinese growth have tempered the bullish export scenario.

Canadian dollar -The Canadian dollar took a further step towards parity reaching 99.30 U.S. cents in midweek trade. The currency has attracted plenty of interest as measures by the government might ensure that it’s the fastest nation to eradicate a budget deficit with its plan to do so by 2015. Signs of stronger growth and rising inflation might also spur the Bank of Canada into faster action on the monetary front causing an additional appeal from a yield perspective. But it also appears that government ministers are far more sanguine surrounding the impact of an appreciation in the Canadian dollar. Just seven months ago they raised their fists to speculators warning that currency appreciation was dashing the recovery and that it would take necessary measures to reverse the move. And while they never lived up to those promises, political leaders have recently stated that the impact on a shrinking manufacturing sector is lessening over time. Additionally, ministers are now predicting that gains in productivity would outpace the appreciation of the loonie whose strength was showing little sign of impacting the nation’s competitiveness.

Andrew Wilkinson
Senior Market Analyst

Interactive Brokers

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Risk-Aversion Drags Euro Lower

The dollar and yen were higher in early Thursday trading amid speculation that Greece may seek help from the IMF — sparking fears that next week’s EU Summit meeting will provide little support to the sovereign-debt crisis. Heightened risk aversion pushed the euro lower, relinquishing the 1.37-handle against the dollar and sliding beneath the 123-level versus the yen. Gains in crude oil stalled in the overnight session, drifting back toward the $82-per barrel level and lower by almost 1% to $82.16.

Data from the US will remain in focus in the New York session with the calendar consisting of several key gauges on the economy. The reports include February consumer prices, weekly jobless claims, the Q4 current account deficit, the March Philadelphia Fed survey and the February index of leading economic indicators.

Inflation is forecast to remain steady with the headline February CPI figures printing at 0.1% on a monthly basis and higher by 2.3% on an annualized basis. The excluding food and energy CPI are estimated to increase by 0.1% compared with a decline of 0.1% in the previous month and up by 2.3% versus an increase of 2.6% a year prior. Weekly jobless claims are seen improving to 455k from 462k from the week before. Consensus estimates for the current account deficit are calling for an increase to $119.0 billion in the fourth quarter and increasing from a $108.0 billion deficit in Q3. Meanwhile, the Philadelphia Fed business survey is expected to improve to 18.0 for March from 17.6 in February and the leading indicator index is seen rising by 0.1 for February versus a 0.3% increase previously.

Sovereign-debt fears weigh on Euro

According to a Dow Jones newswire, Greece is expected to seek aid from the IMF at the beginning of April as it is unlikely to receive support from the European Union during its Summit meeting next week. The report prompted the single currency to relinquish its session high’s versus the dollar at 1.3753 to slip toward the 1.3650-level.

The January Eurozone current account balance posted a deficit of 8.1 billion euros versus an upwardly revised 2.3 billion euro surplus previously. The trade balance report was also worst than forecast, revealing a 7.4 billion euro deficit for January versus a surplus of 5.2 billion euros from December.

EURUSD will encounter resistance around the 1.37-figure, followed by 1.3750 and 1.38. Subsequent ceilings will emerge near 1.3840, backed by 1.3870 and 1.39. On the downside, support starts at 1.3650, followed by 1.36 and 1.3570. Additional floors are eyed at 1.3540 and 1.35.

MG Financial Group
http://www.mgforex.com

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Daily Technical Analysis

EURUSD Outlook

The EURUSD attempted to push higher yesterday, topped at 1.3817 but closed lower at 1.3734 and keep moving lower around 1.3720 at the time I wrote this comment. While technical bullish view remains intact as price still move inside the bullish channel after formed a triple top formation, Euro bullishness is limited by hesitation on the Greek rescue package which is so far can’t really convince the market and could still weigh on Euro. Immediate support at 1.3670 area. Consistent move below that area should trigger further bearish momentum towards 1.3530 area and could be a serious threat to the bullish reversal scenario. On the upside, break above 1.3850 should trigger further bullish momentum towards 1.4020/50 area

GBPUSD Outlook

The GBPUSD attempted to push higher yesterday, after break above the bearish channel, topped at 1.5380 but closed lower at 1.5316. The technical bullishness is confirmed but we need a consistent move above 1.5350 area to continue further bullish scenario targeting 1.5530 area. A failure to do so and another move below 1.5200 area could be a serious threat to the bullish scenario, produce a false breakout and trigger significant bearish momentum towards 1.5000 area even further re-testing 1.4779 region.

