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Vera Hawkin

2009-04-23T16:22:00.002-04:00

There are not too many female CEOs in most industries and as far as I know Vera Hawkin is the only one in the forex industry.

Hawkin has built one of the fastest growing forex companies in recent years, as mentioned in Inc. magazine.

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2004-04-23T18:56:00.000-04:00

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· Durable Goods Increase 3.4%, Consensus Was 0.7%
· Mixed UK Data - Lower GDP, Stronger Retail Sales
· Weaker Japanese Tertiary Activity Index

EURUSD

Stronger US durable goods sent the euro tumbling against the dollar. The report was almost five times higher than the market’s forecasts, catching even the most optimistic economists by surprise (more about durable goods in USDCHF section). Meanwhile, today’s comments from ECB Issing did not shed any new light on the interest rate outlook for the Eurozone. Instead, he essentially echoed yesterday’s comments from Trichet, emphasizing the importance of a recovery in consumer spending and a rebound in confidence. Comments from both officials suggest that monetary policy is on hold for the time being, but they do not rule out the possibility of a future rate cut. The ECB has repeatedly indicated that lower rates may not help to stimulate spending. Although most economists still believe that the dollar will decline in the medium to long term, in the week ahead, the euro should remain under pressure as economic data will most likely be supportive for the dollar and negative for the euro. We start off Monday with the IFO business climate survey - this past Tuesday’s shockingly disappointing ZEW survey signals that there is significant downside risk for the IFO.

USDCHF

With today’s exceptionally strong durable goods report, it will be difficult to continue questioning the sustainability of the manufacturing sector recovery. This is particularly promising for the labor market, since the strong demand will eventually force manufacturing firms to increase hiring. The manufacturing sector has been shedding jobs since August 2000. Last month, job growth was flat in the sector, but today’s data suggests that this could be the beginning of a new uptrend. Encouragingly enough, FOMC member Moskow said that job growth is off to a good start in the first quarter and the slack in the US economy is beginning to decrease while slowing productivity gains should help to boost hiring. The most important US economic data scheduled for release next week is Friday’s advance estimate for first quarter GDP. All evidence point to above trend growth in Q1, upside risk will help to support the dollar. Meanwhile, in Switzerland, SNB Hildebrand failed to make any significant comments on monetary policy.

GBPUSD

The UK released contrasting data today - stronger retail sales, but a weaker first quarter GDP report. Retail sales increased 0.6% during the month of March, tripling estimates. The strong housing market has continued to fuel consumer spending, which will be a persistent concern for the Bank of England’s Monetary Policy Committee. If you recall, BoE officials have been worried that previous rate hikes has failed to let steam out of the housing bubble or slow consumer spending. However, as we have learned this past week, even though the BoE still fears that a sharp collapse in house price valuations could lead to a destructive consumer retrenchment, low consumer price inflation may prevent them from raising rates in May. Meanwhile, GDP slowed from 0.9% to 0.6% in the first quarter as a result of a contraction in manufacturing output. According to the statistics office, there is a high likelihood that the first estimate will be revised since the Easter Holiday delayed the collection of data from some companies.

USDJPY

Japan’s tertiary activity index declined more than expected during the month of February, giving back the previous month’s stronger gains. There are lots of important Japanese economic data scheduled for release next week including consumer confidence, retail sales, industrial production, unemployment, intervention data for the month of April and a BoJ monetary policy meeting. We continue to believe that sooner or later, Japanese fundamentals will return to the forefront, allowing the yen to return to its natural course. The monthly intervention data from the MoF will be particularly interesting, since USDJPY has appreciated significantly over the past month, The market believes that the BoJ has been mostly absent from the market therefore, if the data should indicate otherwise, we may be poised for more volatility in USDJPY. According to the latest IMM data, for the first time in four weeks, speculators are net short yen.

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2004-04-12T18:46:00.000-04:00

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Bank of Canada Rate Decision (13:00 GMT) (Current Rate: 2.25%, 25bp Rate Cut Expected)

The Bank of Canada is scheduled to announce their monetary policy decision tomorrow. According to a Bloomberg News survey, 14 out of 17 economists polled expect the central bank to lower rates from 2.25% to 2.00%. The latest GDP and employment data has been particularly daunting. Since the beginning of this year, Canada shed 19,600 jobs, surprising the market, which had expected the labor force to increase in March (instead it shrank by 13.3k). Inflation fell to 0.7% yoy in February, the lowest level since 2001. This is substantially below the central bank's 2.0% target, indicating that the economy needs another round of easing.

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2004-04-12T18:42:00.000-04:00

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EURUSD
European and London markets remained closed today for the Easter holiday. The absence of these traders has resulted in very thin trading throughout the US session. Geopolitical risk continues to weigh on the dollar as the number of US casualties in Iraq increases. Although the market has become more desensitized to the developments in Iraq and threats of terrorism, the lack of any new catalyst has propelled this concern back to the forefront. Of course, the situation has intensified with the kidnapping of Japanese and Chinese nationals - prompting their respective governments to reevaluate their participation in the region. For the Eurozone this week, the market will turn its focus to the second Q4 GDP release and inflation data. Growth should remain below trend in the fourth quarter as the region struggles to recover. While there is a risk of an upward revision in inflation for the month of March, it still remains below the ECB’s 2% target.

USDCHF
Although the market’s core focus remains on next week’s testimony by Greenspan to Congress, there is enough data due out this week to shift the market’s focus away from Iraq. The week begins with the retail sales for the month of March due out tomorrow - there is speculation that the report could be exceptionally strong with broad based gains in autos, department and chain stores sales. Tax refund checks are expected to have boosted spending, while higher gasoline prices should have increased gas station receipts. The market expects retail sales to increase 0.7%, a sharply higher number could prompt a move in the euro below 1.20. Other data scheduled for release this week should also confirm the strength of the US economic recovery. Earnings season has just begun, the firms who have released thus far have on average reported exceptionally strong earnings. M&A activity has also picked up, with March reporting the largest cross border flow in two years. Despite the market’s mixed reading into the latest payrolls report, earnings releases and M&A flow is a sign that overall economic activity is picking up and even if payrolls do not deliver the 200-300k that the market expects, the Fed will have to begin exploring an exit strategy from their accommodative monetary policy.

GBPUSD
Tomorrow, we are expecting the latest data on house prices from the Office of the Deputy Prime Minister. There is little sign that the housing market is slowing despite reports today that Tony Dye, a prominent fund manager who was criticized for forecasting that the US tech bubble would burst in late 1990s/early 2000, now predicts a sharp crash in London house prices. However, a continued acceleration in house prices does increase the risk of a rapid collapse, which is one of the primary concerns of the Bank of England. A stronger report will add to the speculation that the BoE will be looking to raise rates by 25bp in May. The most important hint into the minds of the Monetary Policy Committee will still be next week’s release of the minutes from last month’s interest rate meeting.

USDJPY
The biggest news today comes out of Japan. Another round of astounding data is released from the country - both consumer confidence in Tokyo and the current account surplus rose to record levels. Compared to the previous year, the current account increased 46%, beating analyst estimates as exports to China and other global markets continued to soar. However, Japan’s reliance on Chinese demand is a bit concerning as China’s government is taking active measures to slow growth. For the third time since last September and the second time in three weeks, the Chinese government has raised reserve requirements from 7.0% to 7.5%. Increasing reserve requirements of banks generally slows down lending activities, which will have a ripple effect throughout the economy. Slowing growth in the region will impact the sustainability of China’s demand for US and Japanese imports.

USDCAD
The Bank of Canada is scheduled to announce their monetary policy decision tomorrow. According to a Bloomberg News survey, 14 out of 17 economists polled expect the central bank to lower rates from 2.25% to 2.0%. The latest GDP and employment data has been particularly daunting, while inflation remains significantly below target. Today’s sharp move upwards in USDCAD is reflective of position adjustments in the IMM, as speculators increased their CAD long positions to a whopping 41,865 last week, which is the largest level since March 2003.

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2004-04-08T10:32:00.000-04:00

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Technical Outlook
A break above the 10-day SMA and the previous day’s bullish engulfing like pattern gives EUR/USD a slight short-term bullish bias. The true test of bullish conviction, however, will come in the 1.2200/50 area as it marks a convergence of the 20-day SMA/50-day EMA and 23.6% fibo of the recent down move. Sustained break above required to undo bearish implications of last week’s price action and set up a re-test of the range highs. A clear failure to break the confluence could see another selloff but only a break below 1.1980 re-instills the downside initiative. Even then, downside follow through could be limited as the 200-day SMA (1.1900) and 50% fibo from the Sep - Feb bull wave (1.1850) await 100-points below. An inside day from USD/JPY as the pair consolidates above the 10-day SMA. Intermediate-term bias remains lower but multiple closes above the 105.00 successfully relieves short-term downside pressure. Break below 104.90 required to spark renewed downside momentum. We see some scope for another upside squeeze but any upside looks limited to the 107.40 100-day SMA. No follow through from Cable yesterday as the pair ran into stiff resistance at the 50-day SMA. Next few sessions will be critical in determining if the 1.7900 neckline will come under assault. Short-term bias is neutral as the pair is wedged between the 50-day SMA on the upside and the 50-day EMA on the downside. Clear break above/below need to signal the next playable directional move. Recent progression of higher highs slightly favors the upside and a test of the 1.8550 fib zone. USD/CHF confirmed Monday’s outside day like reversal with a break below the 1.2820 10-day SMA. Strong support is expected all throughout the 1.2760/00 zone as it marks a confluence of various important moving averages and fib levels. Break below needed to prolong downside momentum.

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2004-04-07T11:32:00.000-04:00

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Technical Outlook
Bullish engulfing like pattern on the EUR/USD daily just above the 200-day EMA relieves some short-term downside pressure. Clear break below yesterday’s 1.1980 low and 1.1950 200-day EMA now required to negate bullish implications of the reversal pattern and re-instill fading downside initiative. Even if this is to occur, downside follow through could be limited as the 200-day SMA (1.1900) and 50% fibo from the Sep - Feb bull wave (1.1850) await 100-points below. We see some scope for a potential earlier than expected EUR/USD up move but resistance at the 10-day SMA would need to give for this to become more of a viable scenario. Until then, the path of least resistance is still lower. A sharp move in USD/JPY yesterday as weak hand shorts were squeezed out of the market. The resulting tail reversal off the medium-term significant 50-day EMA now favors a resumption of the long-term downtrend. Break below yesterday’s 104.90 low required to confirm. Another close above 105.00 would change the picture but only a clear break above the 107.40 100-day SMA turns the outlook bullish. A strong showing from GBP/USD yesterday as aggressive shorts were forced to cover on the move back through the 50-day EMA. Shaven head swing low on the daily favors more upside and a test of the high-end of the recent range. A break of the 1.8550 50-day SMA is our key short-term pivot. Head & Shoulders pattern remains a medium-term overhang but not a real concern (for now) as we are still over 4-big figures from the potential neckline. Progression of higher lows over the past month puts into question the validity of the pattern but a break above the 1.8600 handle with follow through is required to completely negate the pattern’s implications. USD/CHF’s failure just shy of the 200-day SMA sets up a potential double top on the daily. While it is far too early to turn bearish, the potential ominous reversal pattern does make us doubt the strength of the recent uptrend. Immediate support is expected around the 10-day SMA, with only a break below setting up more downside. Breach of long-term resistance at the 1.3100 200-day SMA now required to re-instill upside momentum.

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2004-04-05T19:50:00.000-04:00

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Euro - Where are We Headed Next?

Published Date: April 5, 2004

With the euro tumbling close to 7% from its all-time highs in the past 7 weeks, it is once again time to publish another article in our Euro - Where Can It Go? series. The tables have turned and the market is becoming increasingly bullish on both the US economy and the US dollar. The euro is now flirting with the 1.20 level, which leads us to question whether we will see 1.15 before 1.25 or the reverse. There are two primary reasons to explain the euro’s recent move. First, the US has finally delivered what the market has been anxiously waiting for, which is evidence that the labor market is finally turning up. On the other hand, the Eurozone’s largest economies have been struggling to grow after rising from recessionary conditions last year, spurring widespread speculation that the ECB will be easing monetary policy over the next few months.

ECB signals the possibility of a rate cut

Unlike the Fed, the ECB prefers to prepare the market for any intended changes in monetary policy and uses its words to steer their currency. As a “say it as it is” central banker, ECB President Trichet’s comments has a history of moving markets. If you recall, it was his warning that the ECB is “not indifferent” to the brutal moves in the euro back in January that sent the pair tumbling 600 pips in under a week. His more recent warnings that should consumption fail to pick up, the ECB could change monetary policy, has intensified speculation about a rate hike. Although the ECB left interest rates unchanged at 2% on April 1st and Trichet’s comments at the accompanying press conference were more hawkish than the market had anticipated, an interesting change in the statement as well as diverging comments from Trichet this weekend suggests that the ECB’s next move will be a reduction in rates.

In the statement from the April 1st monetary policy meeting, the ECB changed their wording from the “current monetary policy stance is appropriate” to the current monetary policy stance “remains in line with the maintenance of price stability.” The most notable change in the wording is the elimination of the word “appropriate.” In the past, the removal of the word “appropriate” usually corresponds with a change in rates over the next two monetary policy meetings. Trichet tried to undermine the significance of this change by going out of his way in the Q&A session to say that the change in wording does not signal a change in monetary policy, but we think that more likely he was trying to inject some two-way risk into the market. Some however may argue that he was trying to appease the other members of the monetary policy committee. The latter reason although a bit preposterous since Trichet has a history of having extremely adept political skills as a result of spending years dueling with French politicians over interest rates and growth, did find some support from the media. The market is currently fixated on an article published in the UK Telegraph that said that Trichet wanted to reduce interest rates at the last monetary policy meeting, but faced strong resistance and was eventually overruled by Germany’s Issing and Holland’s Wellink, both of whom did not want the ECB to appear that it was cutting rates because of political pressure. Regardless of whether the article has any validity, there are 2 things that are true - Trichet is softening his stance on keeping rates unchanged, while the latest string of economic data from the Eurozone, particularly industrial production and service sector PMI reports indicate that the economic rebound in the region has been extraordinarily weak. With CPI at 1.6%, which is less than the ECB’s target rate of approximately 2%, the central bank has ample flexibility to loosen monetary policy.

The US delivers the strong data that the market has been anxiously awaiting

After months of waiting for the labor market to catch up with the growth in the rest of the economy, the US has finally delivered what the market has been waiting for. Although it is only one-month worth of data and the underlying components do not paint an equally optimistic picture, euphoria has captured the markets as it starts to convince itself that we no longer have a jobless recovery. As we have mentioned in one of our previous articles, until we see more evidence of a strong pickup in job creation, the economy and the US dollar will have a difficult time springing out of its restrained state. The data for March IS evidence that a pickup in job creation is happening - but whether it is strong or not still remains questionable. Since payrolls turned positive in September, the average monthly gain in payrolls is 108k. At this stage in the recovery in the 1990s, payrolls were averaging 220k per month. Furthermore, including the latest data, 1.89mln jobs have still been lost since President Bush took office. Nevertheless, the outlook for the labor market is positive, especially given the recent tick-up in durable goods orders, industrial production and the ISM manufacturing and service sector reports. The health of the manufacturing sector is particularly important since the industry has experienced 43 consecutive months of job losses (in March, the sector did not lose jobs, but it also did not add any as well). The strength of the March data will help to boost the dollar, but what will determine whether we will see 1.15 before 1.25 in the euro is the Federal Reserve and their monetary policy bias.

