Saturday, April 4, 2009

Easter Holidays

Forex Focus will be closed for the next two weeks. Our sister blog Colt on Candles will continue throughout the holidays.

Sunday, March 29, 2009

G20 summit and weak euro data could well see dollar gains

EUR/USD: support @ 1.3075; resistance @ 1.35
GBP/USD: support @ 1.42; resistance @1.4450
USD/JPY: support @ 96.50; resistance @ 99.50

Calendar Notes
Next week’s ECB interest rate announcement and the US NFP are always big talking points and we have the added spice of the G20 summit in London on Thursday. As things stand at the moment, it seems unlikely that anything new will come out of the meeting, but there should be more detail on plans to boost the IMF’s bail-out fund.

US Treasury Secretary Tim Geithner will be speaking today (Sunday 29th) at 22.30 GMT. If recent appearances are anything to go by, there could well be fireworks. ECB President Jean-Claude Trichet will be testifying to the European Parliament in Brussels on Monday (14:30). On Friday, Fed Chairman Ben Bernanke rounds the week off with a speech entitled “The Fed’s Balance Sheet’ (Friday 16:00).

Economic Data (My comments in italics)

US Dollar
Economic Health: Chicago PMI (Tuesday 13:45); ISM Manufacturing PMI (Wednesday 13:45); ISM Non-Manufacturing PMI (Friday 14:00). The Purchasing Managers Index (PMI) is one of the best indicators of economic health.
Housing: Pending Home sales (Wednesday 14:00). Will US housing data continue to show improvement?
Jobs: ADP Non-Farm Unemployment Change (Wednesday 12:15); US Non-Farm Payrolls (Friday 12:30); US Unemployment Rate (Friday 12:30). Wednesday’s ADP data sets expectations for Friday’s big numbers.
Consumer Confidence: Conference Board (Tuesday 14:00). Are things looking up for the US consumer?
Economic Health: German Retail Sales (Wednesday 06:00); Final Manufacturing PMI (Wednesday 08:00); Final Services PMI (Friday 08:30) The Purchasing Managers Index (PMI) is one of the best indicators of economic health.
Inflation: CPI Flash Estimate (Tuesday 09:00). Early inflation news from the European front
Monetary Policy: ECB Interest Rate Announcement (Thursday 11:45); Follow-up Press Conference (Thursday 12:00) ECB expected to cut to 1.0%, but it’s the press conference that has the potential to really move the market.
UK Pound
Economic Health: Manufacturing PMI (Wednesday 08:30); Services PMI (Friday 08:30) The Purchasing Managers Index (PMI) is one of the best indicators of economic health.
Consumer Confidence: GfK (Monday 23:01) I am slightly surprised that economic analysts expect this to hold steady
Jobs: Unemployment Rate (Monday 23:30)
Economic Health: Tankan Manufacturing Index (Wednesday 23:50) The situation darkens in the land of the rising sun.

Last week’s Action:
The week opened with the greenback losing ground against the euro but after rising to test resistance at 1.37 on Monday morning, it was downhill all the way for the pair. Monday midday saw US Treasury Secretary Tim Geithner unveil plans to use both public and private sources to make a further $1 trillion available to buy toxic assets from US banks. This last-ditch attempt to avoid nationalization and the markets loved it, with the S&P 500 rising 7%, the biggest advance for the index since Obama became president. After testing support at 1.35, the euro followed equities up and hit resistance at 1.3650 before starting to fall once more on Tuesday morning. Bad news and dispiriting forecasts out of Europe saw the pair on its way to test support at 1.35 and went on down to 1.3450 during US trading. Wednesday saw the dollar take a dive when Tim Geithner made the headlines again after casting doubt in an off-the-cuff comment on the role of the dollar as the world’s dominant reserve currency. The US enjoyed a week of not too disheartening economic data. The all-important housing sector turned in good news in the shape of new and existing home sales and the House Price Index all coming in better than expected; Durable Goods Orders surveyed its first rise in 7 months; and, although GDP was revised down, it did come in less bad than expected. EUR/USD kept banging away at support at 1.35 which it finally broke down a few hours into European trading on Friday. European Industrial New Orders in January slumped 34% compared with orders in January 2008 and were 3.4% down from December 2008. German Finance Minister Peer Steinbrueck compounded euro-misery when he noted that the single currency could be at risk if euro-zone members didn’t start taking the ECB Stability and Growth Pact seriously. EUR/USD bombed to 1.33 in a couple of hours and closed the week at 1.3282.

Sterling spent the first two days of the trading week on the up against the dollar, hitting the week’s high of 1.4774, midway through US trading on Tuesday. The pair started the fall when the Governor of the Bank of England, Mervyn King, warned that Britain simply couldn’t afford another round of fiscal stimulus. Wednesday’s failed UK bond auction fuelled sterling’s decline, which continued through the rest of the week with the pair breaking down support at 1.45 on Thursday. The UK’s Q4 GDP was revised down to a final -1.6% on Friday, and cable broke through 1.44, to test support at 1.43 in a couple of hours. The pair closed the week at 1.4316.

Sunday, March 22, 2009

12.1 More dollar weakness anticipated


EUR/USD; support: 1.3500, resistance: 1.4170.
GBP/USD; support: 1.4200, resistance: 1.4700.
USD/JPY; support: 95.00, resistance: 98.00
EUR/CHF: continue to look for buying opportunities ±1.51
EUR/GBP: look for buying opportunities after clear break out of 0.9500

Calendar notes:

Monday is fairly quiet with only US existing homes data (14:00) and Japan’s Monetary Policy Committee Meeting minutes (23:50) being of note.
Tuesday opens with the monthly raft of PMI data from the euro-zone (08:00-09:00). Mervyn King (Governor of the BoE) noted last week the importance of inflation in monetary policy decisions so the UK’s CPI (09:30) and the BoE’s quarterly inflation report (09:45) could well move the market. Tuesday is also alive with central bank speakers. Ben Bernanke (Chairman of the Fed) testifies to the house on AIG (14:00) along with US Treasury Secretary Tim Geithner. Later the same afternoon, Mervyn King steps up to testify to the UK’s House of Lords (15:30). Next, it’s the turn of Jean-Pierre Roth (Chairman of the SNB at 17:15), with the BoE’s Cassandra-turned-prophet, David Blanchflower, rounding the day off in Cardiff (18:30).
Wednesday lines up the influential German Ifo Business Climate Index (09:00), followed by US Durable Goods Orders (12:30) and more US housing numbers with New Home Sales (14:00).
Nationwide is due to release its UK Housing Price Index from Thursday (26 Mar-31 Mar), while UK Retail Sales (09:30) will give us the latest on the direction of the UK economy. Over the Atlantic we have US New Unemployment Claims and the final US GDP numbers (both at 12:30). Yen-watchers should listen out for Japan’s CPI (23:30) and Retail Sales (23:50).
Friday brings the UK’s Current Account and final GDP numbers (both at 09:30). This is followed some 30 minutes later by the euro-zone’s Industrial New Orders (10:00). In the run-up to the US open, we have US Personal Spending and Personal Income data (12:30) and the University of Michigan’s revised Consumer Sentiment (13:55) to set the tone of the session.