USDJPY Outlook

The USDJPY made another indecisive movement yesterday. Price still able to move inside the bearish channel indicating bearish scenario remains intact but actually still trapped in a range area of 90.80 – 90.00. We need a clear break on either side to see clearer direction towards 91.50 or 89.50 area. The bearish major scenario still intact as long as price stay below the major trendline resistance (blue). Break below 89.50 could trigger further bearish momentum towards 88.50 while break above 91.50 could be a serious threat to the bearish scenario and potential new bullish phase.

USDCHF Outlook

The USDCHF was indecisive yesterday, formed a Doji on daily chart. Price attempted to push lower, bottomed at 1.0505 but closed higher at 1.0543. The bias is neutral in nearest term but the bearish correction scenario remains intact. Consistent move below 1.0507 area should continue the bearish momentum testing 1.0420 area. However note that as long as price still move inside the major bullish channel, the current bearish momentum should only be seen as a corrective move. Immediate resistance at 1.0600 and 1.0640 area. Break above 1.0640 area could be a serious threat to the bearish correction back to its major bullish direction testing 1.0888 area.

EURJPY Outlook

The EURJPY attempted to push higher yesterday, topped at 125.06 but closed lower at 124.04 and now is testing the lower line of the bullish channel indicating critical technical phase. After had bullish running since formed the double bottom around 119.70, the bullish momentum is now face a double top formation around 125.15. A violation to the bearish channel should be seen as bullish failure and trigger further bearish momentum at least towards 121.70 area especially if price able to break below 123.00 support. On the upside, break above 125.15 area should trigger further bullish momentum targeting 126.90.

GBPJPY Outlook

The GBPJPY slipped above 138.30 yesterday, topped at 139.34 but closed significantly lower at 138.32 and now move back below 138.30 area. As long as price still move inside the bullish channel, the bullish scenario should remain intact. The bias is neutral in nearest term but this fact could potentially produce a false breakout scenario if price fail to consistently move above 138.30 area testing the lower line of the bullish channel. Immediate support at 137.11. Break below that area should trigger further bearish momentum.

AUDUSD Outlook

The AUDUSD had a moderate bullish momentum yesterday, topped at 0.9250 and closed at 0.9234. The bullish scenario remains intact with technical target now around 0.9326 but we need a consistent move above 0.9250 to continue the bullish scenario. Immediate support at 0.9200. Break below that area could trigger further bearish correction testing 0.9140 but as long as price move above the trendline support the major bullish scenario remains intact.

FX Instructor LLC
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The information has been prepared for information purposes only. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. This information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. FXInstructor LLC assumes no responsibilities for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. FXInstructor LLC does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FXInstructor LLC shall not be liable for any indirect, incidental, or consequential damages including without limitation losses, lost revenues or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results

USD Lower, Inflation Subdued

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

Overview

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

Today’s US data:

February PPI declined by 0.6%, reading of -0.2% was expected. PPI posted its biggest decline since July of 2009. Core PPI rose by 0.1% compared to 0.3% in January.

Upcoming US data:

On March 18th February CPI will be released expected at 0.1% compared to 0.2% last month. Q4 current account, initial jobless claims for week ending 03/13, leading indicators for February and March Philly Fed will also be released on March 18th. The current account is expected at -120bln compared to -108bln last quarter. Initial claims are expected at 457k compared to 462k last week. Leading indicators are expected to rise by 0.2% compared to 0.3% last month. Philly Fed is expected at 18 compared to 17.6 last month.

JPY

JPY traded lower pressured by BOJ ease, improving risk for sentiment as equity markets rally and by selling in cross trade to the GBP and AUD. The BOJ kept interest rates unchanged at 0.1% and announced a plan to double its lending program. The BOJ will expand its lending program to ¥20trln from ¥10trln announced in December. The vote to expand the BOJ’s lending operation was split with two board members opposing expansion of quantitative ease. The fact that the vote was split may reduce the risk of future BOJ monetary ease. Prior to the BOJ policy announcement there had been debate over whether the BOJ would initiate policy action to target the JPY. BOJ Governor Shirakawa says that the latest policy by the BOJ is not directed at Forex. It’s unclear whether today’s action by the BOJ will slow deflationary pressures in Japan. The BOJ did not announce a plan to buy Japanese government bonds. Increased purchase of Japanese government bonds by the BOJ would likely spark more significant selling pressure of the JPY and would be seen as a more aggressive ease. Today’s BOJ policy decision to expand its lending auctions may not be enough to get the Japanese government to back off on BOJ pressure to do more to combat deflation and weaken the JPY. GBP surged in cross to the JPY with GBP supported by report of a sharp drop in UK claimant count. AUD rallied in cross trade to the JPY supported by RBA rate hike speculation as the RBA’s Debelle says that rates may need to rise a bit more. The only economic data released from Japan today was report that January tertiary index rose by 2.9%.