But it all depends on the Fed ……

Now that we have the jobs, we need the rates. What will turn the recent moves in the dollar into a full-fledged reversal are hints by the Federal Reserve that they are shifting their monetary policy stance from a neutral bias to a tightening bias. What we are worried about is that the market may have overdone interest rate expectations. According to the Eurodollar interest rate futures, the market is pricing in almost a 100% probability of a 25bp rate hike at the August 10th monetary policy meeting. Although the latest data could prompt the Fed to move forward the inevitable tightening cycle, they have repeatedly reiterated their intentions to be “patient.” With inflationary pressures still inconsequential, the Fed has the flexibility of waiting for growth in both the economy and the labor market to accelerate to the point where they will need to take a proactive measure to slow down the expansion by raising rates. With the economic recovery still fragile, it is unlikely that the Fed will want to raise rates too early in fear of putting the recovery at risk.

What this means is that until we see more positive comments from the Federal Reserve, the dollar could potentially recoup some of its extensive losses, resulting in more range trading. There are a few major events to keep an eye on in the weeks ahead. Positive developments will clear the way for a test of 1.15, unchanged and neutral developments could result in more range trading and retracement of recent losses, towards 1.25:

1) April 21st - Greenspan is testifying before the Joint Economic Committee (expected to be a mini “Humphrey Hawkins)
2) May 4th - FOMC rate decision (focus on statement)
3) May 7th - April non-farm payrolls (still looking for more jobs data)

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2004-03-29T12:40:00.000-05:00

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DailyFX Special Report: It All Depends On Jobs …..

Published Date: March 26, 2004

Given that the dollar has rallied 6% against the euro in the past 5 weeks, it is inevitable that the market would begin to talk about a dollar reversal. However, the talk remains restrained and cautious, as the market is still not completely convinced that fundamentals have shifted enough to warrant a broad based shift in trend. So what are we waiting for?

With 8.2% and 4.1% GDP growth in the third and fourth quarter respectively, there are no doubts that the economic recovery is underway. However, a quick survey of the market will lead many to think otherwise. The dollar is weak, the Dow has tumbled since the beginning of the year, while the outlook for hiring is still discouraging. If the economy is truly booming, the labor market would be healthy, equities would be rallying and foreigners would be pouring money into the US asset markets, helping to boost the value of the dollar. Unfortunately this is not the case. The current state of the US economy and the dollar is best described as a coiled spring - kept retracted as it looks for its next catalyst. The economic spring is kept coiled by one factor - the labor market. Until we see more evidence of a strong pickup in job creation, the economy and the US dollar will have a difficult time springing out of its restrained state. The health of the labor market and its future prospect are heatedly debated in the press. This makes jobs the number one factor that can change perception. If payrolls suddenly take off, this could rattle the markets, sending equities higher, bond yields soaring and the dollar rallying. Whether or not you believe that this will happen depends upon which side of the table you are sitting on - that is if you are a labor market bear or bull. Here are where the bears and bulls stand - take your pick:

· Labor Market Bears - With over 2 million jobs lost since Bush took office, if the labor market does not rebound, the economic recovery will be threatened.

· Labor Market Bulls - The payrolls data is distorting, the economic recovery is being led by the spending habits of the 94.4% employed so once productivity declines, corporations will be forced to hire.

Labor market bears - With 8.2 million people out of work as of February, it is not surprising that most Americans are very disappointed about the current state of the labor market. Nearly a fourth of these workers have also been out of work for six months or longer, indicating rising discontent. The papers have been littered with articles on the labor market - most of which reflect the views of labor market bears. Sentiment has worsened further following the release of the latest non-farm payrolls report for the month February, which indicated that only a dismal 21,000 jobs were added onto corporate payrolls last month. Although the unemployment rate declined to 5.6%, the plunge was not a result of an increase in the number of employed individuals, but rather reflects 392,000 people exiting the labor force. Since March of 2001, labor market participation has declined 1.2%. It is estimated that in order to get the share of people employed back to the level seen at the trough of the recession, (also factoring population growth) the economy would need to add 260,000 jobs per month for the next twelve months. Furthermore, unprecedented stimulus from the government has kept joblessness artificially low. This includes a significant amount of government spending, especially on defense and homeland security. The February labor market report is clear evidence of this artificial stimulus, as all of the jobs added onto payrolls were government and not private sector jobs. At this rate, payroll growth is clearly going to fall short of that target. So far, the manufacturing sector has been the worst hit, as February marked the 43rd consecutive month of manufacturing job losses. Labor market bears find that generous fiscal stimulus cannot continue forever. Once fiscal stimulus slows, the labor markets and the economy may take a hit. This is particularly concerning since the difficulty of finding jobs will eventually force consumers to cut back spending and increase savings, which they believe would ultimately threaten the sustainability of the US economic recovery.

Labor market bulls - Not everyone believes in the dismal jobs picture painted by the press - including Fed Chairman Alan Greenspan and US Treasury Secretary John Snow. Despite the weak payrolls growth in February, Greenspan has not wavered from his forecast that a significant pickup in hiring is expected to occur in the very near future. Many labor market bears wonder where this growth will come from and according to Greenspan, a slowdown in productivity will eventually prompt firms to increase hiring. Some even believe that the overcapacity left over from the bubble years of the 1990s has sheltered the economy and many businesses from what would have otherwise been a more painful downturn. In the 90s, unrealistic amounts of venture capital investments, junk bond financing and proceeds from IPOs have left US companies with excessive amounts money for plants, equipment and people. Typically the economy would have worked off the overcapacity in a shorter period of time, but these excess proceeds have kept many laggards in business. Also, with interest rates at such low levels, corporations have found it more attractive to increase capital investment over hiring - once this peaks, firms will be forced to hire. Although recent surveys of the manufacturing sector suggest that firms expect to increase hiring over the next few months, businesses have been reluctant to hire until they are completely confident in the recovery. Firms will want to delay hiring until they are sure that they will not have to conduct layoffs shortly thereafter. Therefore these firms instead have opted to hire temporary workers and/or independent contractors. This is actually the second most popular argument of labor market bulls, particularly that of John Snow. He is frequently quoted as criticizing the payrolls data for failing to account for the significant increase in number of self-employed individuals and independent contractors. According to the Labor Department, nonfarm self-employment as measured by the household survey has risen 7.3% since the recession ended in November 2001. This equates to an increase of approximately 644,000. The lower tax rate of the self-employed allows them to retain a larger portion of their earnings. However, one of the major pitfalls of the household survey is its relatively smaller sample size. Also, labor market bulls attest that consumer spending will continue at its rapid pace, since the 94.4% of individuals who are working are prospering. The latest data from the Fed indicates that household net worth soared to a record high of $44.4trillion. Labor market bulls argue that the wealth of those employed will continue to fuel consumer spending and the economic recovery, giving corporations the confidence to increase hiring.

Outsourcing represents only a small portion of the jobs lost - it is NOT the problem

One of the media’s favorite scapegoat for job losses is outsourcing. It seems so much easier for the government to blame their lack of ability to create jobs on the attractiveness of cheap labor abroad. However, outsourced jobs represent a very small portion of the jobs lost. Forrester Research predicts that the U.S. will lose a total of 3.3 million service jobs to outsourcing between 2000 and 2015. This equates to approximately 220,000 jobs lost per year. This number pales in comparison to the 1.15 million workers who lost their jobs in 1999, which if you recall, was actually a relatively healthy year. The Senate has supported the media’s shift of blame by voting 70 to 26 to stop granting Federal contracts to companies that outsource offshore. Despite the manufacturing sector and government’s attempts to blame the loss of jobs on outsourcing, it is the NOT the problem. Outsourcing has been going on for centuries and represents only a very small portion of the jobs lost. Furthermore, the benefits of outsourcing outweigh the costs. If it weren’t for the economic downturn, US corporations would still be talking about how outsourcing has increased profitability. One of the biggest proponents of this belief is Fed Chairman Alan Greenspan. According to a McKinsey report, it is estimated that every $1 of costs that the United States moves offshore brings in a net benefit of $1.12 to $1.14. The low cost of producing abroad allows firms to increase their competitive advantages by reallocating its resources (money and people) to more productive tasks, which will ultimately be beneficial for the US economy.

What could tip the scales?

One of the most pressing threats to the labor market is an indirect one. In recent weeks, the market has been obsessed with the fact that the Bank of Japan may be shifting their currency policy - that is, significantly reducing or even halting currency intervention. This is a significant threat to the US economy because the Japanese government has traditionally recycled the dollars that they have purchased for intervention into US fixed income assets. The aggressiveness and persistence of their intervention has made them one of the largest holders of US Treasuries. Demand from Asian central banks such as the Bank of Japan has anchored yields, providing the US economy with some much-needed additional stimulus. If the BoJ truly shifts their currency policy and stops intervening or even decides to sell their treasury holdings, this could potentially send the bond markets tumbling, yields soaring and the dollar plummeting. The higher yields would raise borrowing costs, cramping the finances of corporations, forcing them to restrain spending and delay hiring - none of which would help to reverse the dollar’s decline or accelerate the economic recovery.

The leading argument for the BoJ‘s shift in currency policy is pressure from the US government. Aside from artificially inflating the value of the dollar, US pressure may also come from the government’s concern that foreign central bank intervention may be resulting in the development of an asset market bubble in the US debt market. With the Fed publicly announcing their intentions to artificially keep short rates low, many hedge funds, institutional investors, speculators and commercial banks have rushed into leveraged bond trades. In fact, a recent Merrill Lynch survey found that a record 73% of investors say that bond prices are overvalued. Therefore if the BoJ capitulates their bond holdings, this could pose a significant threat to the labor market, the US economic recovery and the US dollar.

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2004-03-23T17:25:00.000-05:00

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Daily FX Fundamentals 03-23-04

· Europe reports strong capital outflows
· Bank of England member Large says he voted for a rate hike 5 out of the last 6 months
· Japan tertiary activity index at highest level since 1993

EURUSD

The latest Eurozone current account data for the month of January provides us with some insight as to why the euro has had such a difficult time rallying in the past few months. According to the release, investors withdrew almost double the amount of money from the region in January as compared to December. Over the same period, international investors have increased their holdings of dollar denominated assets by the fastest pace ever. These developments correspond with the euro’s 550-pip slide against the dollar during the month of January. Meanwhile, not all economic data released today was discouraging. In fact, for once in a long time, we had some encouraging data from the Eurozone - French consumer spending and Italian retail sales both surprised on the upside. Trading remains fairly quiet ahead of tomorrow’s US durable goods report. The market expects a strong number, which implies that the dollar will probably have a more significant reaction on the back of a weaker number rather than a stronger number.

USDCHF

The safe haven Swiss franc extended its rally against the dollar and euro as terrorism fears loom. There is now fear that the Hamas group may consider taking their anger out on US interests. This should be a temporary factor impacting the markets until we receive more important information on the economy such as tomorrow’s durable goods orders report or next week’s non-farm payrolls report. The February durable goods report is expected to shed some light on capital spending - after an unexpected drop in January, a surge in defense spending should help to boost the overall number. In his speech in New Orleans today, FOMC member Stern failed to comment on the economy or monetary policy, choosing instead to stick to his scripted speech. However, the FOMC officials scheduled to speak tomorrow will not be able to avoid this subject as one of the topics of discussion will be the economic outlook and monetary policy.

GBPUSD

The latest news out of the UK continues to increase the chances of an April or May rate hike. Bank of England MPC member Large is the latest government official to express his concern about the level of consumer debt and the possibility of a “sharp demand slowdown.” Large told the market that the high level of consumer indebtedness has been the primary reason why he voted for a rate hike, five out of the last six months. The comments from senior Treasury official Jonathan Cunliffe also boosted expectations for a rate hike. Aside from consumer spending, the development of a housing market bubble has been one of the UK government’s primary concerns. Cunliffe told the House of Commons’ Treasury Committee that the Bank of England has the “instrument that’s most capable of addressing the housing market.” The Treasury and the Bank of England is hoping that a rate hike will help to gradually slow the rate of house price acceleration and prevent a full-fledged uncontrollable collapse.

USDJPY

The Japanese economic engine continues to chug along, as Japan’s tertiary activity index rose to its highest levels since 1993. The services industries grew by its fastest pace in close to four years, fueled by increasing equity prices, rising consumer confidence, lower unemployment, and stronger consumer spending. The comments from Japanese government officials continue to be monitored closely by the market - Bank of Japan Governor Fukui was on the wires Tuesday warning that, “if disorderly exchange rate moves become strong, it could hurt the emerging economic recovery.” However he also added that, "fewer and fewer companies see a stronger yen as having a straightforwardly negative impact, as they did in the recent past." With the recent volatility in the yen, Japanese corporations have been employing increasingly sophisticated hedging techniques, which may explain Fukui’s lack of concern.

Daily Forex Technicals

2004-03-23T10:04:00.000-05:00

Daily Forex Trading Technicals

Technical Outlook
The consolidation in EUR/USD continues. Basing action around the 100-day SMA within a still intact LT uptrend continues to favor an eventual break to the upside, but price action needs to confirm before positioning becomes warranted. The 50-day EMA remains our key short-term pivot, with a clear break above required to inspire more short-covering and a new leg higher. Allow for more range contraction until then. Only a break of the 1.2160 3/11 low re-instills the downside bias. USD/JPY remains weak. Attempts to rally off fib support in the 106.60 area(78.6% retracement of the recent upmove) have not gained traction as sellers continue to aggressively re-emerge around the 50-day SMA. A clear lack of any real meaningful support until the 105.27 multi-year low keeps the path of least resistance down, despite some clearly oversold readings on the daily oscillators. Below the 107.60 50-day SMA we continue to favor the downside and an eventual re-test of the 105.27 multi-year low. Minor ST support seen around 106.30/00, with a break lower required to put 105.50 under assault. USD/CHF trade remains choppy to say the least. A failure to overtake resistance at the 100-day EMA prompted another aggressive move lower, with both the 50-day EMA and 50% fib retracement ( of the Feb upmove) giving way. The 50-day SMA now becomes our major inflection point with a close below required to signal a true resumption of the LT downtrend. Failure to breach could see the development of a new range between 1.2800-1.2500

Weekly Technicals

2004-03-22T10:22:00.000-05:00

Technical Outlook
Some disappointing lack of follow through from EUR/USD on Friday as resistance at the 50-day EMA continues to successfully cap upside attempts. The subsequent close back below the short-term break out point nullifies the positive implications of the triangle expansion and turns us ST neutral until either the 50-day EMA is clearly overtaken or chart support in the 1.2160 area gives way. The basing action around the 100-day SMA within a still intact LT uptrend tends to favor an eventual break to the upside, but price action will need to confirm before positioning becomes warranted. An inside day from GBP/USD on Friday as trade was confined to a mere 120-pip range between the 20-day SMA and 50-day EMA. Despite the lackluster trade, Thursday’s close above the 50-day EMA continues to favor further upside and an eventual test of more meaningful resistance in the 1.8430-1.8500 area. Obviously the 1.8370/1.8430 20-day SMA/38.2% fibo of the recent correction remains key resistance, and a break above will be required to inspire further gains. Zero downside follow through from USD/CHF as solid demand emerged around the 50-day SMA. Below the 100-day SMA we continue to favor the downside, though such a sharp rally following a textbook technical pattern break is concerning to say the least. Some possibility exists for a false pattern break out, but ST fib resistance at 1.2860 will need to be re-taken for this to become more of a legitimate concern. Bears remain in control (if only slightly), with a break below the 50-day EMA required to re-instill the downside initiative

English Pound Riding High

2004-02-19T13:52:00.000-05:00

Daily FX - Can the British Pound Continue to Rally?