Last week’s action:

The euro started the week with a calm and steady strengthening against the greenback as investor confidence grew in the wake of the previous Saturday’s G20, followed by Fed chairman Ben Bernanke’s appearance on the CBS show 60 minutes on Sunday evening. Mr. Bernanke told the show he could see some ‘green shoots’ of recovery, and that the US should be able to rise out of recession sometime this year as long as the financial sector finds a sound footing. On Tuesday the euro got further support when key ZEW economic sentiment numbers came in better than expected and eur/usd continued to trade around 1.30. Better than expected US inflation numbers Wednesday lunchtime boosted the euro to test 1.31, but the atmosphere of calm was only really disturbed with the FOMC statement later the same day. Although the Fed held rates at less than 0.25% as widely expected, the announcement that they would be buying $300B of longer term Treasury bonds sent the stock market soaring and triggered violent moves in other markets. The euro jumped 400 pips immediately after the news to test 1.35 by the close of US trading. Thursday saw the unified currency power on to 1.37 against the greenback helped by better than expected US job numbers and manufacturing data. The euro retested 1.37 on Friday before correcting to close at 1.3581.

Monday’s feel-good factor saw sterling rise to 1.42 against the dollar. The pair fell to test support at 1.40 on Tuesday and then crashed down through this level to the week’s low of 1.3842 on the release of horrendous UK job numbers on Wednesday. However, the Fed’s aggressive quantitative easing saw the pound rise to 1.43 against the greenback. After testing support at 1.42 on Thursday, the European and US sessions took the pair up to the week’s high of 1.4595 with the Fed’s action still causing waves. Friday saw the pair retest resistance at a tad below 1.46 before closing the week at 1.4460.

11.5 chunnel chart

EUR/GBP chart with last week's trade. Price was just short of my target and I closed the position at .9383, bringing 283 pips profit on one lot.

Wednesday, March 18, 2009

11.4 eur/gbp lock in

Lifted stop to .9350, locking in a further 80 pip profit.

11.3 chunnel chugs on

Today's action saw eur/gbp rise sharply and the pair has just broken resistance at 0.94. My trade is now well in positive territory so I've raised the stop to 0.9270 and have set a take profit just shy of 0.95. However, this target may well be reviewed in the near future.

Sunday, March 15, 2009

11.2 this week's chunnel punt

Hoping to see the euro strengthen against sterling once again this week so I'm going 3 lots long at .92, with a s/l for all 3 lots at .91 and t/p for 2 lots at .9250. This way my break even becomes .91 when the third lot breaks .9250.

Saturday, March 14, 2009

11.1 G20, IMF and TALF to boost risk appetite.

Forecast (week March 15th - 20th)
EUR/USD: support @ 1.2800; resistance @ 1.3200
GBP/USD: support @ 1.3860; resistance @ 1.4300
USD/JPY: support @ 95.75; resistance @ 100.00
EUR/CHF: look for buying opportunities ±1.51
EUR/GBP: look for buying opportunities ±0.9200

This week's outlook
This weekend’s G20 meeting has been slated as a clash between the US (increased economic stimulus) and Europe (increased financial regulation) and is unlikely to resolve anything. However, the group should announce a boost to the IMF’s resources to bail-out failing countries and this should keep risk appetite buoyant. Keep tracking the equity markets throughout the week, as rising stocks will favor higher yielding currencies. Also watch the EUR/CHF rate after the SNB’s intervention and consider buying the euro if price falls to the 1.50 region because the bank could well step in again.

US: Wednesday’s FOMC interest rate announcement (18:15) will be the big news of the week. Although there are reports of dissent in the ranks, I’m expecting the Fed to keep up recent rhetoric. The Fed is due to launch its TALF program on March 17th, expect fireworks if there is any delay. Other US data worthy of note include regional manufacturing numbers (Empire State – Monday, 12:30 and the Philly Fed – Thursday, 14:00); industrial production (Monday, 13:15); housing data (building permits and housing starts both on Tuesday, 12:30), inflation numbers (producer prices – Tuesday and consumer prices – Wednesday, both at 12:30) and Thursday’s regular new unemployment claims (12:30).

Euro zone: There’s Inflation data on Monday (consumer prices, 10:00) and Friday (German producer prices, 10:00). Tuesday’s influential ZEW economic sentiment is out at 10:00 and often moves the market, while the zone’s industrial production (10:00) rounds off the European data week.

UK: There’s more housing data out in the early hours of Monday morning (Rightmove HPI – 00:00). Wednesday sees crucial jobs data at 09:30 and the minutes of the March 5th’s Monetary Policy Committee meeting at the same time. The CBI’s survey of the country’s top 550 manufacturers’ expectations will be released on Thursday at 11:00.

Japan: The early hours of Wednesday morning sees the release of the Bank of Japan’s monetary policy statement, while the central bank’s monthly report is published on Thursday (05:00).

Top Central Bankers: ECB President Jean-Claude Trichet will be speaking at La Tribune conference in Paris on Tuesday (19:15) and the Governor of the Bank of England will be addressing the Worshipful Company of International Bankers Dinner in London on the same evening (20:10). Fed Chairman Ben Bernanke is speaking about the financial crisis and community banking in Phoenix on Friday (16:00).

Last week's action
The week opened in the same vein as the previous week closed, with a continuing high level of risk aversion. Asian markets fell as Japan posted its first current account deficit in 13 years, triggering a 26-year low for the Nikkei 225. The gloom continued as the European session opened and EUR/USD followed stocks down, hitting the week’s low at 1.2555 at lunchtime. The euro recovered somewhat as New York opened and found support at 1.26 as the session progressed, a level that was not to be broken down for the rest of the week. Tuesday’s disappointing data out of France and Germany did little to ruffle the euro as markets soared after Citigroup Inc reported that it had actually made money in the last couple of months. The news was enthusiastically welcomed as a sign that things might not get much worse for the US banking sector and Wall Street saw its best day of 2009. Axel Weber, a member of the ECB governing council, gave the euro further support when he said that he thought 1% refinancing rates were about as low as they should go. EUR/USD tested support a shade above 1.26 a couple of times late Tuesday/early Wednesday, but rising risk appetite soon had the pair testing resistance at 1.2850. The big news on Thursday was the Swiss National Bank’s intervention to weaken the franc against the euro. The euro retested support at $1.2750 immediately after the news; rose against the greenback throughout the US session and broke through 1.29 late Thursday to hit the high of the week of 1.2956 on Friday morning. The euro closed the week at $1.2928, with traders pondering the prospect of resistance at the key psych level of 1.30.

