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USD/JPY hit a 13 year low in Asian session trade today touching 88.15 after the US Senate failed to agree on a bailout package for the Big Three automakers. The news sent a wave of risk aversion flowing through the Asian equity markets as Nikkei tumbled more than 4%. Meanwhile the commdollars were the biggest victims of the news in the currency market with Aussie and loonie plunging more than 200 points from yesterday’s close.
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For readers of the Daily Currency Focus, it should be no surprise that the dollar has continued to weaken. On Wednesday, we said that the actions by the Federal Reserve have cemented the downtrend in the U.S. dollar. Given how currency traders have responded to previous Quantitative Easing threats and announcements, the EUR/USD could realistically hit 1.40 (see charts). Although equities have given back its gains and bond yields have rallied, the moves in the currency and commodity markets indicate that the Fed’s actions will have a lasting impact on the financial markets. As we look forward to more dollar weakness, it is worthwhile to consider how a weaker dollar impacts the global economy.
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bank,
usd,
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economic,
snb,
canadian,
weaker,
rally,
oil,
gold,
quantitative easing,
qe,
bernanke,
eur/usd
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feature-article6222009-14006-pm
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The EUR/USD was lower by more than 100 points at the start of the week’s trade today, as fear of a spreading swine flu epidemic gripped global capital markets. Centered in Mexico, the swine flu outbreak has managed to kill more than 80 people, but the latest cases in US and Canada have not resulted in any further fatalities so far. Human to human infection of swine flu is spread through touch and sneezing and is treatable with antibiotics. Investors in Asia, still haunted by memories of SARS outbreak in 2003 were quick to react, selling high beta currencies while seeking refuge in the dollar and the yen.
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The greenback faces broad selling today as risk tolerance improves along with equity rallies. The equity rallies were primarily fueled by the gradual uncovering of stress test details and upbeat earnings. The same story of components have been the major market driver for the entire week .Today however, we threw some new factors into the mix including some of the only relevant economic data to be released this week. Even though markets are still net losers since Monday, the voice of optimism is still clearly audible. The Dow today advanced by about 100 points. The dollar was stronger against the pound and yen, but lower against the euro, cad, aussie, and kiwi.
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The euro rally continued in early European trade today after the IFO survey of business confidence handily beat expectations printing at 83.7 vs. consensus calls of 82.1. The IFO release was the third positive economic surprise from the EZ this week, following on the heels of better ZEW and PMI data numbers. As a result the EUR/USD has rallied more than 300 points off the week’s lows as short covering continue unabated.
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The IFO survey of business expectations printed much better than expected confirming other data points from the Eurozone this week that showed a possible turn to the upside in the region’s economy. The IFO survey recorded a reading of 83.7 versus consensus expectations of 82.4. More importantly the Current Assessment figures improved to 83.6 from 82.7 the month prior.
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usdjpy-strong-buy-on-dip-to-9725
Prices are closing in on an exceptional amount of bullish Fib pattern convergence....
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This week’s primary influence has been deeply rooted in speculation over stress test results as well as the flood of earnings reports that, so far, indicate that profits are on the rise. These mixed signals have been too much for the Dow to bear. The index was sent back and forth between positive and negative territories. Within the last hour of the trading day, the Dow plummeted off of 60 point gains to end the day down more than 80. Nevertheless, the market may remain range bound until the entire earnings season has played out and all stress tests have been made public. Until this time we may be subject to a constrained trading pattern. The currency markets choose the pound to be the big loser of the day. Otherwise, the dollar rallied against the commodities currencies but fell against the yen and euro.
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usdchf-short-looking-good
An update to yesterday's USD/CHF sell at 1.1699...
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Bank of Canada surprised the currency market by taking its overnight interest rate to a mere 25bp becoming the second lowest yielding currency in the G10 universe matching the rates of US and Switzerland.
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The ZEW survey of investor expectations improved markedly in April jumping to 11.8 from -6.5 the month prior and helped lift the EUR/USD to session highs of 1.2990 in early European trade. Investors were encouraged by signs that the contraction in the 16 member union was beginning to flatten out and undoubtedly were influenced by the strong recovery in the equity markets in March.
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Global equities took a severe pounding in today’s trading. For the U.S., concerns over another wave of banking crises seem to take hold of investor’s sense of fear and uncertainty. The Dow was sent down more than 3.0%, while crude prices plummeted nearly 9.0% on the day. With economic data at a minimum for this week, the primary driver in the U.S. will remain to be the flood of corporate earnings. While news has been primarily promising thus far, many are still convinced that this will be the seventh consecutive monthly decline in corporate earnings. Accordingly, the standard risk adverse formation took shape in favor of dollar and yen strength. Crosses bared the brunt of the selling, sending AUD/JPY spiraling down by more than 4.5%.
