G20 summit and weak euro data could well see dollar gains

Forecast
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 29^th) 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?
Euro
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
Yen
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.

12.1 More dollar weakness anticipated

Forecast:

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.

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 22^nd). 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 2^nd 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 5^th) 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 Friday, 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 1^st), 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

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

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

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 13^th?). 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.

Forecast
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.