Sterling’s fall on Monday was given added impetus by last weekend’s news that Lloyds bank would be nationalized in all but name and that Barclays could also be joining the UK government’s Asset Protection Scheme in return for shares. UK manufacturing and industrial data came in worse than expected and cable fell through the US and Asian sessions to a weekly low of 1.3663. A weak pound doesn’t seem to be giving UK trade a boost as the trade balance shrank more than expected on Wednesday. However, growing risk appetite saw sterling’s decline slow and cable tested 1.39. The Swiss National Bank’s intervention saw it fall to smidgeon above 1.37, only to rise on market optimism to break the key psychological of 1.40 as the G20 meeting opened in Southern England. The pair closed the week right on the button at 1.40 with sterling weakening against the dollar for the third week running.

Sunday, March 8, 2009

10.1 UK banking fiasco could push euro to strengthen against sterling

Last week's wrap:
The euro opened the week by gapping down with the on-going atmosphere of risk aversion, disappointment over the non-event that was the European crisis summit and anticipation of an almost certain ECB rate cut on Thursday all adding to euro weakness.

The Reserve Bank of Australia’s decision to hold interest rates at 3.25% early on Tuesday surprised many and led to a temporary respite in risk aversion. This buoyed the euro, which tested 1.2675 before falling back in the opening hours of London trading. The Bank of Canada struck a less optimistic note later the same day. The central bank cut its rates 50 bps to 0.50% and hinted it would provide additional financial stimulus through credit and quantitative easing if required. This Canadian caution seems justified. Terrible US housing data brought further downside pressure onto the 16-nation unit and, when Australian GDP came in at -0.5%, EUR/USD hit its week low at 1.2456. The euro recovered as China’s official PMI saw manufacturing in the People’s Republic grow for the third month running. However, when a much-anticipated announcement of a fresh stimulus package from the Chinese government failed to materialize, the euro started the march south once more. Thursday’s run up to the ECB’s interest rate announcement saw more bad news out of the European powerhouse as German retail sales fell unexpectedly. The ECB cut by 50bps to 1.50% as expected and when the bank’s president, Jean-Claude Trichet, would not rule out further cuts the euro fell to 1.2480. However, the bank now seems to accept the urgency of the situation and expressed its readiness to act, so the euro could (just could) be turning the corner. Friday was NFP day. The data showed that US employers had cut more jobs than expected and the unemployment rate rose to a 25-year high. Nevertheless. although you might expect the dollar to strengthen on risk aversion, EUR/USD leapt above 1.27 during the hour after the publication of the numbers. Bloomberg put the rise down to the fact the pace of the cuts was slowing down, but perhaps it marks a shift in underlying dollar sentiment – only time will tell. The euro went on to weaken as the US session progressed and closed the week at 1.2634.

Sterling spent the week ranging between 1.43 and 1.40 and essentially tracked the euro’s ups and downs. GBP/USD fell to 1.3983 to reconfirm strong support at 1.40, on the release of Australia’s disappointing Q4 GDP. Thursday saw the Bank of England cut rates 50bps to 0.50% as expected with the central bank promising that it would now boost the money supply in a bid to revive the economy. Although the UK media widely misinterpreted this as a bid to print money, cable found support at 1.4050 after the news and then went on to recover. The pair tested 1.43 immediately after Friday’s US job numbers before closing the week at 1.4070. News broke on Saturday that the UK government is going to underwrite £260B of Lloyd TSB’s risky assets. This move will give the British government a 75% stake in the group and would not have been necessary if the bank had resisted government pressure to merge with stricken bank HBOS last September. It looks like sterling is in for a rocky ride this coming week.

Calendar notes
It promises to be a relatively quiet week in terms of economic data.

US: Tuesday sees Fed Chairman Ben Bernanke delivering a speech about financial reform. There’s the federal government budget balance on Wednesday, while Thursday has retail sales numbers and new unemployment claims lined up. Friday brings the US trade balance and the University of Michigan’s preliminary consumer sentiment.
Euro-zone: Expect important data out of Germany including the trade balance on Tuesday, producer price inflation and factory orders on Wednesday and industrial production on Thursday. The ECB monthly bulletin is also released on Thursday as is the euro-zone’s PPI. Friday 13th sees EZ retail sales.
UK: Retail sales and house price numbers kick things off for the UK in the early hours of Tuesday. The trade balance will be released on Wednesday.
Japan: Keep your eye out for Japan’s final GDP, which is expected to be revised down.
Switzerland: The Swiss National Bank is expected to cut rates another 25bps to 0.25% on Thursday afternoon.
New Zealand: The Reserve Bank of New Zealand is expected to cut its interest rates 75bps to 2.75%.

EUR/USD support: 1.2330; resistance: 1.2730 with an upside breakout seeing further resistance at 1.2830.
GBP/USD: support 1.3525; resistance 1.4300
USD/JPY: support 94.50; resistance: 99.70

EUR/GBP: The Lloyds TSB fiasco could well push this pair to an upside breakout of 0.9000. You’ll find some technical background on this here.

Sunday, March 1, 2009

9.2 Crisis summit rejects Sarkhozy style protectionism

The EU crisis summit ended with a promise to avoid protectionism. The Czech prime minister, Mirek Topolanek, who chaired the summit assured the press conference that the EU was not going to leave anyone in the lurch. However, Hungary's call for a 180B euro aid package for Central and Eastern Europe was rejected. Germany's Chancellor, Angela Merkel said that not all of the former communist countries were in the same boat and European Commission President Jose Barroso stated that the situation would have to be assessed on a country-by-country basis.

I came across this table in The Economist, which sums up the situation in a number of key emerging economies in Central and Eastern Europe:

9.1 Dollar reigns supreme in risk-averse world.

EUR/USD followed up a relatively strong close above 1.28 the previous week, with a buoyant open. The euro had received a further boost the EU leaders’ meeting in Berlin (Sunday 22nd). The meeting, chaired by German Chancellor Angela Merkel, agreed on broad principles for bolstering the regulation of global finance in advance of a summit of the G20 meeting scheduled for April 2nd in London. The euro tested resistance a little below US$1.30 before settling into a range of 1.27-1.29 for most of the rest of the week. Fed Chairman Ben Bernanke told the Senate on Tuesday that he doesn’t believe any major banks are on the verge of failure and tried to dampen down speculation that banks would need to be nationalized. He also stressed the need for strong fiscal stimulus and strong government action to shake off the recession in 2009 and make 2010 a year of recovery. The markets responded positively and the euro followed them up to test 1.29 on Wednesday morning. The 16-country currency unit then came under some pressure after Moody’s downgraded the outlook for Greece’s government bonds from ‘positive’ to ‘stable’. The downgrade was far from being a surprise and although the euro weakened, support held at 1.27. There was more bad news out of the US on Thursday, with new unemployment claims, durable goods orders and new home sales all coming in worse than expected. Friday saw a higher than expected EU unemployment rate and lower than expected consumer inflation add to the already powerful arguments for an ECB interest rate cut next Thursday (March 5th) and EUR/USD pushed below 1.27. The pair fell further to test 1.26 on the news that the US GDP had shrunk by an alarming 6.2%. This was the sharpest contraction since 1982 and fuelled fears that the White House’s projections for economic recovery are a tad too rosy. EUR/USD closed the week at 1.2676.