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The EUR/USD broke the key psychological barrier of 1.3000 in early Asian trade this morning after comments over the week-end by ECB chief Jean Claude Trichet suggested that the central bank may lower rates by another 25bp to 1.00 percent while ECB Executive Board member Lorenzo Bini Smaghi said the bank’s benchmark 1.25 percent interest rate is “very close” to its floor. The ECB council continues to be divided over the proper monetary policy path given the economic weakness in the region and this disagreement amongst policymakers has created tremendous uncertainty for the currency as traders deciding to sell first and ask questions later.
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Cautious optimism is the perfect catch phrase for today’s events. Things are getting better but it is unclear whether or not this is just a break in the storm, or the very beginnings of stabilization. The Federal Reserve seems to believe that we are a long ways off, while recent economic data and earnings reports are pointing toward stabilization. The Dow spent much of the day trying to find the answer to this unanswerable question. In the end, the bulls were barely able to maintain control. The euro and pounds got hammered in today’s session, losing more than 150 and 120 pips respectively. Surprisingly, dollar strength was not enough to keep USD/JPY from sinking further. Commodity currencies were mixed on the day.
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In the first few months of 2009, volatility in the currency market has exploded. Surprisingly enough, this may be in line with seasonal trends.
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Massive redemption flows of about $45 Billion in European bonds and dovish comments from ECB President Jean Claude Trichet sent EUR/USD to a monthly low of 1.3064 in Asian trade today as the currency suffered losses for the fourth day in a row.
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US stock markets finished the day strongly. For most of today’s trading, markets expressed uncertainty about the latest flood of economic reports, most of which did not improve as much as anticipated. By the end of the day, the Fed was able to step in and console investors as to the current stage of stabilization in the US economy. The Fed’s Beige Book, a tabulation of conditions reported within each Federal Reserve District opened with the usual words of concern but then introduced the notion of stabilization. The markets took this news and decided to rally with it by more than 100 points. Currency markets reflected stern euro weakness in turn for broad based pound strength. The dollar was higher against the yen but lost more than 100 pips against the Canadian dollar.
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usdcad-facing-critical-support-shortterm-buy
Room Down to Critical Support, Potential Buy at 1.1876 on multiple bullish pattern completion...
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gbpusd-short-term-selling-opportunity
There is a bearish 3 drives pattern forming on the GBP/USD.
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midweek-eurusd-trend-reversal
A technical look at what this week may bring in terms of EUR/USD price action...
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With many of the markets in Asia Pacific and most of Europe still closed for Easter holiday, trading in the currency markets was characteristically quiet with risk appetite the dominant theme as high beta currencies staged a slow but steady rally throughout the night . The action started in very early Asia when stop running in the AUD/USD pushed the pair through the 7300 handle in very thin trading conditions. Aussie retreated off the highs settling near the 7250 level but it set the tone for the rest of the day as euro, pound and other high beta currencies all rose in tandem.
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Today’s markets have seen some of the most sustained inactivity in months. With US equity markets closed and new economic data at a minimum, the currency market decided to take a breath and allow time for this week’s developments to filter through. We are left with some time to further contemplate the notion of whether or not we are in the midsts of a bear market rally or a complete market reversal. The yen strengthens by less than 40 pips while the pound was virtually unchanged today. The euro advanced by about 60 pips, hardly making up for this week’s 400 pips in losses. Among commodity currencies, the big mover was USD/CAD, rising by about 20 pips.
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A very quiet night of trade in the currency market with both Europe and North America closed for Good Friday holiday. With little event risk on the calendar trading was dominated by stop running in Asia and short covering in Europe as the EUR/USD remains weak relative to the rest of G10 in the wake of comments by Jean Claude Trichet that rates may go lower and quantitative easing may begin.
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The big story in the financial markets today was not the improvements in economic data, but the improvement in earnings. The health of the financial sector is critical to the recovery in the U.S. economy and therefore investors are keeping a particularly close eye on the reports from the banking sector. In order for the global economy to have any chance of recovering, banks need to stabilize and start turning a profit so they will feel comfortable enough to lend. Therefore the better than expected results from Wells Fargo has been received positively by the equity and currency markets. The U.S. dollar sold off against the commodity currencies and rallied against the Japanese Yen. The dollar also gained strength against the euro and British pound, which is not in line with the improvement in risk appetite because of euro and pound specific reasons that we will discuss further in the respective sections.