Published Date: February 19, 2004

The British pound is currently trading at 11-year highs against the US dollar. Although the GBPUSD is probably overvalued, the bullish bias of the pound both fundamentally and technically favors further gains in the pair over the near term. Ironically enough, the last time the pound was trading at these levels was in 1992, right before George Soros became known as the “man who broke the Bank of England.” Between March and August of 1992, the GBPUSD rallied from a low of 1.6975 to a high of 2.00. In September of 1992, George Soros leveraged the entire $1 billion value of his fund to take a $10 billion position against the pound. Other traders followed suit, causing the GBPUSD to slide over 900 pips or close to 5% in 24 hours. This forced the Bank of England to abandon the Exchange Rate Mechanism (ERM) while at the same time allowing Soros to make between $1-$2 billion in profits for his fund that day. Of course, Soros does not have the capability to move the market like he did in 1992 but nevertheless we find this bit of history rather interesting.

What is fueling the rally in the pound?

Vodafone Withdraws Bid for AT&T Wireless

The pound’s most recent surge through 1.90 can be partially attributed to the withdrawal of UK based Vodafone’s bid for US based AT&T Wireless. M&A flows are very important in the FX market. Cingular eventually won the deal, which was valued at approximately $41billion. The GBP was rallied following this announcement as the market readjusted their positions. Apparently a lot of people pre-hedged what they thought would be Vodafone’s requirement for dollars. The break above 1.90 occurred minutes before Vodafone confirmed the withdrawal of their bid.

Strong UK Fundamentals - Hiking bias

Strong UK fundamentals and a hiking bias by the central bank has led to strong gains for the GBP. In their latest inflation report, the Bank of England raised their GDP growth forecasts from 2.8% in 2004 to 3.6% in the first half of the year and then an easing to 3.25% for the remainder of the year. According to the latest releases, the UK economy grew by 0.9% q/q and 2.5% yoy in the last quarter of 2003. This is the fastest pace of growth in close to four years. The UK unemployment rate also fell to a 29 year low of 2.9% in January, as the number of people claiming unemployment benefits fell by 13,400, doubling expectations. In the latest BoE Inflation Report, BoE Governor Mervyn King went as far as saying that the sterling is still below the average level registered in 2000-2003, which suggests that the GBP has not yet reached a level that the BoE considers excessive. With a strong domestic economy and an ongoing global recovery, expectations are for the Committee to continue tightening monetary policy this year. The latest inflation report confirms this belief by pointing to rising inflationary pressures. BoE Governor Mervyn King warned that there are already signs of “higher inflation to come,” and that additional “news” would not be required to necessitate another rate hike. The market is already pricing in another rate hike by June 2004 - with the market still fixated on earning yield, the GBP should continue benefit.

US Dollar Weakness

Despite the recent positive developments in the US, long-term fundamentals continue to favor USD weakness. The strength of last week’s US data still hangs over the market as it indicates that the recent weakness in the dollar has helped to boost exports. However, the market is currently debating the reliability and sustainability of the latest trade and Treasury International Capital (TIC) flow data. Those arguing that the recent slide in the EURUSD is merely a hiccup in the dollar’s longer-term downtrend are saying that the recent upturn in exports is a result of rising global growth. When growth in the US picks up, domestic demand for foreign goods are expected to accelerate, forcing the deficit to breakout of its temporary plateau and continue its previous trend. Furthermore, the 12-month average of foreign direct inflows is only enough to offset the negative flows and plug a part of the deficit, certainly not sufficient enough to cause a reversal of the deficit. For a reversal of the deficit to occur, the dollar would need to continue to depreciate.

Can the rally be sustained?

Technical Outlook

The intermediate-term view in the GBPUSD remains healthy above trendline support in the 1.8500 area. A sustained break below the 1.8820 10-day SMA/23.6 fibo (of Jan - Feb bull wave) is needed to confirm the key reversal day and open the way for a more aggressive decline to the 1.8580 former breakout level. A close above the 1.9000 handle clears the way for a test of the 1.9140. While the pair is clearly overbought on most oscillators, momentum remains strong after yesterday’s positive re-cross on the daily stochastics. Above the 1.9000-curved trendline support our bias is to the upside, with break below required to set in any sort of playable weakness.

Short- Term Fundamentals Favor Gains

As long as the dollar downtrend remains intact and sterling fundamentals continue to improve, the outlook for the GBP remains favorable. As we have mentioned before, the market expects another rate hike and the latest retail sales report for the month of January provides further confirmation. With the acceleration in consumer spending, the Bank of England may need to raise rates faster than “gradually.” As long as the Federal Reserve and ECB maintains accommodative monetary policies, the GBP should benefit. However, as soon as either central banks, but more importantly the Federal Reserve gives any hints that they are considering raising rates, the GBP’s medium term uptrend will come under attack. One of the primary reasons why the currencies such as the GBP, AUD and NZD are soaring is because they are the only central banks that have shifted from easing to tightening. Therefore there are three things we need to keep an eye on and that is - US and European monetary policies and dollar weakness. Both come hand in hand, as respite for the dollar will come when the US adopts a tightening bias.

Forex Trading News

2004-02-16T13:56:00.000-05:00

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With the EURUSD approaching its all time highs around 1.29, there has been a lot of speculation as to whether the European Central Bank (ECB) would actually intervene to sell euros against the dollar. The strength of the euro has sparked harsh rhetoric by European exporters who consistently cite dollar weakness as one of the primary reasons for their shortfalls in profitability. Comments from Eurozone officials indicate their distinct discomfort with the “brutal moves” in the euro. The influential head of the German IFO institute Hans-Werner Sinn called for the ECB to intervene in the foreign exchange markets to curb the euro’s rise. Sinn told a German newspaper that “the guardians of the currency could durably lower the (euro's) rate by 10 percent by selling 30 billion euros." However whether or not the ECB will intervene overtly still remains a question.

Previous ECB intervention

Since the launch of the euro on January 1, 1999, the ECB has only intervened four times, all in late 2000. The EURUSD took a downward spiral in the months following the launch of the euro, prompting the ECB to take action in concern “about the national and worldwide effects of the euro’s exchange rate, including its consequences for price stability” (ECB press release 11/03/00). The weakness of the euro has aggravated inflation by increasing import prices. However, the ECB was also struggling to prevent the market from losing confidence in their new “project” (currency). Although the ECB did not release details on the magnitude of their intervention, the Federal Reserve reported having purchased 1.5 billion euros against in the dollar on behalf of the ECB. All bouts of intervention caught the market by surprise. Unfortunately, the success of the ECB’s intervention was short-lived as the euro’s rise from 0.83 to 0.96 reversed course in 2001, prompting the pair to fall back to 0.84 in July 2001. The euro did not resume its rally until post 9-11, at which time falling confidence in the dollar and bleak outlook for the US economy dictated direction for the pair.

Will the ECB intervene again?

However, despite criticism from the corporate sector, the ECB will prefer to use threats and interest rate cuts rather than overt intervention to stem the euro’s rise. ECB Trichet’s warning about the “brutal moves” in the euro prompted the EURUSD to slide from 1.29 to 1.2425. We suspect the ECB’s comfort level with the euro is between 1.25 and 1.28. Although a stronger currency hurts exports and squeezes growth, as long as inflation remains under control, the ECB has the added flexibility of postponing overt intervention. Consumer price inflation in January was 2%, which is right in line with the ECB’s limit. For the previous 5 months, CPI has been above the bank’s 2% limit. A strong euro should put downward pressure on inflation, but the effects have been muted thus far. Furthermore, for intervention to be effective, the market would need to be overextended in some way. IMM positioning in the euro indicates that longs are not at extreme levels. Even though the EURUSD has risen 19% since last year, it is only 8% higher than the level that it was launched at in 1999. A rise in the euro is like tightening monetary policy, so we believe that the ECB is more likely to reduce interest rates before intervening overtly. Inflation is expected to fall below the ECB’s limit if the euro continues to appreciate. However, selling euros in the foreign exchange market would send a significant message to the market, which the ECB may fear undermines the market’s confidence in the euro. Furthermore, ECB intervention without US support would be much less effective. Japan has already expressed consent to helping the ECB intervene if necessary, but the US’ current comfort and satisfaction with the weaker dollar makes it unlikely that they would readily consent to buying dollars for the ECB.

Does Intervention Work? What are the Currency Implications?

The effectiveness of intervention also remains in question, as there has never been a consensus on the effectiveness of sterilized intervention, due to the discrepancies between the methodologies used in empirical studies of intervention. However, according to a report by Fatum and Hutchinson (ECB Foreign Exchange Intervention and the Euro: Institutional Framework, News and Intervention), there is evidence that intervention in the euro affects the exchange rate in the short term. Their findings are generally consistent with a similar pieces published by previous authors in 1993 and 1994. The report quantifies the effect of rumors and firm reports of ECB intervention on the value of the euro. Although the report is based upon intervention in support of the euro, which has been the only type of intervention to date, we will highlight it for benchmarking purposes. The findings indicate that rumors of ECB intervention are associated with an immediate 0.24% move in the euro (approx 30 pips), while firm reports of ECB intervention are associated with an immediate 0.66% move in the euro (approx 85 pips). Overt intervention by the ECB would signal that the euro is no longer a one-way bet, which should prompt a larger short-term move in the trading sessions following the intervention as speculators adjust their positioning. Therefore although the ECB is not likely to intervene below 1.30, if they do, it would certainly have a significant short-term impact on the EURUSD.

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2004-02-12T12:13:00.000-05:00

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EURUSD

The EURUSD took off immediately following the release of Greenspan’s monetary policy report to Congress. In an unusual move, Greenspan talked extensively today about currencies in both his testimony and in the Q&A session. If you recall, at the last Humphrey-Hawkins testimony in July, Greenspan skirted any questioning about the dollar, saying that it was not within his realm of authority to comment on exchange rates. However, today, not only did he comment on currencies, but he went as far as saying that the dollar decline has been “gradual” and has had “no material adverse side effects (that) have been visible in U.S. capital markets.” Furthermore, he said that the weaker dollar is helping to reduce the current account deficit. Greenspan’s comments were less hawkish than the market expected, as he reminded the market that current monetary policy is appropriate and that “with inflation very low and substantial slack in the economy, the Federal Reserve can be patient in removing its current policy accommodation.” Last week’s comments from the Fed’s Bernanke led the market to believe that Greenspan would also be making some positive comments on the outlook for inflation, however, instead, the testimony chose to focus on the continual downward pressures on inflation. His comments effectively eliminate any possibility of a summer rate hike, which forced the market to adjust its expectations accordingly.

USDCHF

On the outlook for the US economy, Greenspan did not disappoint. He said that the economy has made “impressive gains” and that the “picture has brightened” significantly since his last testimony in July 2003. However, with regards to the labor market, he noted that the “progress in creating jobs has been limited.” With the economy losing 2.286 million jobs since President George W. Bush took office in January of 2001, Greenspan faced aggressive questioning with regards to his timing of a widespread recovery in the labor market. In December, the Bush Administration forecasts adding 2.6 million jobs this year and in response to questioning, Greenspan said that the forecast is “probably feasible.” He expects productivity growth to slow, which should help job growth. To date, “stunning” productivity gains has kept job growth limited. When questioned about Asian central bank holdings of foreign treasuries, Greenspan said that foreign selling of treasuries is not a major problem and that the market has “misplaced” concerns. He indicated that Asian central banks typically own treasuries with short dated maturities, which tend to have smaller-scale fluctuations. Greenspan will be repeating his testimony to Senate tomorrow - therefore it will once again be important to keep an eye on the Q&A session.

GBPUSD

The GBP soared as the Bank of England’s latest inflation report pointed to rising inflationary pressures. BoE Governor Mervyn King warned that there are already signs of “higher inflation to come,” and that additional “news” would not be required to necessitate another rate hike. His economic outlook was very optimistic, as the bank forecasted GDP growth to hit 3.6% in the first half of the year and then ease to 3.25% for the remainder of the year. This is an upward revision to the Bank’s November forecast for 2.8% GDP growth for 2004. Further bolstering the GBP was January’s strong unemployment report. The UK unemployment rate fell to a 29 year low of 2.9%, as the number of people claiming unemployment benefits fell by 13,400, which was double market expectations. Today’s data pretty much solidifies another round of tightening this year.

USDJPY

The Bank of Japan is suspected of intervening in USDJPY as the pair ticked down to a low of 105.17 during Greenspan’s testimony. In line with Greenspan’s abundance of comments on currencies today, he also touched on the topic of the JPY during the Q&A session. Greenspan noted that the JPY would rise if the Ministry of Finance abandoned their intervention activities for a short time, however gains in the JPY should only be temporary. Keep an eye on tonight’s current account data - the global economic recovery should provide continual upward pressure on the current account balance, which means that we wouldn’t be surprised to see the current account rise to a record on a seasonally adjusted basis.

Forex Trading

2004-02-12T12:12:00.000-05:00

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EURUSD

The EURUSD took off immediately following the release of Greenspan’s monetary policy report to Congress. In an unusual move, Greenspan talked extensively today about currencies in both his testimony and in the Q&A session. If you recall, at the last Humphrey-Hawkins testimony in July, Greenspan skirted any questioning about the dollar, saying that it was not within his realm of authority to comment on exchange rates. However, today, not only did he comment on currencies, but he went as far as saying that the dollar decline has been “gradual” and has had “no material adverse side effects (that) have been visible in U.S. capital markets.” Furthermore, he said that the weaker dollar is helping to reduce the current account deficit. Greenspan’s comments were less hawkish than the market expected, as he reminded the market that current monetary policy is appropriate and that “with inflation very low and substantial slack in the economy, the Federal Reserve can be patient in removing its current policy accommodation.” Last week’s comments from the Fed’s Bernanke led the market to believe that Greenspan would also be making some positive comments on the outlook for inflation, however, instead, the testimony chose to focus on the continual downward pressures on inflation. His comments effectively eliminate any possibility of a summer rate hike, which forced the market to adjust its expectations accordingly.

USDCHF

On the outlook for the US economy, Greenspan did not disappoint. He said that the economy has made “impressive gains” and that the “picture has brightened” significantly since his last testimony in July 2003. However, with regards to the labor market, he noted that the “progress in creating jobs has been limited.” With the economy losing 2.286 million jobs since President George W. Bush took office in January of 2001, Greenspan faced aggressive questioning with regards to his timing of a widespread recovery in the labor market. In December, the Bush Administration forecasts adding 2.6 million jobs this year and in response to questioning, Greenspan said that the forecast is “probably feasible.” He expects productivity growth to slow, which should help job growth. To date, “stunning” productivity gains has kept job growth limited. When questioned about Asian central bank holdings of foreign treasuries, Greenspan said that foreign selling of treasuries is not a major problem and that the market has “misplaced” concerns. He indicated that Asian central banks typically own treasuries with short dated maturities, which tend to have smaller-scale fluctuations. Greenspan will be repeating his testimony to Senate tomorrow - therefore it will once again be important to keep an eye on the Q&A session.