Cable spent the first two days ranging between 1.46 and 1.44. On Wednesday, UK GDP for Q4 2008 came in at -1.5%, the steepest contraction since 1980 and the pound started to weaken. It broke down support at 1.44 and came under further pressure when BoE policy maker David Blanchflower said that the UK’s recession will probably deepen “significantly”; adding that there were no signs of recovery as yet. The Bank of England is due to announce new interest rates on Thursday and a further cut looks very much on the cards. GBP/USD fell to test support at 1.42 until recovering to 1.4350. Bad news out of the US brought more support to the greenback and saw cable hitting a low of 1.4109 until rising to close at 1.4315.

The greenback rose above ¥95 for the first time in three months against a background of a deteriorating economic and political situation in the land of the rising sun. The yen has lost some of its safe-haven luster of late. However, I expect any further rise to meet strong resistance at ¥100. USD/JPY closed the week at 97.56.

Calendar Notes
It’s a big week next week and your mantra should continue to be buy the dollar on bad news and sell it on good.

Stateside, the big day is Frid
ay, which has top market movers Non-Farm Payrolls and the unemployment rate in the mix (both at 13:30). As a run up to this, we’ve got the ADP job numbers on Wednesday (13:15) and Thursday’s weekly unemployment change data (13:30). Other releases to be aware of include are Monday’s and Wednesday’s PMI stats (both at 15:00) and Tuesday’s pending home sales (15:00). I’ll also be watching Ben Bernanke testify to the US Senate on Tuesday (15:00).

As I write this (Sunday March 1st), European leaders are holding a crisis summit aimed at preventing the crisis causing deep rifts within the EU. Keep an eye on the news for announcements from the summit before markets open this evening.

The ECB will be making its interest rate announcement on Thursday (12:45). After January’s cut, ECB chairman Jean-Claude Trichet almost promised a cut in March. The arguments for a cut have been mounting since then, so a cut of 50bps is widely anticipated. The follow up press conference (13:30) triggers a lot of volatility as Jean-Claude drops hints about future policy, so take care. In the run up, Monday sees euro-zone manufacturing PMI (09:00), and consumer price inflation (10:00). Wednesday has the zone’s services PMI (09:00) lined up, while early Thursday morning brings German retail sales (07:00) and the revised euro-zone GDP (10:00).

The Bank of England is also making its interest rate announcement on Thursday (12:00). It will be releasing PMI data throughout the week (manufacturing on Monday; construction on Tuesday and services on Wednesday – all at 09:30). There’s more news from the ailing UK housing market this week with the Halifax HPI. Friday sees the UK’s producer price index (PPI at 09:30), bringing insight into price changes in Britain.

Tuesday morning sees the Reserve Bank of Australia make its interest rate announcement (03:30); with the Bank of Canada following through with its announcement (14:00) the same day.

Nb: all times GMT

EUR/USD: support @ 1.2512, resistance @ 1.2900.

GBP/USD: support @ 1.4050, resistance @ 1.4400
USD/JPY: support @ 95.80, resistance @ 100.00

Sunday, February 22, 2009

8.1 Gloomy week cues up another wave of risk aversion

It was a mixed week on the currency markets. The greenback strengthened on all fronts when the week got underway as bad news out Asia and Europe increased demand for the US dollar. The final days of trading saw a turn-around as fears that Citigroup and Bank of America were heading for nationalization sparked wide-scale dumping of the US currency.

The euro started the week’s trading by gapping down 90 pips, opening at 1.2808. It tested resistance at around 1.28 through President’s Day, before heading south in the early hours of Tuesday to find the week’s low of 1.2512. The euro then recovered to hit the week’s high of 1.2877 late Friday, before closing at 1.2835.
The euro’s early decline must be seen from the perspective of the euro-zone’s very disappointing data of late (remember those appalling GDP numbers released Friday 13th?). This week’s developments have fed fears that the 16-nation currency is facing a battle for survival as the global recession bites. On Tuesday Moody’s flagged concerns that a collapse in the economies in Eastern Europe could have a negative impact on Western Europe’s banking giants. On Wednesday, the European Commission called on euro-zone members France, Greece, Spain, Ireland and Malta to get their houses in order by reducing their budget deficit to 3% or less as required by the EU’s Stability and Growth pact. However, the difficulties that these countries would face if they tried to cut back on spending were amply illustrated this weekend in Dublin. 100000 people marched through the Irish capital to protest against how their government is handling the economic crisis. Friday afternoon saw a reversal in EUR/USD fortunes after the head of the Senate Banking Committee told Bloomberg that he was worried that the Bank of America and Citigroup could be nationalized ‘at least for a short time’. The euro soared to above 1.2850 until White House spokesman Robert Gibbs said in a press conference that the administration believes that a well-regulated privately-held banking system was correct the way to go.

GBP/USD gapped down more than 150 pips when it opened the week at 1.4228. It spent most of the ranging between 1.41 and 1.43. It broke out of this range on Thursday and hit the week’s high (1.4482) on Friday afternoon, before closing the week at 1.4425.
Sterling received support on Tuesday on the news that consumer price inflation fell less than expected to 3.0%. Mervyn King, governor of the Bank of England, said he was still concerned about deflation and that the Bank may have to create more money (known as ‘quantitative easing’) and pump it into the economy to prevent inflation from falling below the banks inflation target of 2.0%. Wednesday’s release of the Monetary Policy Committee meeting minutes revealed that the committee had voted 8-1 to cut interest rates by 50bps last meeting. The committee’s one dissenter, arch-dove David Blanchflower, wanted to cut by a full 100bps. The committee voted unanimously to seek approval from the government to start quantitative easing soon.

A week of gloom for Japan opened with the news that the country’s GDP had slumped by 3.7% in Q4 2008. Japan’s economy minister, Kaoru Yosano said that Japan was facing its worse crisis since the Second World War. On Tuesday, the finance minister, Shoichi Nakagawa resigned amidst allegations that he had been drunk at the G7 meeting the weekend before.
The greenback spent the week on the up against the yen, hitting the week’s high of 94.45 on Thursday before falling back to close the week at 93.01

Calendar notes
The economic calendar promises to be fairly lively this week.
News from the American housing front comes on Wednesday with Existing Home Sales and on Thursday with New Home Sales. We get a snapshot of economic performance in the US regions with Tuesday’s Richmond Manufacturing Index and Friday’s Chicago PMI: while Thursday’s Durable Goods Orders and Friday’s GDP give us an insight into the nation’s performance as a whole. The Conference Board’s Consumer Confidence Index is released on Tuesday and is followed up by the University of Michigan’s Consumer Sentiment Index on Friday. The Chairman of the Federal Reserve, Ben Bernanke, is testifying to the Senate on Tuesday and the House on Wednesday.
Highlights out of the euro-zone include German IFO numbers on Tuesday, the euro-zone’s Industrial New Orders also on Tuesday and its CPI on Friday.
On Tuesday, the Confederation of British Industry releases its monthly Realized Sales index, a survey of the sales of wholesalers and retailers. The UK’s revised GDP will be published on Wednesday, and the Nationwide Building Society’s House Price Index is due out on Thursday. The Governor of the Bank of England, Mervyn King, will be testifying to Parliament on the banking crisis also on Thursday.