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dollar,
deficit,
earnings,
currencies,
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usd,
reports,
banks,
euro,
british,
eur/usd,
ecb,
trade deficit,
unemployment,
aso,
taro
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trade-update-long-usdcad-hits-first-profit-target
Adjusted stop-loss and final profit target as this morning's USD/CAD buy at 1.2228 was triggered and has now reached our first profit targets of 70pips...
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intraday,
target,
bullish,
profits,
tecnical analysis,
gartley,
pattern,
canadian dollar,
usd,
forex,
fx
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For the third night in a row risk aversion flows dominated Asian trade as Nikkei continued to correct its recent gains, but as European trading settled into its morning routine currencies stabilized with EUR/USD recapturing the 1.3200 handle while USD/JPY crawled back to the 100 level. A spate of negative news from Ireland which proposed an emergency budget plan pressured the euro throughout Asian trading with the unit falling to a low of 1.3145 as traders feared that Irish fiscal problems may balloon out of control.
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Japanese Eco Watcher survey printed much stronger than forecast at 28.4 versus consensus calls of 20.9 as the worst economic contraction in Japan since World War II appears to be bottoming out. This was the third consecutive month of better than expected results from the survey suggesting that consumer demand may be finally stabilizing albeit at extremely low levels.
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For the second day in a row, the U.S. dollar has appreciated significantly against the Euro and is also trading higher against the New Zealand dollar and Swiss Franc. However, the extent of today’s rally in the greenback basically ends there. The dollar is practically unchanged against the British pound and Australian dollars and is trading lower against the Canadian dollar and Japanese Yen. The 2.3 percent sell-off in U.S. equities coupled with the outperformance of the two lowest yielding G7 currencies indicates that risk aversion is the dominant theme. Yet, with no major U.S. economic data or market moving news over the past 48 hours, traders may be wondering, what changed. As recently as last week, investors were optimistic about a turnaround in the global economy following the more substantial outcome from the G20 meeting.
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bank,
economic,
trading,
recent,
quarter,
usd,
yen,
weak,
consumer,
interest rates,
rba,
quantitative easing,
stimulus,
bear market,
dovish,
stimulus package
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High beta currencies continued their correction on the second night of trade this week following equities lower as both the dollar and the yen strengthened mildly in a relatively quiet Tuesday session. With economic calendar once again barren trading was dominated by central bank news with both BOJ and RBA announcing rate decisions tonight.
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The IBD/TIPP Economic Optimism Index rebounded in April gaining 3.8 points, or 8.4%. The index of consumer confidence now stands at 49.1 within striking distance of the 50 boom/bust line suggesting that the contraction in consumer spending may have reached a temporary bottom.
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Markets today are exhibiting the usual signs of uncertainty in light of a new month that has not exactly gotten off to the best start. Among currencies, the Euro, Pound, Canadian dollar, and Australian dollar all showed weakness against the dollar. USD/JPY on the other hand clearly exhibited dollar strength, as a surge to 101.00 is currently under way. The one currency that has managed to buck the trend has been the New Zealand dollar which only narrowly is holding on to gains. Nevertheless, the main driving force is the drop on the Dow today. However, as a sign of resilience in even a down market, the Dow rebounded off of exaggerated losses that extended down by nearly 150 pips to close down 41.74.
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will-the-usdchf-rally-last
The USD/CHF posted a sharp rally this morning with a current intraday high of 1.1406 knocking out the intial profit target as discussed in this morning's intraday technical report.
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Demand for risk continued unabated at the start of the week’s trade today with USD/JPY taking out the 101.00 figure in morning European session as Asian and European equity markets remained firmly in the green. Investors ignored the geo-political; threats from the North Korean rocket launch that fizzled into the Pacific focused instead on the growing theme of stabilization in the global economy.
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The U.S. dollar has ended the week lower against all higher yielding currencies as the actions by Washington and leaders of the 20 largest economies have helped to restore risk appetite. USD/JPY which tracks the market’s sentiment broke 100, to trade at the highest level since November. The fate of the dollar in the week ahead will be largely dependent upon whether we are at a turning point in the global recession or if investors have been misled by false expectations.