GBPUSD

The GBP soared as the Bank of England’s latest inflation report pointed to rising inflationary pressures. BoE Governor Mervyn King warned that there are already signs of “higher inflation to come,” and that additional “news” would not be required to necessitate another rate hike. His economic outlook was very optimistic, as the bank forecasted GDP growth to hit 3.6% in the first half of the year and then ease to 3.25% for the remainder of the year. This is an upward revision to the Bank’s November forecast for 2.8% GDP growth for 2004. Further bolstering the GBP was January’s strong unemployment report. The UK unemployment rate fell to a 29 year low of 2.9%, as the number of people claiming unemployment benefits fell by 13,400, which was double market expectations. Today’s data pretty much solidifies another round of tightening this year.

USDJPY

The Bank of Japan is suspected of intervening in USDJPY as the pair ticked down to a low of 105.17 during Greenspan’s testimony. In line with Greenspan’s abundance of comments on currencies today, he also touched on the topic of the JPY during the Q&A session. Greenspan noted that the JPY would rise if the Ministry of Finance abandoned their intervention activities for a short time, however gains in the JPY should only be temporary. Keep an eye on tonight’s current account data - the global economic recovery should provide continual upward pressure on the current account balance, which means that we wouldn’t be surprised to see the current account rise to a record on a seasonally adjusted basis.

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2004-02-09T17:36:00.000-05:00

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EURUSD

The highly anticipated G7 meeting failed to provide any support for the dollar. To Europe’s content, the statement released by the G7 portrayed their concern about the rapid acceleration in the euro. The statement was aimed at calming the markets and clarifying the Dubai communiqué. The European’s hand in crafting the statement was seen in the addition of the sentence “excess volatility and disorderly movements in exchange rates are undesirable for economic growth.” These are the same words that European officials have been repeating since the euro broke above 1.25 and reflect the G7’s concession to acknowledging the abrupt weakness of the dollar. The lack of supporting comments for the dollar has cleared the way for a possible retest of the previous high at 1.2905. Looking ahead, there is an Ecofin council meeting of European finance ministers scheduled for tomorrow. Rumors are filtering through the market today suggesting that rate cuts and intervention will be discussed at tomorrow’s meeting. Austria’s Grasser tried to deny these claims, saying that these are topics that should be addressed by the ECB.

USDCHF

The US’ hand in crafting the G7 statement is also quite evident, as the statement retained the “flexibility” message and does nothing to suggest that the G7 wants to reverse the dollar’s decline. The lack of any restraint for the dollar indicates that the other G7 member countries understand that the dollar correction needs to continue in order to adjust the US external imbalance. The big event risk this week is Greenspan’s semi-annual Humphrey-Hawkins testimony on the economy. His words and responses to the Q&A session has the means to dictate the direction of the dollar in the weeks ahead. Greenspan is expected to express optimism about the prospects for the economy and job creation, but also caution that inflation remains low, therefore the Federal Reserve has the ability to postpone rate hikes. However, should Greenspan echo Bernanke’s recent comments on deflation (that risks have subsided substantially), the dollar may find moderate support. Onto Switzerland, the unemployment rate remained unchanged in January although the actual number of unemployed individuals fell for the third consecutive month.

GBPUSD

The GBPUSD soared to fresh 11-year highs despite generally weaker economic data. Industrial production unexpectedly slipped -0.1% m/m and -0.8% y/y during the month of December. Manufacturing output also fell for the second month on the back of weaker European demand. The pace of the gains in UK property values are also slowing, as the latest house price data from the Office for the Deputy Prime Minister (ODPM) indicate that the yoy rise in house prices has declined from 9.7% to 8.3%. The latest release reflects the satisfactory effects of the Bank of England’s first rate hike in November. If you recall, the Bank of England raised rates by another 25bp last week. However, improvements in the BRC retail sales index did help to offset some of the weaker data. Looking ahead, we are keeping a close eye on Wednesday’s unemployment and inflation report.

USDJPY

USDJPY remained essentially unchanged following the G7 meeting. Japanese government officials were very vocal in defense of their intervention activities both during the meeting and in private discussions with US Treasury Secretary Snow. Although the second new sentence in the G7 statement (“that lack such flexibility”) is aimed at Asia, Japanese Finance Minister Tanigaki repeatedly tried to clarify that the G7 message was not targeted at Japan. He said the Japanese yen has fluctuated just as much as the EUR has since September, therefore “Japan is NOT one of the countries that are lacking flexibility and that was understood at this G7 meeting.” He also added that, “every G7 country agreed that Japan’s currency regime is flexible.” Tanigaki is effectively telling the market that Japan intends to continue intervening in the yen.

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2004-02-09T12:20:00.000-05:00

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Outcome of Boca Raton G7 Meeting

Published Date: February 9, 2004

G7 Clarifies Dubai Message - No Major Shift to Policy

In the G7 - What to Expect article that we released last week, we predicted that there would no major shift in policy at this past weekend’s G7 meeting. Taking a look at the statement released by the G7 finance ministers and central bank governors, we see that G7 officials used the most recent communiqué to clarify the message that they released in Dubai last year.

The following is the communiqué’s paragraph on FX:

“We reaffirm that exchange rates should reflect economic fundamentals. Excess volatility and disorderly movements in exchange rates are undesirable for economic growth. We continue to monitor exchange markets closely and cooperate as appropriate. In this context, we emphasize that more flexibility in exchange rates is desirable for major countries or economic areas that lack such flexibility to promote smooth and widespread adjustments in the international financial system, based on market mechanisms.”

Aside from the two new lines in bold, the statement remains identical to the one released in Dubai and effectively clarifies the Dubai message, reflecting a compromise between the US, Europe and Japan. To Europe and Japan’s content, the first line added was “excess volatility and disorderly movements in exchange rates are undesirable for economic growth.” These are the same words that European officials have been repeating since the euro broke above 1.25 and reflect the G7’s concession to acknowledging the abrupt weakness of the dollar. The second new line (that lack such flexibility) is clearly directed at Asia. Without directly naming names (in particular, China), the G7 is calling for Asian countries to bear an equal burden of the dollar’s slide. Although this line may also appear to be directed at Japan, Japanese Finance Minister Tanigaki clarified the message over the weekend, saying that the G7 message was not targeted at Japan. The Japanese yen has fluctuated just as much as the EUR has since September, therefore “Japan is NOT one of the countries that are lacking flexibility and that was understood at this G7 meeting.” He also added that, “every G7 country agreed that Japan’s currency regime is flexible.” For the US, the statement retained the “flexibility” message and does nothing to suggest that the G7 wants to reverse the dollar’s decline.

Growth

The G7 statement was also very upbeat in terms of global growth. In contrast to the Dubai statement which started with “recent data indicate that a global recovery is underway,” the Boca Raton statement said that “the global economic recovery has strengthened significantly since our meeting in Dubai and risks have diminished.” The individual press conferences given by the G7 finance ministers and central bank governors also reflected this collective optimism. However, the G7 still feels that “much more remains to be done,” which suggests that member countries will be engaging in more pro-growth policies.

Dollar Downtrend Remains Intact

Therefore in no way does this statement change the direction of the dollar or put a floor under the dollar. The G7 wants the market to focus on the pace and distribution of the dollar’s decline - making sure that currency movements do not become excessive and calling for a more pronounced correction in the dollar against the Asian currencies.

The statement also indicates that the Europeans may not be completely uncomfortable with the current direction of the dollar - instead they want time to absorb and adjust to the dollar’s slide and corresponding euro rise. As indicated by recent European and more specifically German economic data, the negative effects of the gains in the euro has been limited thus far. Therefore 1.30/1.35 is still a possibility for the Euro.

Japan also staunchly defended their intervention policy at G7, arguing that the JPY has already shouldered a major part of the dollar correction. The statement contains no limitations or harsh words for Japan - which means that the Japanese will continue to cap gains in the JPY. Therefore although we believe that the long term USDJPY downtrend should remain intact as fundamentals prevail, in the short term, we expect to see repeated attempts by the Ministry of Finance to send USDJPY higher.

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2004-02-09T12:03:00.000-05:00

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Technical Outlook
EUR/USD’s close on Friday above triangle trendline resistance at 1.2640 turns the technical picture emphatically bullish and favors an imminent resumption of the primary bull trend. Oscillators further bolster the bullish picture following Friday’s positive cross on the MACD. The 1/23 1.2779 swing becomes the next major level of resistance, with a break above required to negate the bearish implications of the weekly bearish engulfing and prolong upside momentum. An interesting trading day in USD/JPY on Friday as the pair underwent a clear short squeeze on a move through the 10 and 20-day SMAs. The failure slightly below the 50-day SMA and tail reversal close below the open on the daily however highlights a clear lack of resolve among bulls and favors an eventual test of the psychologically important 105.00 handle. Despite this overwhelmingly bearish technical picture, we still require a sustained break below 105.00 to confirm the start of another meaningful leg lower. Similar story in Cable as in EUR/USD after Friday’s close above 1.8430 trendline resistance. A break above the 1/23 1.8526 high is needed to negate the weekly bearish pattern and put focus back on the 1.8581 decade high. The pair remains vulnerable to a typical breakout-retracement scenario in the near-term but as long as support at former trendline resistance holds the outlook remains strongly in Sterling’s favor. A break below trendline support and a negative MACD cross in USD/CHF sets up a potential bear flag breakdown on the daily. Our key downside pivot remains the 1.2472 swing low, with a break below required to open the way for a renewed assault on the 1.2277 multi-year low. Allow for some corrective price action intraday, but below the 1.2400 handle bears remain firmly in control.

Chart of the Day - USD/CAD
On 01/19 USDCAD had a high at 3050 (above our 2950/2990 zone). A small retracement then occurred from the high and ended on the 2852 low on 01/20, 198 pts lower. The buck kept its momentum before breaking the 3000/3100 level on 01/23, S was found on the same area a couple of days later (low at 3037 on 01/27) before finally failing on 3440 (slightly below 3460/3500 zone), 588pts higher. Today the outlook is neutral as we remain in a healthy ST uptrend while we test major R. In fact, 3460/3500 is still a perfect entry for reversal players thanks to a robust Fibo confluence (50% Fibo from the Jul - Jan bear wave & 50% Fibo from the 03 - 04 bear wave) and the current Swing high. After a sustained break above 3500, the area will become S and 3700 will be the next target. On the bullish side, aggressive players will step up the 3150/3180 zone thanks to the 20 EMA and 38.2% Fibo from the Jan - Feb bull wave. Conservative range player types will wait for the 1.2600/40 zone to exploit the swing low and Lower BB. A breakout there would put 2400 and 2120/80 into play.

Euro USD News

2004-02-06T15:50:00.000-05:00

Technical Outlook
EUR/USD’s failure yesterday at triangle trendline resistance favors continued range contraction. Intermediate-term outlook remains neutral within the triangle but above the 38.2% Fibo from the Nov - Jan bull wave we favor an eventual resumption of the long-term bull trend. Sustained break above 1.2650 short-term trendline required to trigger any sort of upside momentum. Intraday we favor the downside after yesterday’s inability to hold above the 20-day SMA. USD/JPY’s failure to develop downside momentum on the break of the 105.50 fib level makes the pair extremely susceptible to a short squeeze. Oscillator divergences and a positive cross on the slow stochastic further support the bull side and a potential upside run. 106.30 moving average resistance remains key, with a sustained break above required to trigger any sort of significant move higher. While the longer-term picture remains overwhelmingly bearish, we now require a break below the 105.00 handle to confirm a true resumption of the downtrend. More lackluster trade in USD/CHF as the pair remains confined to the triangle consolidation on the daily. We are still unclear whether the consolidation is a precursor to one last gasp higher or the calm before a resumption of the long-term downtrend. Below the 50-day EMA we favor the latter. Yesterday’s false break below the 20-day SMA and a hammer on the daily biases the upside intraday.

Euro USD Report

2004-02-05T12:08:00.000-05:00

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Technical Outlook
Further range contraction in EUR/USD yesterday as the pair was held to a mere 75-pip intraday range. Additional contraction in volatility is anticipated as the pair nears the apex of the 3-week triangle. Intermediate outlook remains neutral as long as the pair stays confined to the 1.2700 - 1.2300 area. Above the the convergence of the 38.2% Fibo from the Nov - Jan bull wave/50-day EMA however ST technicals slightly favor an upside break scenario. Our upside pivot remains the 20-day SMA, with a break above exposing the more significant 1.2779 1/23 high. No change in our take on USD/JPY. Two consecutive closes below the 105.50 fib zone continue to favor a grind lower and eventual test of the 105.00 psychological support area. Risk/reward on the downside is quite poor, however, as a clear lack of downside momentum makes the pair quite vulnerable to a classic short squeeze should sellers capitulate. Bulls would need to muster a move back above 106.30, however, to trigger anything significant. Rather dull price action in GBP/USD as the pair continues to consolidate within the daily triangle. Intermediate-term bias remains neutral until the stalemate is resolved. Short-term technicals slightly favor the upside after two consecutive closes above the 20-day SMA. Reaction at the upper triangle trendline (around 1.8450) is key in determining if the pair is set to break out to the upside or merely resume the consolidation. USD/CHF continues to consolidate around the 10-day SMA. Daily charts remain flat with no real directional bias favored until either resistance at the 50-day EMA or support at the 20-day SMA are cleared. If forced to take a side, we slightly favor the downside as multiple failures at the 50-day EMA indicate a potential conclusion to the current corrective phase.

Forex News

2004-02-05T12:06:00.000-05:00

Forex News

Bank of England Rate Decision (12:00 GMT) (4.00%, 25 basis-point hike expected)

Expectations are for the MPC to raise rates by 25 basis points on Thursday. Solid December retail sales numbers and sustained growth in housing prices suggest that the November hike had little effect in slowing the economy. With Q4 GDP coming in at 0.9% for the quarter and both manufacturing and service sector activity growing at a healthy pace, the MPC will likely maintain its tightening bias, as markets look ahead to the next rate increase. Given that the MPC hikes rates, GBP/USD should get a lift in the wake of the announcement.

European Central Bank Rate Decision (12:45 GMT) (2.00%, no change expected)

Given the recent pullback in EUR/USD, the ECB will likely keep rates on hold at 2.00% following its Council meeting. While some Euro area policymakers have called for a rate cut to stem the euro’s rise, an easing on the eve of the G7 meeting this weekend would surely come as a surprise to the market.

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2004-02-04T16:33:00.002-05:00

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EURUSD

Very quiet trading in the EURUSD today as Eurozone service sector PMI reports reflected acceleration in the pace of recovery for most of the region. The overall index for the Eurozone increased from 56.6 in December to 57.3 in January. The bulk of these gains were in the new business and expectations components. Italy was the primary laggard, with declines in all components aside from input prices. Although the PMI reports for Germany, France and Italy are all in expansionary territory (above the 50-mark), employment growth remains weak across the board, indicating that the strength in the euro may be denting business confidence. The ECB is scheduled to announce their monetary policy decision tomorrow - they are expected to leave rates unchanged. Nevertheless, the dollar continues to come under moderate pressure ahead of the G7 meeting, which begins this Friday. Today’s price action indicates that the market is readjusting positions after the recent comments from US government officials suggesting that the G7 will fail to provide any support for the dollar.

USDCHF

The dollar failed to recoup yesteday’s losses despite the sharp surge in service sector activity. The non-manufacturing ISM (Institute of Supply Management) index soared to a record high of 65.7 in January since the inception in 1997. This is the tenth consecutive month that the index has been in expansionary territory. US factory orders rose 1.1% in the month of December, while inventories remained unchanged, after falling 0.1% in November. Should this trend continue, companies would need to start restocking their inventories. Today’s data confirms that despite the weakness in the dollar, the US recovery is clearly underway. The manufacturing sector is also rebounding healthily, as suggested by Monday’s strong manufacturing ISM report.