EUR/USD is still in a downtrend and could well fall back to 1.25 this week.
GBP/USD will continue to range between 1.41 and 1.46.
USD/JPY should find support at 91 and resistance at 94.5.

Sunday, February 15, 2009

7.1 Risk aversion still reigns in the face of US rescue and stimulus packages

Pessimism stalks the markets as flight from riskier assets saw the dollar and the yen gain against most of the other majors.

European markets opened with optimism as traders anticipated the Obama administration’s new financial rescue package and the passing of its fiscal stimulus plans, both due this week. EUR/USD followed this optimism up and the euro tested 1.3092 Monday mid-afternoon before falling back to 1.30 as the US session drew to a close. The euro came under more pressure early Tuesday on a report that Russian companies were looking to restructure $400B of their outstanding corporate debt. There is a deal of concern about the euro-zone’s vulnerability to problems in emerging Europe, and the subsequent flight from risk saw the euro test support a little below 1.2850. The euro recovered as the European session got underway on Tuesday and rose above 1.30 for the second time this week, until US Treasury Secretary Tim Geithner unveiled the new US financial rescue package to allocate $2000B for cleaning up toxic assets in the financial system and restart credit markets. Geithner’s speech was described as long on rhetoric yet short on details and US markets plunged. The euro followed optimism down to test 1.2850 once more. Wednesday saw high-ranking ECB official, Juergen Stark, noting that the central bank had room to cut interest rates in March to stimulate economic activity if necessary. Meanwhile on the other side of the pond, US lawmakers finally agreed on a compromise stimulus package to pump $789B into the spluttering US economy, meaning that the package could be passed before the end of the week. Thursday saw the euro take a dive against the background of an all-time record drop in euro-zone industrial production. There was more bad news for the euro-economies on Friday, as the zone’s GDP retracted a worse than expected 1.5%. This was the third quarterly contraction in a row, and the biggest fall since the creation of the euro in 1999. Later on Friday, the US fiscal stimulus package was finally passed and all it needs now is for President Obama to sign it on Monday. President Obama also announced that he would unveil plans to save ordinary American homeowners from losing their homes. However, the atmosphere of pessimism remained pervasive as mounting problems in the global financial system seem far from resolution. EUR/USD closed the week a little below 1.29.

Sterling fell against the greenback this week as risk aversion continued to exert downside pressure on the pound. Bank of England Governor Mervyn King said on Wednesday that the UK is in a deep recession and predicted that the economy could shrink by as much as 4% in the summer. Mr. King indicated that interest rates could be cut once again in March, whilst preparing the ground for measures to increase the money supply. UK woes deepened on Friday when the malaise affecting British banks took a turn for the worse on Friday. Lloyds banking group forecast losses of £11B for its subsidiary HBOS. The news precipitated a decline in UK banking stocks and saw the pound fall more than a cent against the US dollar.

Calendar Notes
USA: Banks will be closed in the US on Monday for Presidents Day. Monday should see President Obama signing the stimulus package. We get regional snapshots of US economic activity on Tuesday with Empire State Manufacturing and on Thursday with the Philly Fed Manufacturing Index. Wednesday sees the release of FOMC meetings, always worth reading for hints to future policy. Keep your eyes open on Thursday for the weekly US new unemployment claims. Thursday also sees the Producer Price Index (PPI), while consumer prices (CPI) are surveyed the next day. Key US housing data will be out on Wednesday with Building Permits and Housing Starts.
Euro-zone: Tuesday’s ZEW economic sentiment numbers often move the market. Friday sees a raft of PMI data, giving us some insight into economic activity across the zone.
UK: The Consumer Price Index (CPI) is out on Tuesday and Retail sales are due on Friday. Wednesday’s Monetary Policy Committee meeting minutes will shed light on the voting and discussion behind February 5th’s 50bps cut. We will also be checking for clues to future policy.

EUR/USD: EUR has closed below 1.30 for the third week running with any breaks above that level failing before 1.31. Should the pair see a breakdown of 1.2720, downside pressure could test support at 1.2330.
GBP/USD: Resistance should hold at 1.50. A breakdown of 1.40 could see support next at 1.3550.
USD/JPY: If the pair can break out of 92 then expect resistance at 94. We see support at 90.

Sunday, February 8, 2009

6.1 Risk appetite increases as traders anticipate Obama’s stimulus package.

Last week saw investor confidence rise as shocking US jobs data fed hopes that Barack Obama’s financial stimulus would soon be passed. The dollar weakened against most currencies except the yen as traders left safe havens in search of riskier assets.

The euro closed the week up against the dollar for the first time in six weeks. Good news out of the US, including better than expected manufacturing PMI and Pending Home Sales, improved risk appetite and gave the euro a boost on Monday and Tuesday. However, the 16-nation currency stumbled on Wednesday as the Fitch international rating agency downgraded Russia’s credit rating to BBB. Russia is a significant partner of the euro zone and the deteriorating situation in the world’s largest country can only spell trouble for Europe’s economic health. The euro continued to fall through the afternoon, as discouraging US job data gave the market the jitters as it looked forward to Friday’s Non-Farm payrolls. The ECB met market expectations by holding interest rates at 2.00% on Thursday. Jean-Claude Trichet followed up the announcement by signaling that the bank will be cutting rates by 50 bps in March and, at the same time, more bad news from the US jobs front sent the euro to test 1.28 once more. Friday saw the much anticipated NFP and Unemployment rate both come in worse than expected. However, in a departure from the recent pattern, the markets surged, taking the euro up with them, as traders gambled that the massive jobless figure would spur Congress into passing President Obama’s stimulus package. EUR/USD rose to just shy of 1.30 before closing the week at 1.2924.

Sterling started the week off on the wrong foot and fell some 4 cents against the greenback on Monday as rating agency, Moody’s, cut the credit rating of Barclays bank. However, after testing support at 1.41 mid-Monday, cable spent the week on the up. There were some positive signs from UK data this week with PMIs across the sectors coming in better than expected and the Halifax house price survey finding that house prices rose an average of 1.9% in January. However, the news was not all positive. Downbeat releases included Wednesday’s consumer confidence, which found sentiment at record lows and Friday’s UK manufacturing production, which contracted for the tenth month in a row. On Thursday the Bank of England cut rates to an all-time low of 1.00%. The cut was widely anticipated and sterling climbed 100 pips against the dollar after the announcement. The pair closed the week a little above 1.48 at 1.4806.