On March 18th January revised leading indicators will be released expected at 2.5% compared to 3.8% in the original report. On March 19th January all industry activity will be released expected at 0.8% compared to -0.3% last month.

Key technical levels to watch in USD/JPY include support at 89.99 the March 16th low with resistance at 91.30 the February 23rd high.

EUR

EUR drifted lower in reaction to report of weaker EU labor costs and selling in cross trade to the GBP. EU Q4 labor costs rose at the slowest annual rate in four years. Lack of wage pressure in the EU points to continued subdued inflation risk. Low inflation will likely encourage the ECB to maintain steady rate policy. EUR selling in cross trade to the GBP is attributed to report of a sharp improvement in UK employment outlook. EUR was also pressured by the uncertain outlook for Greek fiscal debt. Tuesday Standard & Poor’s took Greece off its sovereign debt negative watch but there is concern Greece may not follow through on its deficit reduction. EUR failed to find much support from Tuesday’s decision by the Fed to maintain steady rate policy and there was little reaction to today’s report of a sharp drop in US February PPI. There is an interesting report on Bloomberg report which states that UBS expects the EUR to drop to 1.3000 to the USD in the next three months pressured by the divergence in Fed and ECB policy outlook. According to UBS the Fed is expected to soon gradually begin raising interest rates and the ECB is not expected to raise rates until it the earliest the end of Q4.

On March 18th EU January current account will be released expected at 9.1bln compared to 9.4mln last month. EU January foreign trade will also be released on March 18th expected at 3.8bln compared to 4.4bln last month.

The technical outlook for the EUR is mixed as support holds above 1.3600. Expect EUR support at 1.3717 the March 16th low with resistance at 1.3818 the March 17th high.

GBP

GBP traded higher supported by report that UK claimant count posted its biggest monthly decline in 13 years. UK February claimant count declined by 32,300. This was the largest decline since November of 1997 and the report suggests that the UK labor market outlook has improved. GBP was also supported by the release of the BOE minutes for the March policy meeting. The BOE minutes state that the board voted 9 to 0 in favor of leaving rates and quantitative ease unchanged. The minutes also indicate that the board members are becoming more concerned about rising inflation risk in the UK. BOE focus on inflation risk may reduce the risk the BOE will expand quantitative ease. Sentiment towards the GBP remains extremely negative because of UK election uncertainty, and concern about UK debt. There has been substantial buildup of short positions in the GBP. The combination of today’s better than expected UK employment report, BOE minutes and the most recent UK election polls which suggest the Conservatives could gain a majority in parliament sparked short covering of the GBP. GBP may extend today’s rally supported by diminished speculation that the BOE will expand quantitative ease. Focus turns to tomorrow’s release of UK net borrowing report.

On March 18th February money supply and public-sector borrowing will be released. Money supply is expected at 0.8% compared to 0.6% last month. Net public-sector borrowing is expected at -13bln compared to -11.7bln last month. Also on March 18th March CBI orders will be released expected at -34 compared to -36 last month.

The technical outlook for GBP is positive as GBP trades above 1.5300. Expect near-term support at 1.5209 the March 17th low with resistance at 1.5475 the February 23rd high.

CAD

CAD traded higher supported by the Fed’s decision to maintain steady rate policy, stronger equity and commodity markets and report of better than expected Canadian wholesale trade. CAD is trading at a 28 month high versus the USD supported by improving Canadian economic outlook and speculation that the BOC may hike interest rates ahead of the Fed. Canadian wholesale trade surged by 3%, a 0.5% rise was expected. The surge in wholesale trade follows yesterday’s release of strong Canadian manufacturing shipments and productivity data. Canada’s January manufacturing shipments surged by 2.4% and Q4 productivity increased by 1.4%. The stronger manufacturing shipments and productivity data follows last week’s report of better than expected employment growth in Canada. These reports may encourage speculation that the BOC will hike interest rates earlier than expected. CAD has been outperforming supported by last week’s decision by the BOC to maintain steady monetary policy and signal a shift in its policy bias. In the BOC policy statement the BOC dropped reference to inflation risks being to the downside. This has encouraged speculation that the BOC may hike interest rates sooner than the Fed. The BOC pledged to maintain low yields through June of 2010 provided inflation remains in check. This week’s main focus is the CPI report due for release Friday.