GBPUSD

The Bank of England is expected to tighten monetary policy tomorrow by raising the repo rate from 3.75% to 4.00%. Since the last MPC meeting in January, economic data has only supported the need for another rate hike after the first round of tightening last November. According to the minutes from the January 7/8 MPC meeting, the Bank of England voted 8:1 to keep rates on hold. Although the market expected at least 2 members to vote in favor of a rate hike, the minutes were still quite hawkish and supported the argument for a move in February. GDP and retail sales both surprised on the upside, while gains were seen in the prices paid component of the PMI index and the HBOS house price index. According to Bloomberg, all economists surveyed expect a rate hike tomorrow. Furthermore, yesterday’s comments by the Treasury’s chief economic adviser Ed Balls pretty much solidify a rate hike. According to Balls, “: "There is now a consensus . . . that a forward-looking and pre-emptive approach to monetary policy, backed by a sound fiscal policy, is the best way to lock in stability."

USDJPY

The Japanese Yen fluctuated within a 38-pip range against the dollar today. There are reports that the Bank of Japan is estimated to have spent ¥1 trillion to ¥1.5 trillion this week on intervention. Going into the G7 meeting, action speaks louder than words when it comes to the Japanese. The recent behaviors by the Bank of Japan and the Ministry of Finance indicates that the Japanese has hardened their stance going into G7 and have no plans on wavering from their commitment of capping JPY strength. Aside from suspected bouts of repeated intervention in the days leading up to G7 (and record intervention in January), the Bank of Japan unexpectedly eased monetary policy in late January by increasing the target level of cash in the financial system from 27-32 trillion yen to 30-35 trillion yen. Japan is clearly committed to stimulating their economy and ensuring that their current pace of recovery and growth can be sustained. Therefore it is doubtful that they would consent to a statement that would undermine their ability to continue intervening.

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2004-02-04T16:33:00.001-05:00

Forex Trading

2004-02-04T16:33:00.000-05:00

Forex Trading

EURUSD

Very quiet trading in the EURUSD today as Eurozone service sector PMI reports reflected acceleration in the pace of recovery for most of the region. The overall index for the Eurozone increased from 56.6 in December to 57.3 in January. The bulk of these gains were in the new business and expectations components. Italy was the primary laggard, with declines in all components aside from input prices. Although the PMI reports for Germany, France and Italy are all in expansionary territory (above the 50-mark), employment growth remains weak across the board, indicating that the strength in the euro may be denting business confidence. The ECB is scheduled to announce their monetary policy decision tomorrow - they are expected to leave rates unchanged. Nevertheless, the dollar continues to come under moderate pressure ahead of the G7 meeting, which begins this Friday. Today’s price action indicates that the market is readjusting positions after the recent comments from US government officials suggesting that the G7 will fail to provide any support for the dollar.

USDCHF

The dollar failed to recoup yesteday’s losses despite the sharp surge in service sector activity. The non-manufacturing ISM (Institute of Supply Management) index soared to a record high of 65.7 in January since the inception in 1997. This is the tenth consecutive month that the index has been in expansionary territory. US factory orders rose 1.1% in the month of December, while inventories remained unchanged, after falling 0.1% in November. Should this trend continue, companies would need to start restocking their inventories. Today’s data confirms that despite the weakness in the dollar, the US recovery is clearly underway. The manufacturing sector is also rebounding healthily, as suggested by Monday’s strong manufacturing ISM report.

GBPUSD

The Bank of England is expected to tighten monetary policy tomorrow by raising the repo rate from 3.75% to 4.00%. Since the last MPC meeting in January, economic data has only supported the need for another rate hike after the first round of tightening last November. According to the minutes from the January 7/8 MPC meeting, the Bank of England voted 8:1 to keep rates on hold. Although the market expected at least 2 members to vote in favor of a rate hike, the minutes were still quite hawkish and supported the argument for a move in February. GDP and retail sales both surprised on the upside, while gains were seen in the prices paid component of the PMI index and the HBOS house price index. According to Bloomberg, all economists surveyed expect a rate hike tomorrow. Furthermore, yesterday’s comments by the Treasury’s chief economic adviser Ed Balls pretty much solidify a rate hike. According to Balls, “: "There is now a consensus . . . that a forward-looking and pre-emptive approach to monetary policy, backed by a sound fiscal policy, is the best way to lock in stability."

USDJPY

The Japanese Yen fluctuated within a 38-pip range against the dollar today. There are reports that the Bank of Japan is estimated to have spent ¥1 trillion to ¥1.5 trillion this week on intervention. Going into the G7 meeting, action speaks louder than words when it comes to the Japanese. The recent behaviors by the Bank of Japan and the Ministry of Finance indicates that the Japanese has hardened their stance going into G7 and have no plans on wavering from their commitment of capping JPY strength. Aside from suspected bouts of repeated intervention in the days leading up to G7 (and record intervention in January), the Bank of Japan unexpectedly eased monetary policy in late January by increasing the target level of cash in the financial system from 27-32 trillion yen to 30-35 trillion yen. Japan is clearly committed to stimulating their economy and ensuring that their current pace of recovery and growth can be sustained. Therefore it is doubtful that they would consent to a statement that would undermine their ability to continue intervening.

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2004-02-03T16:59:00.000-05:00

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Triple threats to dollar

Strong gains in UK CBI survey

Suspected intervention by Bank of Japan days before G7

EURUSD

In less than 24 hours, sentiment in the US dollar has shifted significantly. This dramatic change comes on the heels of a few breaking news/developments. The most notable and probably the biggest near term threat to the dollar is the discovery of the deadly toxin Ricin in the offices of Senate Majority Leader Bill Frist. After months of relative calmness, this discovery rekindled worries about the possibility of new terrorist attacks. The second important development relates to a twist to the G7 meeting. As we have previously discussed, the market originally believed that the dollar and the US deficits would be the major topic of discussion this weekend. However, last night’s comments from US Treasury official Taylor suggests otherwise. Taylor indicated that world growth will be the major topic of discussion, instead of currencies. To the disappointment of many, Japan’s former MoF official Sakakibara and US Treasury official Clariba also hinted that there is little chance the G7 will issue a statement reflecting a collective agreement to take active measures to halt the dollar’s decline. The dollar remains the focus and will dictate the movements in the euro for the remainder of the week. Eurozone unemployment remained unchanged at 8.8%, while PPI fell 0.1% m/m.

USDCHF

Aside from the Ricin discovery and G7 twist, the market was also very discouraged by the record $177billion Q1 borrowing requirement announced by the US. The twin deficits are a grave concern especially following yesterday’s White House budget forecasts. In today’s much anticipated speech by US Treasury Secretary Snow, he said that he intends to “take flexibility message to all countries.” With today’s words, he has clarified the US’ stance going into the G7. This is not the first time that flexibility has been emphasized. It suggests that the US is fully comfortable with the adjustment in the dollar and has no intentions of taking measures to reverse its current course - therefore expect to see the word flexibility appear again in this weekend’s G7 statement. Meanwhile, Switzerland posted its eleventh consecutive trade surplus in December. However, the surplus narrowed to 163.6 million francs from 1.12billion in November. Imports surged 15% yoy, suggesting a pickup in domestic growth.

GBPUSD

The GBPUSD ripped higher today on dollar weakness and a strong retail sales report. A survey by the Confederation of British Industry reported that heavy discounting helped to boost retail sales. Today’s report coupled with yesterday’s sharp surge in the prices paid component of the purchasing managers index puts significant pressure on the Bank of England to raise rates to 4% on Thursday. Although the BoE has suggested that any further tightening of monetary policy will be gradual and involve small to tighten monetary policy.

USDJPY

USDJPY continues to grind lower following comments from US Treasury official Taylor and former MoF official Sakakibara. Aside from the comments related to global growth, Taylor also recognized that Japan’s economy is vulnerable to currency swings, implying that the US may not criticize Japan for their intervention activities. If this is truly the case and the Japanese government knew about this beforehand, then it would provide a perfect explanation for Japan’s decision to ease monetary policy and intervene days before the G7 finance ministers meeting. Clearly Japan is not worried about undergoing verbal attack for their recent activities this weekend. Top MoF officials have even gone as far as saying that the G7 shares the same view on foreign exchange. Last night, the Bank of Japan is suspected of intervening once again, sending USDJPY soaring approximately 40-50 pips in a matter of minutes. The BoJ is expected to leave monetary policy unchanged on Thursday.

Daily FX

2004-02-03T16:58:00.000-05:00

Latest Forex News

Technical Outlook
Little of note in EUR/USD trade as the pair remains wedged between two key moving averages (50-day EMA & 20-day SMA) in the 1.2375 - 1.2584 area. Given the lack of meaningful price action, intermediate-term technicals continue to support a position on the sidelines until the consolidation is more clearly resolved. From a shorter term perspective we slightly favor the upside as Friday’s failed attempt to breach the 50-day EMA support zone and yesterday’s positive cross on the daily stochastic give scope to a test of the upside of the channel. Short-term resistance comes into play at the 1.2584 20-day SMA and the 1.2700 ST trendline with a break above the latter required to open the way for an assault on the more significant 1.2779 1/23 high. USD/JPY continues to grind lower. Yesterday’s clear breach of the 105.50 fib zone (61.8% fibo of the ’95-’98 bull wave) hurts the bulls’ case and sets up a potential descending triangle on the daily. Extreme caution is warranted however as the pair approaches the psychologically significant 105.00 level. GBP/USD continues to consolidate within the daily triangle. In the intermediate term, our bias remains neutral until the range is resolved. Last week’s 1.8018 low remains our key short-term downside pivot, with a break below required to trigger more meaningful downside momentum and a test of the 1.7824 fib level below. Formidable upside resistance is seen at least week’s 1.8384 high with a break above exposing the more significant 1.8526 1/23 intermediate top. USD/CHF remains in consolidation mode. Lack of meaningful price action favors prudence until either resistance at the 50-day EMA or support at the 20-day SMA are cleared. For today, we prefer the downside as yesterday’s failure at the 50-day EMA and a negative cross on the daily stochs point to a test of the 10-day SMA.

Chart of the Day - EUR/JPY
EURJPY did not confirm the break below 136.00 (no multi lows above the level) and had a sharp correction ensued from 01/12 on. Two days ago the cross stopped its fall on the 30.76 Low. The ST outlook is bearish but the MT picture remains healthy since we are still above key S. 30.50/80 will in fact be a decent entry for bulls thanks to the 100 SMA, lower BB and 50% Fibo from the Nov - Jan bull wave. If the area breaks, 129 will become a perfect entry on bounces for the less aggressive bears. Aggressive bears will also not miss the 3460/90 area (the 50% Fibo from the Jan bear wave and ST Trend R). Above, the level to watch is 38.50/390, the robust 50% Fibo from the 92 - 00 bear wave.

Daily Forex News

2004-02-02T13:52:00.000-05:00

[b]*USD/CHF Fails off 50-day EMA

*USD/JPY Multiple inside days point to coming expansion in volatility[b]

Technical Outlook
More violent intraday price action in EUR/USD on Friday as the pair tested and failed to break important support at the 1.2365 50-day EMA. Given the pair’s recent propensity for range trade, we prefer to stay on the sidelines until more significant levels are broken. Last week’s 1.2675 high becomes our key upside pivot while the 50-day EMA needs to fail on the downside in order to confirm the bearish daily descending triangle/1-2-3 reversal. Friday’s failure off the 50-day SMA favors the upside intraday, especially should 10-day SMA resistance give way. USD/JPY trade remains lackluster. Multiple inside days on the daily favor an explosive move in coming sessions as volatility reverts back to the mean. From a directional standpoint, we still slightly favor the upside as momentum divergences and multiple failures to breach the 105.50 long-term fib zone (61.8% retracement of the ’95-’98 bull wave) give scope to a catchable upside squeeze. A daily close below 105.50 however would negate potential reversal signs and set up a downside test of important psychological support at 105.00. More range contraction in GBP/USD as the pair settles into a broad symmetrical triangle on the daily. Given such clear consolidation in the intermediate term our bias remains neutral until more significant levels are violated. Last week’s 1.8018 low remains our key short-term downside pivot with a break lower required to trigger more meaningful downside momentum and a test of the 1.7824 fib level below. Formidable upside resistance seen at least week’s 1.8384 high with a break above exposing the more significant 1.8526 1/23 intermediate top. USD/CHF continues to struggle with resistance at the 50-day EMA. Break above moving average resistance and the 1.2730 swing high further above required to trigger the ascending triangle on the daily and prolong bullish momentum. For today, risk remains skewed lower following Friday’s failure, though bears will need to pierce support at the 1.2440 20-day SMA for anything significant to develop on the downside.

Chart of the Day - EUR/CAD
On 01/14 EURCAD had a low at 6133 before a small rally to the 6393 High the same day, 260pts higher. A false break then ensued to the 6060 Low (no confirmation of the breakout with lower lows) before a subsequent rally to the 6705 High on 01/23 (slightly above our 6660/6690 area). The cross then failed on the level to reach the 6322 Low on 01/27, 383pts lower. The same scenario has played itself out over the few past days with a High at 6702 on 01/28 and a low at 6446, 256 pts lower on 01/30. Today the outlook remains bullish. Aggressive buyers can look to step up in the 6420/40 area thanks to the 20 EMA and 61.8% Fibo from the Dec - Jan bear wave. More conservative bulls will use the 6250/6280 area thanks to the 50 SMA and Fibo confluence (23.6% Fibo from the Sep - Jan bull wave & 76.4% Fibo from the 03 bear wave). Even though the area may have lost som validity; 6700/6750 will still attract some bears thanks to the swing High and upper BB. A breakout would turn the area into S and target 6870 and 7100. The outlook would become bearish if 6200/6250 is broken with conviction (multi-closes). Retracements into the area would then become good risk rewards entries for the bears. 5900 and 5500 would be targets on the downside.

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2004-01-30T14:41:00.000-05:00

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Technical Commentary

· USD/CHF Breaks 50-day SMA
· USD/JPY Inside day

Technical Outlook
No real change in our USD/JPY view after yesterday’s inside day. Nearness to the 105.50 long-term fibo (61.8% fibo of the ’98 - ‘01 bull wave) and several oscillator divergences continue to favor the upside and a short squeeze on a break above moving average resistance in the 106.40 area. The 107.50 50-day SMA will need to get taken out however, to get excited about any real catchable contra-move. In such downtrends you can never really rule out one more leg lower but, the downside seems limited in the short-term as important psychological support awaits at 105.00. GBP/USD continues to lack real direction. A second close below the 10/20-day SMA and daily stochs continues to favor downside probes especially below 1.8250. Tuesday’s 1.8018 swing low remains the key short-term downside pivot with a break lower needed to trigger downside momentum and a test of the more significant 1.7824 fib level below. The upside only comes back into vogue on a sustained break above the 1/23 high at 1.8526. USD/CHF broke above the 50-day SMA yesterday before running into stiff resistance at the 50-day EMA, 40-pips above. While this price action is definitely bullish, the pair is far from being in the clear, as a break above the 1/19 1.2730 high is required to clear remaining overhead supply. Another clear failure off the 50-day EMA could obviously spark a sharp downside move though, the 20-day SMA support zone would need to give for the more significant support at 1.2270 to come under pressure. (For EUR/USD analysis, please refer to “Chart of the Day”)

Chart of the Day - EUR/USD
After our comment the single currency stayed faithful to its uptrend but failed short of our 1.30 target with a High at 1.2901 on 01/12. Shortly thereafter, the pair had a sharp correction to the 2334 Low, 567pts lower (slightly below our 2370/2400 area). Today the outlook is effectively neutral until key R (1.2779) or S (1.2334) are broken with conviction. 2250/2300 could be a decent entry for range players/dip buyers thanks to the lower BB and fibo price cluster (150% Fibo projection from the 99 - 01 bear wave & 38.2% Fibo from the Nov - Jan bull wave & 23.6% Fibo from the Sep - Jan bull wave). Further above, 2950/3000 will be the obvious entry for bears thanks to the 38.2% Fibo from the 76 - 85 bear wave and the upper BB. A breakout above this zone would turn the R area into S and should open the way to 3400. Slightly below, aggressive bears might try the 2700/20 level thanks to a robust Fibo confluence (61.8% Fibo from the 92 - 01 bear wave & 76.4% Fibo from the 95 - 01 bear wave). Outside these boundaries, 1850/1900 will be the key zone to watch for the bulls since it is the former breakout level now S and 23.6% Fibo from the 02 - 04 bull wave.