The yen weakened significantly against the other majors as demand for the safe-haven currency fell and traders speculated that the passing of the US stimulus package was a done deal. Thursday saw US trading take the pair through key psychological resistance at 90.00 to close the week at 91.99

The big news this coming week will undoubtedly be the progress of Barack Obama’s financial rescue package. New US Treasury secretary Tim Geithner is scheduled to unveil full details of the revamped bail-out on Monday. However, the timing of the announcement has yet to be confirmed and The Wall Street Journal reported that it may be moved to Tuesday. The US Senate is expected to vote to slim down its version of the package on Monday and on Tuesday it will most probably pass it. Unfortunately, that won’t be the end of the story because lawmakers will have to reconcile the differences between the Senate’s and the House of Representative’s versions of the package. This could take a few days after which the Senate can vote to pass the final version and send it on to the President to sign or veto. Investor confidence could well spike at each successful stage of this process.

Other US news stories to note this week will be Fed Chairman Ben Bernanke testifying before the House Financial Services Committee and the Tim Geithner testifying on the TARP oversight before the Senate Banking Committee. US economic data releases of note this week include the trade balance on Wednesday; retail sales on Thursday and the University of Michigan’s consumer sentiment on Friday.

Things are pretty quiet data-wise in the euro-zone until Thursday brings the ECB’s monthly bulletin and industrial production numbers. Friday has GDP data for Germany, France, Italy and the euro-zone as a whole.

Tuesday is a busy day for UK data, with retail sales numbers, the house price balance and Britain’s trade balance. Wednesday includes the release of the latest jobless numbers and the Bank of England inflation report.

Friday sees the start of the G7 meeting in Rome where they are due to discuss a number of currency related issues as well as the provision of a global banking agency.

I see EUR/USD finding support at 1.2746 and resistance at 1.3330.
GBP/USD should find support at 1.43 and resistance at 1.53
I expect USD/JPY to encounter support at 90.70 and if this support holds, the pair should rise to test resistance at 94.60

Tuesday, February 3, 2009

5.2 Do BRICS (and Germans) eat PIGS

A very interesting read for all those musing on the fate of the euro from Absolute Return Partners.

Sunday, February 1, 2009

5.1 Confidence crumbles as week progresses

European markets started the week on the up. The rally was sparked off by UK banking giant Barclays’ open letter which said it had made profits of more than £5.3B last year and would not have to raise fresh capital. The good vibes swept over the Channel when BNP Paribas made equally reassuring noises and ING revealed a package of support measures courtesy of the Dutch government. This growth in risk appetite led to a strengthening of the euro against the dollar and EUR/USD got a further boost from the release of positive data from the other side of the pond. US Existing Home Sales came in better than expected as falling house prices tempted buyers and investor confidence rose accordingly. EUR tested resistance at 1.33 after German business confidence was surveyed better than expected. The rise of the euro then faltered as US consumer confidence slipped to a record low. German consumer confidence came in better than expected on Wednesday and the euro climbed to test $1.33 once more. The pair started heading south in earnest after the FOMC’s monetary policy statement added little to last month’s Fed statement. Thursday’s raft of disappointing US data did little to make investor’s less risk averse and the greenback strengthened as durable goods orders, new home sales and unemployment change all disappointed. It was downhill all the way from there as Friday saw euro-zone unemployment hit two-year highs of 8%, and with the EZ inflation rate coming in at its lowest since 1999, pressure is mounting for the ECB to cut interest rates. However, ECB president Jean-Claude Trichet has made it clear that they planned to hold out at 2.00% until their March meeting. US GDP rounded off a recession-racked week by coming in at -3.8%. Although this was not as bad as many had predicted, it still marked the steepest decline since 1982 and the euro fell to test support at 1.28 and closed the week at 1.2804

Barclays bank’s reassuring open letter kicked off a week of steady strengthening for sterling, despite worries that the UK government’s £2.3B bail-out for car makers would prove insufficient. In a departure from the recent norm, UK data came in better than expected except for Friday morning’s consumer confidence which slumped close to all-time lows. The pound’s rise met resistance at 1.4350, and it fell back from this level after the FOMC’s monetary policy statement. It went on to range within 1.41 and 1.4350 before making an upside breakout at the end of the week’s trading to close just below 1.45 at 1.4491. All eyes will be on the Bank of England, which looks set to cut interest rates by at least 0.5% next Thursday.

It’s a big week for economic data with no less than 3 central banks making interest rate announcements. On Tuesday, Reserve Bank of Australia look set to cut by up to 1% to 3.35% a 45-year low. The Bank of England steps up first on Thursday and economists expect a cut of at least 50 bps to 1%. The ECB will make its announcement 45 minutes later on Thursday, with the bank widely expected to hold at 2% until March. Don’t forget that the follow-up press conference is often the big market mover.
US data includes the Purchasing Managers Index (PMI), with manufacturing numbers on Monday and non-manufacturing on Wednesday. There’s more housing data on Tuesday, with Pending Home sales. Wednesday includes the ADP jobs stats which will guide expectations for the big daddy of data releases: Friday’s Non-Farm Payrolls and the US unemployment rate.

The UK’s PMI numbers are also out this week, with manufacturing on Monday, construction on Tuesday and services on Wednesday. The action continues after Thursday’s MPC interest rate announcement with Producer Prices and Manufacturing Production in the mix on Friday.
The euro-zone is also releasing its PMI numbers on Monday (manufacturing) and Wednesday (services). German Retail Sales are out on Tuesday, with Retail Sales for the euro-zone as a whole are out on Wednesday. Friday rounds the week off for the euro with German Industrial Production.

We see more downside action for EUR/USD with resistance at 1.31 and support at 1.25. GBP/USD should meet resistance at 1.4600 and support at 1.38.

USD/JPY will most likely range within 87.00 and 93.00.

Sunday, January 25, 2009

4.1 The Europeans are up against the wall: Forex Focus 26-30 January

The yen continued to strengthen as traders ran for cover. Sterling fell to record lows and some pondered if this could be the beginning of the end of the world’s oldest currency. The euro falls against the US dollar for the fourth consecutive week.

Last week’s action

The Euro opened to a double-whammy of bad news. On Monday, S&P downgraded Spain’s credit rating from AAA to AA+ and the European Commission revised its forecast for euro-zone GDP for 2009 from +0.1% (forecast in November 2008) to -1.9%. ECB President Jean-Claude Trichet confirmed the accelerating downturn and said the euro-zone’s economic outlook was “substantially” worse than what the bank had predicted only a month ago. The doom and gloom sent EUR/USD south and Tuesday morning saw it crash below 1.30 for the first time in 2009. It continued to fall as President Obama stepped up to swear in and any hopes of an Obama rally on Wall Street proved premature as the S&P 500 fell 5.3%, the largest decline on a Presidential inauguration day. Wednesday saw the pair trading within 1.28 and 1.30 as news that Portugal was the next in line to have its credit rating cut was counter-balanced by a recovery of sorts on the equities markets. US Treasury Secretary nominee Timothy Geithner gave the greenback a boost on Thursday when he opined that a strong dollar is in US interests. Thursday’s US data surveyed rising unemployment and a weakening housing sector and the dollar faltered. The euro fell further early Friday as euro-zone PMIs came in a tad less weak than expected but still at the lowest levels since records began in 1998. The pair fell to its week low of 1.2764, to recover to test 1.30 once more before closing the week at 1.2985.