On March 18th January net foreign investment will be released expected at 8bln compared to 11.2bln last month. On March 19th January retail sales will be released expected at 0.7% compared to 0.4% last month along with February CPI. CPI is expected at 0.4% compared to 0.3%.

The technical outlook for CAD is positive as USD/CAD trades below 1.0200. Look for near-term support at 1.0000 with resistance at 1.0334 the March 5th high.

AUD

AUD traded higher supported by hawkish comments from the RBA’s Debelle and strong Australian housing data. Debelle said that interest rates may need to rise a bit more and that the RBA is monitoring house prices. AUD is supported by RBA rate hike speculation. The AUD rallied despite a statement from RBA watcher McCrann that the odds slightly favor a RBA positive April. At the beginning of the month the RBA hiked interest rates 25bps to 4%. The RBA is expected to raise interest rates to 5% by the end of the year so a pause in April should not be a major deterrent to demand for the AUD. Australia’s Q4 dwelling unit starts rose 15.1%, a 0.6% rise was expected. The jump in the dwelling unit starts suggests that the Australian housing market is strong. Westpac leading index was also strong with the coincident index rising at its fastest pace since July of 2007. AUD was also supported by the BOJ’s decision to expand quantitative ease. This sparked demand for the AUD in cross trade from to the JPY. Wednesday’s decision by the Fed to hold rate policy steady ads to today’s AUD rally as yield differential remains in favor of the AUD. The World Bank raised its forecast for China’s 2010 GDP to 9.5% from 8.7% and its inflation forecast of 3.7% from 2%. The World Bank encourages China to revalue the Yuan. Continued strong growth outlook in China is a positive for the AUD. The outlook for RBA policy will be key to the direction of the AUD.

The technical outlook for the AUD is positive as the AUD trades above 9200. Expect AUD support at 9175 the March 17th low with resistance at 9378 the November 17th high.

By Michael J. Malpede

Easy Forex

Michael J. Malpede is Chief Market Analyst with Easy-Forex® and has previously been featured on Bloomberg TV, Bloomberg radio, Reuters, MarketWatch, Wall Street Journal, Chicago Tribune, Chicago Sun Times, Toronto Star and Nikkei press. In analyzing the markets, he draws from 29 years of Foreign Exchange Research as a Foreign Exchange Analyst.

Please note that Forex trading (OTC Trading) involves substantial risk of loss, and may not be suitable for everyone. This report is provided by Easy- Forex® for informative purposes only. In no way it is a recommendation by Easy-Forex® for you to engage in any trade. It is your sole responsibility and you will have no claims with regards to this report against Easy-Forex®. If you do not agree to this, you are strongly advised not to use this report. Hence, Easy-Forex® shall not be held responsible for any outcome of trading decisions, in regards with this report or similar reports.

Currency Crosses Pairs Analysis

EUR/GBP

Current level – 0.9054

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

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

USD/CAD

Current level – 1.0129

Long term bias for the USD/CAD remains neutral, trapped in a wide range between 1,0250 and 1,0750. Critical level at 1,0200 support zone, if we break to the downside parity is more than probable.

Intraday:  no signs of recovery yet, a push to parity is highly probable. Daily RSI entering oversold level below 30. For today expect a test of 1,0100 level.

GBP/JPY

Current level – 137.76

Long term bias remains bearish but since we reached 132,00 the pair is making higher highs indicating a possible short term bottom.

Intraday:  big bounce off bullish trendline support keeps the bullish bias intact but looking at the 4 hour chart above, the challenge here is 138,20 bearish trendline resistance.

DeltaStock Inc. – Online Forex & Securities Broker
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RISK DISCLAIMER: These analyses are for information purposes only. They DO NOT post a BUY or SELL recommendation for any of the financial instruments herein analyzed. The information is obtained from generally accessible data sources. The forecasts made are based on technical analysis. However, Delta Stock’s Analyst Dept. also takes into consideration a number of fundamental and macroeconomic factors, which we believe impact the price moves of the observed instruments. Delta Stock Inc. assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon the information on this page. Delta Stock Inc. shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation, losses or unrealized gains that may result. Any information is subject to change without notice.