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2004-01-29T16:47:00.000-05:00

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EURUSD

The EURUSD continued yesterday’s slide as the market debates the meaning behind the Fed’s changes to its monetary policy statement. Today’s FOMC minutes from the December 9th monetary policy meeting provided additional insight into the Fed’s policy stance. The minutes indicate that the exclusion of the “considerable period” phrase was already in discussion back in December, but the Fed chose to retain the phrase as it “accurately conveyed the committee’s policy intentions.” Also, with low inflation, the members saw “considerable risk in taking preemptive action that could prove to be unneeded against potential inflation, with associated costs to economic performance.” The inflation landscape has not changed significantly since December, which provides little reason for the Fed to raise rates. Despite the Fed’s change in rhetoric, many economists have not shifted forward their rate hike expectations. Although yesterday’s FOMC statement is certainly a step towards an eventual rate hike, we see it more as an attempt by the Fed to get out of the rhetorical corner that they have backed themselves into. Once the dust settles, the market will realize that for the time being, the forces that weighed on the dollar throughout 2003 still exist. Meanwhile, criticism from the French government on the rapid moves in euro contributed to today’s move.

USDCHF

In an interview in Zurich, SNB President Roth expressed satisfaction with the Swiss franc’s correction against the euro throughout 2003 and frustration with dollar weakness. Although Europe is Switzerland’s primary trade partner, many industries in Switzerland are dollar dependent. According to Roth, economic growth is expected to accelerate by at least 1.5% in 2004. As suggested by yesterday’s stronger KoF leading indicators release, the Swiss economy is finally rising from its longest recession in over a decade. With regards to US data, jobless claims were pretty much in line with expectations. However, according to the employment cost index, which rose 0.7% in the fourth quarter, benefit costs rose faster than wage growth. This implies that employers are most likely offsetting higher costs of benefits (such as health insurance) by keeping wages low. Keep an eye out for tomorrow’s Q4 GDP report - any upside surprises could prompt renewed strength in USDCHF.

GBPUSD

According to the latest Gfk consumer confidence report, consumers are more optimistic about the economic outlook than they have been in over a year. This month’s data is particularly important since it is the first time in over 12 months that the index moved out of negative territory. Strong GDP growth coupled with rising confidence provides another argument for a near term rate hike by the Bank of England. Meanwhile, today’s Nationwide House price report continues to signal a steadily slowing housing market. BoE policy maker Tucker made some unsurprising, but nevertheless important comments today - he indicated that spare capacity needs to fall before the BoE can hike rates and when they do hike rates, the moves will be gradual. Furthermore, he noted that the change of the inflation target has no impact on their policy and that house-price growth should slow over the next 12 months.

USDJPY

Despite the fall in industrial production during the month of December, strong export demand helped to prompt a sharp rise in industrial output. The decline was generally expected after a series of strong growth in the past few months. Therefore the significance of this report should be discounted, as the global recovery and robust Asian demand will help to boost industrial output and production in the months ahead. The Shoko Chukin small business confidence index fell to 48.7 from 49.1 in December. Meanwhile, BoJ officials opted for verbal intervention today, reiterating their dissatisfaction with rapid movements in the yen and warning that they are ready to act if necessary. This prompted uninteresting trading in USDJPY, which range traded throughout the US session. Tomorrow’s MoF intervention data has the power to prompt a larger move in USDJPY.

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2004-01-29T12:05:00.000-05:00

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Technical Outlook
Very volatile intraday price action in EUR/USD as the pair undergoes clear range contraction on the daily. Our outlook remains effectively neutral until either the 1.2360/75 50-day SMA/EMA lower Bollinger convergence is taken out on the downside or the 1.2779 1/23 high on the upside. Intraday risk is skewed lower following yesterday’s dark cloud cover close back below the 10 & 20-day SMAs. USD/JPY continues to consolidate above long-term fib support in the 105.50 area. Proximity to such a significant long-term support and several oscillator divergences favor some sort of upside squeeze, though the 107.50 50-day SMA needs to get broken to get excited about any real catchable contra-moves. We cannot rule out one more leg lower on a clear break below fib support but the downside seems limited in the short-term as important psychological support awaits at 105.00. Range contraction is the name of the game in GBP/USD. Expect wild intra-day swings that really go nowhere until more important barriers are breached. Yesterday’s close back below the 10 & 20-day SMAs negates much of the previous day’s bullish price action and biases the downside, if only slightly. Tuesday’s 1.8018 swing low remains our key short-term downside pivot with a break lower required to expose the more significant 1.7824 support below. Upside only comes back into vogue on a sustained break above the 1.8526 1/23 high. USD/CHF also continues to lack direction. Irregular moves intraday have made for a very difficult trading environment and as such we prefer the sidelines until more important technical levels are breached. Our key upside level to watch remains the 50-day SMA/EMA upper Bollinger convergence zone with a break/close higher required to confirm the start of a viable contra-move. Downside remains less favorable following yesterday’s sharp bounce off the 20-day SMA and a break of yesterday’s 1.2475 low is now required to expose a re-test of the more significant 1.2270 area.

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2004-01-29T12:04:00.000-05:00

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· USDCAD breaks trendline resistance

Today’s 200-pip move in USDCAD prompted the pair to break above multiple important resistance levels. The first level of resistance was 1.3170, which was where the 100-day SMA and key 1-year trendline resistance converged. The second level that was broken was 1.3200, which corresponds with channel resistance. Key trendlines were broken in both the daily and weekly charts. The near term bottom at 1.2690/1.2700 remains intact, suggesting short-term upside potential. A close below the 10/50 day SMA cross would be needed to negate our upside bias.

· Risk of More Easing by Bank of Canada

On January 20, 2004, the Bank of Canada reduced its benchmark interest by 25bp to 2.50%. This is the third cut that the Bank of Canada has made since last year and sets them apart from the neutral to hiking biases of most of the other major central banks. In a statement by the BoC, they expressed concern that the rapid rise in the currency is hurting exporters, while encouraging consumer demand for imports. Since 2003, the Canadian dollar has appreciated over 20% against the US dollar. Given that the US is Canada’s largest trade partner, the fall in exports is a primary concern. Between September to October of last year, Canada’s trade surplus declined by 28%. Furthermore, despite the strength of the labor market, “recent indicators of domestic demand have been somewhat weaker than projected.” As a result, the BoC has chosen to curb the appreciation of the CAD and stimulate consumer spending by reducing rates. With core and total inflation trends expected below the target 2% level for this year and next, the Bank has ample room to lower rates without sparking inflationary fears.

· FOMC Statements Becoming Increasingly Optimistic

On January 28, 2004, in a universally expected move the Federal Reserve left interest rates unchanged at 1.00%. The FOMC managed to surprise the markets however in its accompanying statement, removing the phrase “considerable period” from its description of how long monetary policy will remain easy. In its place, the Committee asserted that “it can be patient in removing its policy accommodation.” The elimination of this phrase highlights the Fed’s increasingly optimistic outlook. As a result, expectations of tightening have been abruptly moved up, with markets now expecting a rate hike as early as June. In their last statement (December 9th), the Fed painted a much more positive picture of the economy, noting that output is growing "briskly. Additionally, the Committee observed that the labor market has "modestly" improved. Accordingly, the Committee shifted its policy bias slightly in December, nothing that the risk of deflation has lessened and is "almost equal" to the risk of inflation.

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2004-01-28T17:18:00.000-05:00

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· Fed omits “considerable period” line from statement
· RBNZ raises rate by 25bp to 5.25%
· Japan intervenes without success

EURUSD
The EURUSD plunged over 150 pips following the Fed’s omission of the line “considerable period” from today’s FOMC statement. The only change made to the statement aside from the omission is the Fed’s acknowledgement of subdued hiring conditions. Although the statement is certainly positive for the dollar and prompts speculation of an earlier than expected rate hike, we caution the market from being overly optimistic. Inflation still remains low, there is excess slack in the economy, and the government will most likely continue to favor a weaker dollar ahead of the November elections. This means that for the time being or at least until the second half, the Fed should continue to opt for a more accommodative monetary policy by keeping rates at 1%. As suggested by Fed Chairman Alan Greenspan back in October, the Fed realized that they backed themselves into a rhetorical corner when they added the “considerable period” line to their August statement. If you recall, in the minutes from the September 16th monetary policy meeting, the Fed admitted that it is not prudent to ”commit itself to a particular policy stance over some pre-established, extended time frame. The course of policy would be determined by the evaluation of the outlook, not the passage of time.'' Therefore it is inevitable that the Fed would want to get itself out of the trap that they have stepped themselves into - and today, they have done so.

USDCHF
Although the FOMC decision was today’s biggest event risk for the USD, a few other releases also moved the USD earlier this morning. A weaker than expected US durable goods report set USDCHF back 50 pips and prompted a similar knee-jerk reaction in the EURUSD. Durable goods orders for the month of December were flat, while orders in the month of November were revised upwards from -3.1% to
-2.3%. The weaker durable goods report puts to question whether we will see sustained increases in business investment. New home sales increased by 1.06m, slightly below expectations, but there was also an upward revision to November’s data. Tomorrow, we are expecting the minutes from the December 9th FOMC meeting which should provide for some interesting reading, as well as the weekly jobless claims report.

GBPUSD
After skirting two politically disastrous events, Prime Minister Tony Blair is most likely taking a much-needed breather. According to the Hutton report, Prime Minister Tony Blair did not “sex up” the dossier on Iraq’s weapons capabilities. With the passing of these major events, we can now turn our focus back to UK fundamentals. Tomorrow, we are expecting the EU/Gfk consumer confidence report - the firmness of the labor market should help spark recoveries in confidence. Friday’s consumer credit report is particularly important, given the already elevated nature of consumer borrowing.

USDJPY
Today we saw another unsuccessful bout of intervention by the Bank of Japan. To the surprise of many, the Bank of Japan chose to intervene ahead of next week’s G7 finance ministers meeting. The Japanese government is suspected of buying as much as $5 billion in an attempt to remind the market of their presence. What this suggests is that unlike the September G7 meeting, where the focus was on pressuring Asian nations to share an equal burden of the USD depreciation, the Japanese believe that the limelight will shift from Asia onto the US at the upcoming meeting. The Japanese government has already signaled their intentions to criticize the US on their large deficits, indicating that next week will be focused on the failure of the US to take any proactive measures to curb the dollar’s sharp declines. Meanwhile, there was a very interesting comment last night by Japanese Finance Minister Tanigaki - he hinted that the MoF may be considering changing the composition of their reserves, which is currently primarily held in US Treasuries. When pressed for more information, Tanigaki mentioned increasing gold as a reserve asset. Japan currently holds 766 tonnes of gold in reserves, which pales in comparison to 8,134 tonnes held by the US and 3,400 tonnes held by Germany. However, we caution about jumping the gun and buying gold or selling dollars on the back of his comment, as Tanigaki also noted that the Ministry is fully aware of their ability to move the gold market, therefore if they do increase reserves, it would carefully and gradually.

Learn Forex Trading

2004-01-28T12:16:00.000-05:00

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Technical Outlook
A bullish outside day in EUR/USD off short-term trendline support clouds the pair’s technical picture and turns our outlook neutral until more important barriers are breached. Intraday, risk remains skewed to the upside following yesterday’s bullish price action, especially if the pair can muster a move above the 1.2655 “shaven head” high. Unfortunately, from a medium-term point of view, one day is not indicative of a legitimate reversal, and as such, we will need to see the 1.2779 swing high taken out to negate the potential 1-2-3 reversal and get excited about the prospects of a continuation of the still intact long-term uptrend. For bears, a break back below 1.2440 is required to negate yesterday’s engulfing pattern and re-instill downside momentum. USD/JPY finally broke the lower Bollinger support in the 105.75 area to test our medium-term target at the 105.50 long-term fib zone. A reaction at the 105.50 area in the coming sessions will be key in determining if the pair really is set to make another leg lower or if a much anticipated contra-move is coming. Daily oscillators tend to slightly favor the upside as both RSI and stochastics show divergences in oversold territory. A break above 106.70 is required however to initiate any sort of a meaningful squeeze. A daily close below fib support exposes the 105.00 psychological area. Similar story in Cable as in EUR/USD. The piercing line pattern on the daily through the 10 & 20 day SMA resistance zone muddies the bearish 1-2-3 reversal scenario and opens the door to a resumption of a broader uptrend on a break above the 1/23 1.8526 high. The 1-2-3 pattern has yet to be negated however and as such we have to allow for the possibility that yesterday was merely a shakeout of weak hand shorts. For the time being, we prefer the sidelines with 1.8526 as our key upside trigger and 1.8000 as our downside one. USD/CHF’s bearish engulfing failure just shy of the 50-day SMA does not bode well for bulls. A break of yesterday’s 1.2480 low exposes a re-test of the key 1.2270 area. A breach there is required to confirm a resumption of the downtrend. For now, bulls remain on the defensive unless they can muster a move above the 50-day SMA

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2004-01-27T16:46:00.000-05:00

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· Disappointing US consumer confidence numbers
· Blair wins legislative vote on college tuition
· German IFO index soars to 3 year highs

EURUSD

The USD lost its edge today following disappointing US consumer confidence numbers. Although the overall index rose to 96.8 from 91.3 in December, the market had expected the index to rally to 98.5. The biggest gains were seen in the expectations component, while the disappointment came in the current assessment of the labor market. Unexpected gains in the German IFO index (business confidence survey) provided a further boost for the euro. The index soared to 3-year highs, marking the ninth consecutive rise in business sentiment. This suggests that that the businesses have not been significantly affected by the recent gains in the euro. Meanwhile, comments from ECB board member Tumpel-Gugerell added additional fuel to the rally as she clarified the ECB’s stance by saying that a rate cut “is not an issue at the moment.” She added that although “the euro’s appreciation has a dampening effect,” they are “confident that positive forces will predominate.”

USDCHF

The Fed is scheduled to announce their monetary policy decision tomorrow afternoon. As we have previously mentioned, they are expected to leave rates unchanged at 1%. As a result, the market will be fixated on whether the Fed decides to keep the line “considerable period” in the FOMC statement. The consensus is that the line will remain, as the Fed intends to maintain an accommodative policy in light of the excess capacity in the economy. Also look out for any adjustments to their assessment of the economy. In their previous statement, the Fed indicated that the labor market was improving modestly, which contrasts to “stabilizing” nature described in the October statement. Their assessment of deflation will likely remain unchanged, as they view the risk of deflation being “almost equal” to the risk of inflation. Meanwhile politically, John Kerry retains the lead in the Democratic primaries ahead of tonight’s New Hampshire votes.