Sterling had a dismal week falling to record lows against the yen and 24-year lows against the US dollar. The Royal Bank of Scotland set the tone for the week when it admitted that its 2008 losses could be as much as £28B: the biggest loss in British corporate history. This announcement came on the same day that the UK government’s latest financial sector rescue package was released to criticisms that it would not be effective. Cable dropped like a stone on this negative sentiment through Monday and the pair broke down key support at 1.4370 early Tuesday. Influential investor and financial commentator Jim Rogers added to downside pressure on the pound by urging the world to “sell any sterling that you might have” because “it’s finished”. Concern had also been growing that the UK ‘s credit rating could go the same way as Spain’s and this had brought further pressure to bear on the beleaguered currency. However, these fears might prove to be groundless according to Thursday’s report from influential credit agency Moody’s, who said that it did not think it would be revising its credit rating downwards. The UK finished the week with more bad news. Friday’s Q4 GDP saw the economy contract by 1.5% and the pound fell to 24-year lows of $1.3550, until recovering a little to close at 1.3804.

The yen strengthened against all the majors as another week of heightened risk aversion prompts more flight to the safety of the yen. After a spectacular fall as the US session opened on Wednesday, the dollar clawed back some ground due (perhaps) to the widely-held belief that the Bank of Japan will act to prevent the yen from strengthening too much. On Thursday, the Bank of Japan held interest rates at 0.1% and warned that Asia’s largest economy faces two years of recession and deflation. The bank stressed the need to get credit moving once more and announced plans to spend up to ¥3 trillion on commercial paper to achieve this. It also said it was considering buying corporate bonds with the same aim in mind. USD/JPY closed the week at 88.82

This week’s calendar notes

All eyes will be on the FOMC’s interest rate statement on Thursday. Interest rates are currently at 0-0.25% which makes a further cut unlikely. The statement should give us more of an idea of how far the Fed is ready to go to get the US economy moving. Other key US releases include news from the housing front with existing home sales on Monday and new home sales on Thursday. Thursday also sees durable goods orders numbers and the weekly unemployment claims. On Friday, we’ve got US advance GDP lined up, with the consensus forecasting a significant fall. The week also sees consumer confidence surveys from the Conference Board on Tuesday and the University of Michigan on Friday.
I’m watching German data this week as my guide to EZ action. Tuesday sees the release of the influential German IFO business surveys, Wednesday showcases German CPI and Thursday brings German unemployment change.
The UK ‘s Confederation of British Industry provides insight into UK consumer spending with their Realized Sales Index on Tuesday. On Thursday Nationwide publishes its House Price Index. I’ll also be looking out for MPC member and arch-dove David Blanchflower, who is speaking in Nottingham on Thursday. He voted for a full 1% cut at the MPC’s last outing and this speech may well prove of interest.

EUR/USD: support at 1.2500; resistance at 1.3280
GBP/USD: support at 1.3300; resistance at 1.4000
USD/JPY: support at 87.10; resistance at 90.00

Sunday, January 18, 2009

3. Uncertain week ahead as Obama takes the helm.

Recessionary gloom gathers. The week was marked by mounting concerns for the integrity of the euro and saw another round of US government action to shore up its buckling banking sector.


Euro sentiment took a dive on Monday with the announcement that Spain had joined Greece and Ireland on Standard & Poor’s negative credit-watch list. The global recession has hit the euro-zone’s fourth largest economy particularly badly and any down-grading will spell trouble for the European currency. EUR/USD traded lower throughout Monday and Tuesday to test support at 1.3150. The pair climbed to test 1.3335 early Wednesday only to plunge more than 200 pips over the next few hours as the news broke that the S&P was, in fact, cutting Greece’s credit rating from A to A-. Wednesday’s US retail sales numbers for December made grim reading indeed. As stocks on Wall Street tumbled, the dollar strengthened as traders ran for cover. On Thursday the ECB cut interest rates by the consensus 50bps to 2.00%. ECB president Jean-Claude Trichet prepared the ground for further cuts and suggested that these could well happen in March. The euro fell against the dollar after the ECB press conference to make the week’s low of 1.3025. The euro recovered from this low as the news broke that the US Treasury and The Fed were throwing a $138B lifeline to troubled giant, Bank of America. This news brought some relief to EUR, which closed the week at 1.3288.

GBP (hourly)

Sterling also kicked off the week heading south against the greenback. The data out of the UK has been pretty dire of late and Tuesday’s retail sales numbers were no exception, surveying the steepest decline since records began 14 years ago. Cable fell below 1.45 late Tuesday evening and then went on to range between 1.45 and 1.47 until the US government’s latest banking bail-out saw an upside breakout falter a tad above 1.49. The pound then took a dive as British banking giant Barclays saw its value shrink by 25% amid worries about the bank’s capital and outlook. Barclays were quick to deny that there were grounds for these concerns and the GBP closed a smidgeon below 1.4750. The British PM, the Chancellor of the Exchequer (UK finance minister) and the bank of England have spent this weekend putting together another emergency package to shore up the banking system and get credit moving through the economy. We will see what they have come up with early this week, no doubt.

Everything will be on hold in the US on Monday and Tuesday. There is talk that there will be a Obama rally on Wall Street and this would translate as pound and euro strength on the Forex market. Thursday is the most significant in terms of US data with housing numbers and the weekly new unemployment claims.

Things are busier in euro-land. Tuesday has the highly-regarded German ZEW data. Thursday sees the release of the ECB’s monthly bulletin, the stats the bank perused while making last week’s interest rate cut. We’ve also got the zone’s industrial new orders to look forward to on Thursday and on Friday there’s the regular raft of PMI data.

It is a pretty hefty week for the UK. There’s consumer prices on Tuesday and jobs data on Wednesday. Friday includes preliminary GDP and Retail Sales in the line-up.

We’re currently pretty bearish on the euro, although Obama euphoria may lift it to test 1.3450. However, if the news breaks that Spain’s credit rating has been down-graded or further cracks appear on the euro-fa├žade, a clear break-down of 1.30 could see support being tested at 1.2330.

Cable is still ranging within 1.5350 and 1.4370. However, look for downside action.

USD/JPY will find support at 88.50 and resistance at 94.50

Monday, January 12, 2009

2.1 Forex Focus January 12th to 16th

Here's this week's YouTube wrap:

2. US jobs data dominates the market

The first full trading week of 2009 packed a fair punch and US jobs data were the main market movers. Sterling surprised by posting weekly gains against all the majors.

The dollar opened the week by strengthening sharply against the euro fuelled by President-Elect Barack Obama, who called on Congress to act quickly to pass his $775B fiscal stimulus plan. The plan will include a $300B tax-cut package, which could go some way to softening Republican resistance. Tuesday morning saw euro zone consumer inflation come in lower than expected, giving the ECB more room to cut interest rates on January 15th and the euro continued south.

EUR/USD (hourly)

It tested 1.3350 at midday and this proved to be the pair’s low of the week as US economic data prompted a complete about-turn. The misery continues in the US housing sector as Pending Home Sales slumped another 4.0% in November, while in the manufacturing sector factory orders plunged 4.6%. The FOMC meeting minutes which were released later on Tuesday did nothing to relieve the gloom, with predictions of a fall in GDP for 2009 and rising unemployment through to 2010. The euro rose to test 1.35 as Tuesday ended and pushed through to 1.36 as the European session opened on Wednesday morning. It powered on to 1.37 on reports that the US private sector had shed 693K jobs in December, much worse than expected. Thursday’s US jobs numbers saw new unemployment claims come in lower than expected. However, this was explained as being caused by people holding back applications because of the holidays. The news that the number of US jobless had hit a 26-year high raised concerns that Friday’s Non-Farm payrolls could hit 700K+ and the euro rose to tip 1.38. Friday saw the NFP actually survey in line with expectations, well short of the market’s fears and the dollar soared, pushing the euro down to close the week at 1.3429.

GBP/USD (hourly)

The pound saw gains across the board, including its biggest weekly rise against the euro in 10 years. On Tuesday, UK services surprised by ticking higher in December but still marked the eighth consecutive month of contraction and ended the worst year for the service sector since records began 12 years ago. The pound had just fallen back to test support at 1.45 when the discouraging US numbers gave sterling a boost. The week’s key sterling event came on Thursday when the Bank of England cut interest rates by the widely anticipated 50bps. The pound rose on the news and tested 1.5350. Friday morning’s news that UK manufacturing production fell 2.9% in December to make 2008 the worst year since the bad old days of 1981 had little effect on the pound, which rose through the European session to test 1.5350 once more. US Non-Farms saw the pair slip down to around 1.5150 and cable closed the week at 1.5165.

EUR/GBP (hourly)

The yen saw steady gains against the greenback as investors became more risk averse. Notice how USD/JPY almost tracks the Dow Jones Industrial Average. The pair closed the week at 90.22, a tad above the key psychological level of 90.

JPY (hourly) with DJIA

Calendar and outlook
This week’s important US data includes producer price inflation numbers on Thursday and consumer prices on Friday. US manufacturing activity will be surveyed for New York State on Thursday and on Friday we’ve industrial production for the States as a whole. Unemployment is a growing concern around the world at the moment, so you should pay careful attention to Thursday’s Unemployment claims. This could be a higher than expected if people were holding off registering as unemployed over the holidays as was suggested. Wednesday’s retail sales and Friday’s consumer sentiment could also move the market.

The highlight of the week will undoubtedly be the ECB’s interest rate announcement. A cut of 50bps is widely expected and remember, the follow-up press conference often causes high volatility. Jean-Claude Trichet has a couple of public speaking engagements in the run up to Thursday. There’s also European industrial production on Wednesday and consumer prices on Thursday.

The UK sees retail sales and housing data released in the early hours of Tuesday morning. The deputy governor of the Bank of England will be speaking in Manchester on Friday.

The governor of the Bank of Japan will also be speaking on Friday.

I see EUR/USD finding resistance at 1.3550 and support at 1.3250, with further downside action to 1.2330 a possibility in the near future.

GBP/USD still looks pretty range-bound and should move between 1.5350 down to 1.45.

USD/JPY should encounter support at 87.50 and resistance at 91.50.

Monday, January 5, 2009

1. Dark Times Indeed.

The holiday fortnight was marked by thin markets, bad news and predictions of more pain to come.

[a video of this post is at the bottom of the page]

The IMF set the tone as Christmas week opened with a warning against the dangers of inadequate fiscal stimulus. President-Elect Barack Obama followed through with a promise that his stimulus package would create or save half a million more jobs than had been previously projected. With the price-tag on the stimulus package at $800B and rising, the euro (see eur chart) started the week testing resistance at 1.41. It then fell back below 1.40, perhaps on the realization that things were also looking grim in euro-land; a fact amply illustrated by a report warning that Germany’s economy could shrink by 2.7% in 2009.

Tuesday’s US data brought more bad news with home sales continuing to disappoint but the EUR settled into a 100-pip range in the run up to Christmas Day. Trading resumed on Friday and while most of Europe was still closed for the holiday, the euro rose to test 1.41 once again and closed the week at 1.4059. The following Monday saw the euro smash through 1.41 to hit 1.4350 as the escalating situation in the Middle East renewed concerns of a spike in the price of oil. EUR/USD fell back again as US markets opened and the dollar eventually closed the day slightly up on the euro. Tuesday saw US consumer confidence fall to record lows. However, fundamental news had little impact on this holiday market and the pair fell to below 1.39 for the first time during the holiday period to close the week at 1.3851

Sterling (see GBP chart) fell some 27% against the dollar in 2008 and managed to hit a fresh yearly low in the final week. Britain’s Q3 GDP was revised down to -0.6%, the worst contraction since 1990, making further Bank of England rates cuts very likely on January 8th. The pair went on to range between 1.48 and 1.4650 over Christmas, before breaking on the 29th to test 1.44,a level it tested twice more before the week was out. It rallied to 1.47 during thin trading on New Year’s Eve and closed on the first day of trading in 2009 at 1.4599.

USD/JPY (chart above) spent most of the holidays trading within 90 – 91. An upside breakout followed by a classic pullback saw the dollar hit 92.40 before closing the week at 92.26

USD/CHF fell on Middle East tension and the franc was widely reported as having regained its safe-haven status. It formed a morning star reversal pattern at 1.0400 and rose to close the week at 1.0828.

This week is the first full trading week after the holidays, traders all over the world are returning to their desks and a full-bodied trading week is anticipated. It is also a week cram-packed with economic data. In the US on Tuesday, there’s more housing numbers, the services PMI and the minutes of the meeting where the Fed cut close to zero. The focus then turns to employment with ADP jobs data on Wednesday, the weekly review of unemployment claims on Thursday and on Friday we’ve got the unemployment rate and the much-anticipated Non-Farm payrolls.

The euro-zone sees consumer prices and services PMI on Tuesday. We’ve German factory orders on Thursday and French industrial production on Friday. Friday also sees the release of retail sales data for Germany and the zone as a whole.

All eyes will be on UK interest rates on Thursday. A cut of at least 50bps is widely anticipated with many market analysts pricing in a 75bps cut. Tuesday sees more housing data and Services PMI and Friday has Producer Prices.

Israel launched a ground offensive into the Gaza strip this weekend and traders will need to keep close tabs on how the situation affects oil prices and, in consequence, dollar strength.

EUR/USD resistance: 1.4050; support: 1.35.

GBP/USD resistance: 1.4700; support at 1.41.

USD/JPY resistance: 94; support: 91

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