GBPUSD

Much to the content of Blair’s party, the “top-up” fees on college tuition were approved by a very narrow 316-311 vote. After much heated negotiations, Nick Brown, a leading rebel switched sides to back the prime minister hours before the end of the negotiations. His decision prompted other rebels to follow suit. The actual implications of the “top-up” fees does not directly affect the markets, but if the “top-up” fees were not approved, it would have certainly dealt a significant blow to Blair’s popularity and possibility prompt a confidence vote. With one major event risk out of the way, the next stumbling block for the Prime Minister is tomorrow’s release of the Hutton Inquiry report. This report will include details on an independent investigation into the suicide of weapons inspector David Kelly. The government is suspected of embellishing the dossier on Iraq’s weapons of mass destruction, against the will of intelligence officials ahead of the Iraq war. Blair’s approval ratings have fallen significantly as a result of UK participation in the Iraq war, therefore should the dossier prove that the government exaggerated the claims, we expect Blair’s approval ratings to decline even further.

USDJPY

USDJPY tanked today following comments from Japanese Finance Minister Tanigaki, suggesting that Japan may allow the yen to appreciate ahead of next week’s G7 meeting. His comments also implied that Japan’s intervention activities are aimed at averting “speculative market moves and excessive moves of foreign exchange rates” and is not aimed at maintaining “specific levels of the yen” or guiding “the currency cheaper.” Given that the market had already anticipated the BoJ’s absence this week, today’s comments from Tanigaki provided an additional reason to sell USDJPY. For the remainder of this week, we are expecting Japanese retail trade, industrial production, Tokyo CPI and unemployment. Should we receive further confirmation on the underlying strength of the Japanese economy, there will be a risk of a test of the 105 level in USDJPY.

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2004-01-27T12:50:00.000-05:00

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Canadian Dollar Bank Forecasts

Bearish dollar sentiment coupled with steadily increasing commodity prices helped contribute to a 17.5% appreciation in the Canadian dollar versus the greenback in 2003. Strong domestic demand and rising inflation prompted the Bank to tighten monetary policy in the second quarter, leading real GDP to shrink 0.3% annually over the period. A rising CAD along with some one-time shocks to the economy led to a 50-basis point easing by year’s end. At an annual rate real GDP grew a modest 1.1% in Q3, weaker than projected by the central bank. As accommodative policy gains traction, fourth quarter GDP gains are expected in the 4% range.

Into 2004 consensus estimates project further CAD strength as the weak dollar story unfolds and the Canadian economy improves. Risks to the forecast include the sustainability of the global recovery, the path of commodity prices, and relative shifts in US and Canadian monetary policies.

Current Economic Conditions

Economy poised for a rebound

A series of shocks to the Canadian economy put downward pressure on prices and led to a decrease in economic activity in Q2 and Q3. An isolated case of mad cow disease in May triggered an international ban on Canadian beef, while an August blackout in Ontario reduced economic output in the region. Goods price weakness brought on by a falling dollar and declines in service prices led by a SARS outbreak dampened inflationary pressures. In addition to a sharp Q3 inventory correction, these incidents contributed to two quarters of disappointing growth.

With these shocks behind it however, the Canadian economy is expected to rebound and grow at an above potential rate in Q4, driven in part by a US-led global recovery. Signs of an economic reversal emerged in November when the unemployment rate fell unexpectedly by 0.4%, and employment gains surged by more than 60,000 for the month. These gains were followed up by equally strong improvements in December and January. Coupled with an ending of the Q3 inventory correction phase, renewed vigor in the labor market points to a sustained economic recovery through Q4 and beyond.

Canadian dollar has surged against the greenback
The effect of a stronger Canadian dollar has surfaced in the form of weak export growth and diminished economic activity. As a result, this reduction in growth has contributed to a downwardly revised GDP outlook and a larger output gap than previously forecast. In addition, the strong currency has put downward pressure on inflation, with both core and total measures registering below the Bank of Canada’s 2% target. Given the excess supply in the economy, inflation is likely to remain muted going forward.

On balance, the negative trade balance effects of an appreciating Canadian dollar have more than offset the economic gains brought about by the global economic recovery. In response to these developments, the central bank reduced overnight rates to 2.50% in January in an effort to fuel domestic demand and to counter downward inflation pressures, returning price growth on the path toward a 2% target.

Economic Outlook

Global economic expansion expected to continue into 2004

Like many of the other major currency pairs, USDCAD will be driven in large part by the performance of the US economy. While US growth is expected to register above potential in 2004 and 2005, growing current account and fiscal deficits bring the sustainability of the expansion into question. Mounting expectations for the dollar to correct further in order to adjust its external imbalances will likely drive the greenback lower versus the Canadian dollar medium-term.

Alongside a recovering Europe and an accelerating Asia, economic growth in Canada will derive primarily from an expansion in domestic demand, supported by an accommodative monetary policy. Rising business investment and a robust labor market should lead to rising personal incomes and in turn contribute to increased household spending. The Bank of Canada forecasts real GDP to grow by 2.75% in 2004, rising to 3.75% in 2005. While the excess supply in the economy may not be pared back substantially in 2004, the Bank projects a significant narrowing of the output gap in 2005.

Surging Canadian dollar a threat to growth
Growing worldwide aggregate demand along with increasing commodity prices has translated into a sharply higher Canadian dollar. A strengthening currency however threatens to offset the benefits of global growth, putting downward pressure on export demand in 2004. Given the negative effect on net exports, a Canadian economy backed by a surging currency will likely need to shift its focus on growth away from trade and towards stimulating domestic demand, helped along by rate cuts.

An additional effect of a stronger CAD has been downward pressure on inflation. Into 2004, prices should remain tame, held in check by sizeable slack in the goods and labor markets. The Bank of Canada projects core inflation to dip below 1.5% in 2004. As the output gap disappears towards the second half of 2005, core inflation will likely rise steadily towards the 2% target level.

What Will Drive The USDCAD Trend in 2004?

General USD selling pressures will play a significant role in driving USDCAD lower in 2004. As implicit official US acceptance of a weaker dollar continues, the majors will continue to rally against the dollar. Yet, the bulk of dollar depreciation has likely already taken place, so while on a trade-weighted basis the dollar has further to fall, it should not fall by much. A tightening cycle in the US, possibly occurring near the end of 2004 could signal a reversal in the dollar and a lower USDCAD. Until these interest rate expectations change however, the trend in USDCAD will be lower for the year, as reflected in average bank forecasts.

Aside from US-specific issues, the Canadian dollar should also be driven by the path of commodity prices. Over 2003, CAD moved in lock-step with non-energy commodity prices. Coupled with inflationary fears brought on by continued easy monetary policy in the US, continued demand for base metals from emerging Asia has the potential to drive commodity prices immediately higher in 2004. China’s apparent insatiable demand for minerals, metals and grains could be a significant source of additional CAD gains.

The risk to a lower USDCAD in 2004 rests squarely on the Canadian economy. Should domestic demand fail to react to previously enacted interest rate cuts, a continuation of the Canadian easing cycle could place upward pressure on the currency pair. GDP growth, or lack thereof, into 2004 will provide a key data point regarding future interest rate moves by the Bank of Canada.

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2004-01-27T12:43:00.000-05:00

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Technical Outlook
EUR/USD’s break and close below 1.2565 confirms Friday’s outside day reversal and sets into motion the broader 1-2-3 reversal scenario outlined yesterday. Our next target is the 1.2440 short-term trendline, with a break lower required to prolong downside momentum and put focus on the 1.2334/50 1/19 low/50-day SMA/ lower Bollinger convergence. Below 1.2334 confirms the 1-2-3 pattern and paves the way for an aggressive sell-off down to the 1.2150 fib support zone. A break back above the 20-day SMA is required to negate bearish implications of recent price action and reinforce the uptrend. USD/JPY continues to hold above the Lower Bollinger support zone. The inside day highlights a real lack of conviction in the marketplace. Failure to break 105.75 is obviously frustrating and sets up good potential for a double bottom squeeze if the pair can muster a breach of the 20-day SMA. On the downside, a sustained break of 105.75 sets up a test of the 105.50 long-term fibo. A drop in Cable below the 20-day SMA darkens the technical outlook and favors a downside re-test of the 1.7824 level in coming sessions. Reaction at 1.7824 is key as a break below triggers the daily 1-2-3 reversal and exposes the pair to a steep downside correction. Little hope for bulls below 1.8200 with a break above needed to alleviate downside pressures. USD/CHF remains buoyant. Outside day was confirmed yesterday with a daily close above the 10-day SMA. As in the rest of Europe, we see good scope for a 1-2-3 reversal on a break above the 1/19 1.2730 high. Formidable resistance however awaits the pair in the 1.2620/50 area as it marks a convergence of the upper Bollinger/50-day EMA/SMA. A failure to break above this resistance zone sparked last week’s sharp down move and as such we will watch intently to see if buyers can push through on this go around. We maintain an upside bias as long as the pair holds above moving average support at 1.2400.

Chart of the Day - AUD/JPY
On 12/31 AUDJPY had a low at 79.24 and then rallied to the 01/09 High at 83.77, 453pts higher. Today the outlook is still slightly bullish, but the messy price action from the past weeks and failure to test the swing high give some credence the bearish arguement. A consolidation is to be expected between the key 84/84.50 and 79.30/80 areas (both areas are keys to the upside or downside). 84/84.50 is the MT Trend R and High BB and will attract the contra-trend bearish crowd while 79.30/80 is a strong Fibo confluence (50% Fibo from the Sep - Jan bull wave & 23.6% Fibo from the 02 - 04 bull wave) and will attract dip buyers. Within the range few decent entries are available but aggressive bulls might try to exploit the 81.00/40 zone thanks to a clear Fibo confluence (50% Fibo from the Dec - Jan bull wave & 23.6% Fibo from the Sep - Jan bull wave).

Euro falls back

2004-01-26T08:13:00.000-05:00

Euro Forex Trading

EURUSD

EURUSD continued its downward trend begun during the London morning when the pair came off from a 10-day high of 1.2778. The move accelerated into the US session as EURUSD traded steadily lower to break the 1.2600 level. Sparking this move was a mid-morning release of a Reuters story citing an unnamed European diplomat who suggested that, in a post-G7 statement next week, Euro area Finance Ministers will confirm that ECB monetary policy could ease if there are “external shocks” to the economy. This hint of a significant change in the central bank’s stance sent the dollar sharply higher against the Euro, Sterling and Swiss franc. Curiously the Reuters story comes a day after comments by the ECB’s Wellink that rate cuts would be unable to stem the underlying uptrend in EUR/USD. In Euro-area data released today, German construction orders fell for the first month in three, down 7.5% year-over-year, while November retail sales in Italy were flat. With policymaker comments continuing to drive EUR/USD near-term, next week the market will focus on two speeches by the ECB’s Trichet. Also on tap are important releases of German business climate, French manufacturing, and Eurozone economic sentiment.

USDCHF

USDCHF traded steadily higher during the US session on the back of EURUSD and GBPUSD selling. The pair began the US morning just below 1.2300 and rallied over a hundred pips to 1.2425 by the end of the day. The Reuters story suggesting an ECB monetary ease to counter EUR strength proved to be the catalyst for the USDCHF move higher, overshadowing a potential dollar negative story involving the resignation of US weapons inspector David Kay. In a phone interview today Kay confessed that he does not believe that any stockpiles of chemical and biological weapons exist in Iraq. A speech by the SNB’s Roth next week will likely confirm the central bank’s commitment to a low interest rate environment and a weaker CHF. The release of the December KOF leading indicator on Wednesday should reinforce the notion of a strengthening Swiss economy.

GBPUSD

Strong readings in Q4 GDP and retail sales all but ensure that the Bank of England will move to tighten monetary policy when it meets next month. GDP grew 0.9% at an annual rate, its fastest pace in four years, led by service companies. Retail sales likewise exhibited above expectation growth, rising by 0.9% month-over-month in December. Like USDCHF and EURUSD, news of a potential ECB rate cut in the offing sent cable abruptly lower as it traded down more than two big figures to close at the 1.8260 level. Defending the government’s financial position, Chief Economic Treasury Advisor Ed Balls asserted that finances are not overstretched, even in light of record budget deficits. Next week, political risk could weigh on GBP as the Hutton report detailing the results of the investigation into David Kelly’s death is released, and a key vote in Parliament on a proposal to raise university fees takes place.

USDJPY

USDJPY began the day at fresh lows of 105.74 before rallying to the 106.80 level over the day as the dollar strengthened across the board. The release of the tertiary index showed that demand for services unexpectedly fell by 2.3% in November, its first decline in four months, led by telecoms and retailing. In addition, the all-activity index, a proxy measure for GDP, fell by a more than expected 1.3% in November. Sony Chairman Idei noted at the World Economic Forum in Davos today that he expects yen strength to continue, given that dollar weakness suits the Bush Administration headed into an election year. Data on tap next week include trade, retail sales and unemployment. MoF intervention data should show a record amount of yen selling in January.

EUR/USD

2004-01-23T12:19:00.000-05:00

Daily FX News

EUR/USD continues to push ahead. A close above the 61.8% fibo of the recent correction further supports the bullish technical outlook and opens the door to an eventual test of the 1.2901 all-time high. Our key upside pivot is the last remaining fibo (of the recent correction) at 1.2780, with a break higher exposing the upper Bollinger 100 pips higher. We cannot rule out some backfilling should the pair fail to break to new highs, but only a breach of the 1.2620/30 10/20-day SMA convergence, would increase risk of any sort downside momentum developing. USD/JPY’s close below the 10 and 20-day SMAs yesterday keeps the technical outlook bearish and points to more downside probes in the sessions ahead. That said, extreme caution is warranted below the 106.00 handle as the pair is susceptible to a squeeze near the 105.75 lower Bollinger/multi-year low, or should that break, the 105.50 61.8% fib retracement of the ’95 - ’98 bull wave. Our medium-term view favors an eventual break of the fib zone but the move lower is likely to be a typical “yen-like” grind. Cable’s break above the last remaining fib retracement from last weeks correction favors a re-test of the 1.8581 multi-year high. Momentum oscillators remain constructive, but need to be monitored, as they approach overbought levels once again. Obvious potential for a double top on the daily, but we will wait to see how the pair reacts before concerning ourselves too much with this scenario. USD/CHF’s break of the all-important 10/20-day SMA convergence keeps daily technicals pointing lower. The 1.2370 78.6% fibo of last week’s contra-move is the last real meaningful support before the multi-year low at 1.2135. A break lower is required today to prolong downside momentum. Some risk for backfilling following the large move of the past week but only a break back above the 1.2400 resistance zone will initiate anything meaningful.

Chart od the Day - EUR/GBP
On 01/16 EURGBP had a low at 6867 before a test of the 6954 high a couple of days ago and 87pts higher. Today, the situation barely changed and the cross is still stuck within the 6800/7100 range. We are once again sitting on the key 6900 S area. As a result, range traders will likely get involved at 6830/50 in an attempt to exploit the Lower BB and strong Fib confluence (23.6% Fibo from the Jun - Nov bear wave & 38.2% Fibo from the 95 - 00 bear wave). A break of this area, would turn the 6900 area into a solid R and bears could certainly use it on pullbacks to pick up sterling. The next target and relevant S would then be the 6800 level and the 38.2% Fibo from the 02 - 03 bull wave. Above, the 7100/7140 area still needs watching thanks to the upper BB and 61.8% Fibo from the Jun - Nov bear wave. A sustained move above would then put focus on the 7250 level (50% Fibo from the 95 - 00 bear wave and last May’s swing high).

Forex News and Financial information

2004-01-22T12:13:00.000-05:00

Forex News and Financial information

Forex Trading Analysis

2004-01-22T12:09:00.000-05:00

Forex Trading Analysis

Technical Outlook
EUR/USD’s close above the 10 and 20-day SMAs confirms Tuesday’s expansion range, and favors a continuation of the current up move. The lack of meaningful resistance until the 1.2860 upper Bollinger, could create more explosive gains, but given recent volatility, we feel some retrenching may be needed before moving higher. Intraday we are looking for some choppy trade with yesterday’s 1.2675 a key resistance and the 1.2620/10 10/20-day SMA convergence, a key support. From a slightly longer-term perspective the weekly bearish engulfing pattern is still worrying, though is not really a major concern unless the pair trades back down through 1.2334. A lower low on the USD/JPY daily confirms Tuesday’s shooting star failure off the 50-day EMA and favors a resumption of the down trend. Support at the 20-day SMA is holding correctly and a break lower will be required to ignite catchable downside momentum and put focus back on the 105.50 long-term fibo. We cannot rule out however, one last gasp higher if the support fails to break. Cable continues to push higher following Tuesday’s explosive reversal outside day off the 38.2% fib retracement of the Nov - Jan bull move. Wednesday’s close above the 10-day SMA further strengthens the bullish argument and opens the way for a renewed assault on the 1.8581 multi-year high. As in EUR/USD, the weekly bearish engulfing pattern remains an issue but, is no longer a real worry unless this week’s 1.7824 low somehow gives way. USD/CHF remains bearish but continues to struggle with support at the 10/20-day SMA convergence. A breach of the support zone is required to prolong downside momentum and confirm a resumption of the intermediate-term down trend. Failure to decisively break 1.2400 today could lead to short-covering but only a break back above the 1.2500 handle would negate the bearish implications of the past few days.

Chart of the Day - AUD/USD
On 12/16 Aussie made a high at 7457 before a small retracement to the 7313 Low on 12/22 (144pts lower and slightly above our 7300 level). The Aussie then resumed its rally from this level to touch the 7817 high on 01/13, 504pts higher. Today the outlook remains bullish LT but the sharp move down in the Aussie a couple of days ago to MT Trend S gives the pair a somewhat more neutral ST outlook. As a result, 7840/80 could be a good entry for contra trend traders thanks to the Swing High, MT Trend R and upper BB while 7490/7520 will be a perfect entry for ST dip buyers/range players thanks to MT Trend S and the 50 SMA. Below, more conservative bulls will watch the 7180/7210 area. The 100 SMA and 23.6% Fibo from the 02 - 03 bull wave are present at the level and could provide decent S to the Aussie. Above the swing high, 7980 (76.4% Fibo from the 89 - 01 bear wave) will be intermediate R but above 8000 nothing serious stands to stop the Aussie before the 8220/50 area.

Forex Trading

2004-01-20T12:02:00.000-05:00

Forex Trading

Daily FX Currency Focus: USDCHF

Published Date: 1/20/04

Key Points

· USDCHF Failing the 50-Day EMA

USD/CHF continued to push higher yesterday but is now running into key resistance at the 50-day EMA. A close above the resistance will confirm a true change in trend and open the way for a new leg higher. Failure on the other hand to break the 50-day EMA, will invite shorts looking to play a resumption of the trend. In any case, the next few sessions will be pivotal. Intraday, we expect some stalling as the pair has become severely overbought in the short-term, but only a breach of the 10/20-day SMA convergence at 1.2420 would constitute a resumption of the broader bear trend.

· Long term fundamentals continue to favor USD weakness

Despite the recent positive developments in the US, long-term fundamentals continue to favor USD weakness. The strength of last week’s US data still hangs over the market as it indicates that the recent weakness in the dollar has helped to boost exports. However, the market is currently debating the reliability and sustainability of the November trade and Treasury International Capital (TIC) flow data. Those arguing that the recent slide in the EURUSD is merely a hiccup in the dollar’s longer-term downtrend are saying that the recent upturn in exports is a result of rising global growth. When growth in the US picks up, domestic demand for foreign goods are expected to accelerate, forcing the deficit to breakout of its temporary plateau and continue its previous trend. Furthermore, the 12-month average of foreign direct inflows is only enough to offset the negative flows and plug a part of the deficit, certainly not sufficient enough to cause a reversal of the deficit. For a reversal of the deficit to occur, the dollar would need to continue to depreciate.

· Monetary Policy - Both remain accommodative, but Fed likely to move first

US - On December 9, 2003, the Federal Reserve left interest rates unchanged at 1.00%. In its widely anticipated accompanying statement, the FOMC painted a much more positive picture of the economy, noting that output is growing "briskly." Additionally, the Committee observed that the labor market has "modestly" improved. As a result of this improvement, the Committee shifted its policy bias slightly, nothing that the risk of deflation has lessened and is "almost equal" to the risk of inflation. The most important language involved the Committee's intention to keep monetary policy easy for a "considerable period," a phrase unchanged from its prior two statements. The market was split over whether the statement would include this phrase--its exclusion would have possibly signaled a tightening cycle sooner rather than later. Most market observers expect rate hikes to occur in the second half of 2004, at the earliest--the latest statement confirms this view.

Switzerland - Given limited inflation pressures in 2004, the central bank’s campaign to preserve a low interest rate environment that supports economic activity shows few signs of letting up during the year. In its latest pronouncements, the SNB has made it clear that it will not threaten the recovery by prematurely moving to a tighter monetary policy. As the recovery gathers speed however, risks will tilt toward a move away from an easing bias. Continuing positive economic data and steady and positive inflation readings could prompt Swiss authorities to abandon their expansionary policy by raising short-term rates. Possible monetary tightening may arise after quarterly SNB assessments in June or September.

Forex Trading

2004-01-20T11:57:00.000-05:00

Technical Commentary

· GBP/USD Closes below last week’s low
· USD/CHF Tests 50-day SMA

Technical Outlook
Uninspired trade in EUR/USD yesterday as liquidity remained thin due to the US Holiday. Dailies remain bearish following last week’s break of multiple key supports. However, a still intact broader uptrend, oversold stochastics and the proximity of important support in the 1.2300 area (50-day EMA/lower bollinger/38.2% fibo confluence) could inspire bullish re-positioning if the pair fails to muster a downside break. It is important to note though that only a close back above the 10-day SMA would confirm a trend resumption scenario. The 50-day SMA remains our key downside level to watch with a break lower needed to confirm a true change in the short-term trend. More weak hand short covering in USD/JPY yesterday as buyers pushed the pair up just shy of the 50-day EMA. Our core view is still very bearish and as such we will look for signs of trend resumption at the 50-day EMA though, we cannot rule out a move to the 108.50 23.6% fibo of the Sep - Jan down move. Breach of the 20-day SMA required to re-instill downside momentum and put focus back on the 105.50 long-term fibo. GBP/USD’s close below last week’s low, triggers the bearish engulfing on the weekly and favors broader pressure on the pair. Some stalling may be expected however, as the pair has become short-term oversold and nears important fib retracement support in the 1.7820/30 area. Failure to pierce support could see renewed bullish interest but only if buyers can muster a move back above the 20-day SMA. Until then, it is wait and see. USD/CHF continued to push higher yesterday but is now running into key resistance at the 50-day EMA. A close above the resistance will confirm a true change in trend and open the way for a new leg higher. Failure on the other hand to break the 50-day EMA, will invite shorts looking to play a resumption of the trend. In any case, the next few sessions will be pivotal. Intraday, we expect some stalling as the pair has become severely overbought in the short-term, but only a breach of the 10/20-day SMA convergence at 1.2420 would constitute a resumption of the broader bear trend.

Chart of the Day - EUR/CHF
On 12/23 EURCHF had a high at 5628 before a quick retracement to the 5506 level on 12/25, 122pts below. The pair then struggled with the 5600 area from 12/26 to 01/05 (highs from 5610 to 5630). The EZ currency proceeded to break the 5600 level and test 5726 yesterday after a typical breakout/retracement.. Today, the picture is much the same with the pair looking particularly strong MT. The only real hurdle is 5750/70 MT trend R, the November Swing High and upper BB convergence. Reversal players will be eying this area. If the area breaks, 5700/5750 will then become a perfect S for further upside probes. 5960/6000 is in fact the only serious R above, if we overlook the 5850 23.6% fibo from the 92 - 01 bear wave. Below, dip buyers will concentrate on 5550/80 area thanks to the lower BB, 50 SMA, 100 SMA and 50% Fibo from the Nov - Dec bear wave. They will also watch the 5420/5450, MT Trend S and the 200 SMA.

Daily FX

2004-01-19T17:10:00.000-05:00

Daily Fx Report

· Yomiuri newspaper reports that Japan sold JPY6trillion so far this month
· Weaker German factory orders
· All eyes on tomorrow’s Bank of Canada monetary policy meeting

EURUSD

With the US markets closed for holiday, the EURUSD traded in a relatively tight range today. The strength of last week’s US data still hangs over the market, as economists debate the reliability and sustainability of the November trade and Treasury International Capital (TIC) flow data. Although the TIC data can be volatile and it may be too early to call a trough in the deficit based upon one month of data, signs that that the deficit is beginning to shrink may enable the dollar to reverse its downtrend in the near term. Although a barrage of verbal complaints continued to flood in from the Europe, we believe the comments from Austria’s Grasser is most reflective of the ECB’s position - that is, that the EU “can live” with the current euro rate. If the euro lingers at current levels, we have probably seen the peak in verbal intervention from the ECB. Trichet’s comments has prompted a decline of 500+ pips in the EUR/USD, an over 4% decline in the euro in seven days.

USDCHF

This week, the US calendar is fairly light. The market is focused on the results of tonight’s Iowa Caucuses and tomorrow’s State of the Union Address. The Democratic candidates are neck to neck with Dean, Edwards, Kerry, and Gephardt being the leading contenders. Those arguing that the recent movements in the EURUSD are merely blips in the dollar’s longer-term downtrend are saying that the recent upturn in exports is a result of rising global growth. When growth in the US picks up, domestic demand for foreign goods are expected to accelerate, forcing the deficit to breakout of its temporary plateau and continue its previous trend.

GBPUSD

This week is an important week for the UK. The first scheduled economic release this week is December CPI - inflation is expected to moderate as pre-Christmas discounting pushes prices lower. Later on this week, we are expecting retail sales and the Q4 GDP release. The Bank of England will also be publishing the minutes from the 7/8 Jan monetary policy meeting - the BoE left rates unchanged earlier this month, but some members are expected to have voted in favor of a rate hike. The significance of this data has the potency to decouple the recent positive correlation between the EURUSD and GBPUSD. Meanwhile, EURGBP had a nice rally today, reflecting the stronger economic fundamentals in the UK.

USDJPY

USDJPY had a nice rally today following an article in the Yomiuri newspaper reporting that the Bank of Japan sold more than 6 trillion yen ($56 billion) so far this month. The BoJ is also suspected of being in the market once again last night, which would not be surprising considering that today would have provided one of the last windows of opportunity for the BoJ to intervene prior to February’s G7 finance ministers meeting. Meanwhile, fundamentally the JPY remains sound. The government upgraded its assessment of the economy in January, shifting from “recovering steadily” to “recovering.” According to Tokyo Shoko Research, business failures were also down 14.8% in 2003.

USDCAD

The Bank of Canada monetary policy meeting is one of the market’s most anticipated events this week. The market is divided on whether the central bank will actually move rates. Exports have been significantly hurt by CAD strength, but domestic demand remains firm while the labor market continues to improve. According to the latest Bloomberg survey, twelve out of nineteen economists polled expect the BoC to cut rates.

New Zealand Currency Forecast

2004-01-19T15:44:00.000-05:00

Latest Forex News

Just came across this info regarding the NZD, worth a read.

New Zealand Bank Forecasts

The New Zealand dollar soared over 24% in 2003. Prior to Australia’s first rate hike on November 5th of last year, New Zealand benefited from having one of the highest interest rates in the industrialized world. Yet, it wasn’t just interest rates that sent the kiwi higher. A robust housing market, rapid population growth, strong domestic demand and high consumer confidence all contributed to increased demand for the kiwi. In the year ahead, the markets expect continued strength in the NZDUSD. This strength is expected to stem from dollar weakness, firm commodity prices and higher interest rates. However, we believe that there are many risks to the broad consensus view for sustained kiwi strength. A stronger than expected recovery in the US, an earlier than expected rate hike by the Fed, and the possibility of a carry trade crisis could potentially all derail the NZDUSD’s expected uptrend.

Learn Forex Trading

2004-01-16T17:55:00.000-05:00

Learn Forex Trading

USDJPY

The USDJPY’s 60-pip rally in 5 minutes during the US session prompted speculation of intervention by the Bank of Japan. With USDJPY dipping to its lowest levels since September 2000, it should be no surprise to see the BoJ’s hand in the market. In fact, we caution on the possibility of BoJ intervention on Monday. With the US off on holiday, the thin trading conditions may provide one of the last opportunities for the BoJ to intervene ahead of the G7 finance ministers meeting in February. If you recall, the BoJ refrained from intervening ahead of the last G7 meeting. With a large intervention “war chest” at their disposal, the government will want to make sure that the market realizes that they have no plans of backing away from selling the yen.

Learn Forex Trading

2004-01-16T17:50:00.000-05:00

Learn Forex Trading

EURUSD

The Euro completely collapsed today, as it tumbled over 260 pips in the past 24 hours. Heavy verbal intervention from Euroland served as the initial catalyst for the move lower. Italian Prime Minister Baldassarri was quoted saying that euro sales “could be useful.” This comes on the back of Wednesday’s similar comments from ECB Noyer. The ECB’s threats of intervention is apparently quite successful in keeping euro gains capped, however, the recent slide in the euro makes actual physical intervention unlikely. The catalyst for the additional slide in the US session was the release of the monthly Treasury International Capital (TIC) flow data. For the month of November, foreign holdings of US assets increased by $87.6bn in November, far surpassing the revised $27.8bn gain in October. This is a huge boost for the US dollar and encouraging news for the deficit. The University of Michigan consumer confidence survey was released at its highest level since November 2000. Overall, continued jawboning by Eurozone officials and a series of positive US economic releases have helped to create a near term top for the euro. Monday is a US holiday next week, so expect thin trading.

Euro - Where can it go?

2004-01-16T13:48:00.000-05:00

Interesting article on the recent spike in the value of the Euro.
http://www.fxcmmini.com/euro-high.html

Forums

2003-12-09T14:55:00.000-05:00

I am slowly going to build lists to the numerous resorces that are out on the web. I will review them and give My Opinion, no one else's just MHO. Feel free to check the places out and send me feedback.
People who would like to send me sites to review can do so by mailing to webmaster@learn-forex-trading.com.

2003-11-14T11:37:00.000-05:00

Okay one and all bear with me as I am new to blogging. What I would like to do with this is add links to good forex news and other places that offer interesting and informative forex tutorials. So bookmark the site and visit here regularly and hopefully I can find enough to keep your interest.
Forex trading is a relatively new investment option for the individual, just like blogging in a way. So let's watch the two grow right here.
And don't forget to send any comments.