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dollar,
sector,
bank,
banks,
next,
interest,
usd,
earnings,
service,
balance,
nfp,
non-farm payroll,
bernanke,
inflation
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USD/JPY took out the key 100 level mark on a stop fueled rally in Asian session while cable ran through the 1.4800 figure in a lively pre-NFP action as currency markets prepared to end a volatile week of trade. In Asia very aggressive buying from option related accounts knocked out the 100 barrier in the pair backed by continuation of risk appetite in the afterglow of the successful G-20 summit.
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The rally in U.S. equities and the improvement in risk appetite drove the U.S. dollar lower against all higher yielding currencies. Thanks to some extra efforts by the G20 and relaxation of mark to market accounting by the Financial Accounting Standards Board (FASB), investors have become more optimistic. However a big event risk lies ahead for the U.S. dollar and it remains to be seen whether the positive sentiment following the G20 and FASB can be sustained. The non-farm payrolls report is traditionally one of the most market moving pieces of data for the foreign exchange market and with the strong possibility of another sharp decline in jobs, it is too early to completely buy into the recovery story (How Could the Dollar React to Non-Farm Payrolls?).
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sector,
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fasb,
improvement,
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nonfarm,
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g20,
nfp,
non-farm payrolls,
quantitative easing,
qe
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The next 48 hours in the foreign exchange market should be very interesting as we look forward to three significant events that could trigger massive volatility in the currency market independently, let alone collectively. After some big moves earlier this week, most currency pairs have consolidated as traders wait for the European Central Bank interest rate decision, the G20 meeting and the U.S. non-farm payrolls report. The U.S. dollar strengthened against the Euro and Swiss Franc but lost value against all of the other major currencies. This consolidation should just be a precursor to a bigger move.
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As officials met for the G-20 meeting currencies were mixed with no overall theme defining trade today. In Japan the TANKAN report recorded its worst reading ever but the data had little impact on USD/JPY. Instead the pair reacted to a Bloomberg story that the Obama administration was considering bankruptcy for the auto companies which spurred a wave of risk aversion that dropped the USD/JPY more than 100 points in a matter of minutes. However, the pair spent the rest of the night crawling back to 9900 with many traders now targeting the psychologically important 100 level for a stop run.
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The Tankan survey showed that business sentiment amongst big manufacturers fell to a record low as economic conditions continued to deteriorate. The Large Manufacturers index declined to -58 from -24 the period prior and printing worse than the markets -55 forecast. The gloomy sentiment reflected the very tough operating conditions for Japanese corporations whose margins are squeezed both by massive collapse of global demand and by the persistent high valuation of the yen.
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british-pound-rally-facing-first-serious-test
Will the GBP/USD continue to extend gains? Not if 1.436 has anything to say about it....
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new-zealand-rally-losing-steam
Short positioning discussed as a break below key NZD/USD support near 0.56 may trigger further near-term losses
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support,
floor,
gartley,
pattern,
projected,
usd,
techincal analysis,
nzd,
new zealand dollar,
kiwi
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The markets opened the week with a massive liquidation of risk as yen soared across the board with USD/JPY gaining 200+ points before finally finding some support at the 9600 level. News of the possibility of a GM bankruptcy hit the markets hard with Nikkei dropping -390 points for the day. One key concern for investors, aside of from the natural economic fallout of the failed automaker is the impact of a potential GM bankruptcy on major money center banks. The teetering automaker carries $300 Billion worth of debt and it is unclear as to how much of it will need to be written off should GM file for Chapter 11. As a result European banks such as Deutsche Bank and Commerzbank were sold heavily at the start of Frankfurt trade.
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The U.S. dollar capped the week off with a strong rally that may have set the tone for trading in the coming week. Despite a number of interesting political developments since Monday, the price action of most major currency pairs have been consolidative – up until now. Many factors have contributed to the sharp appreciation of the U.S. dollar, but for currency traders, their primary question is whether the rally can be sustained in the new and extremely busy trading week. Before even talking about the event risks, it is first important to remember that next week represents the end of the first quarter for many U.S. corporations and the end of the fiscal year for many Japanese companies. Therefore we may have a lot of action in the currency market that is related more to repatriation than economic fundamentals.
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Currencies spent the last working day of the week in generally listless trade until comments by German Finance Minister Peer Steinbrueck roiled the market sending EUR/USD sharply lower in early morning Frankfurt session. Mr. Steinbreuk noted that euro was at risk if the EU's Stability and Growth Pact isn't taken seriously.
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Over the past few months, a rally in U.S. equities has generally been met with a sell-off in the U.S. dollar. The primary reason was because parking money into the low yielding U.S. dollar was synonymous with risk aversion. Therefore one would expect that today’s 2 percent rally in equities should have driven the U.S. dollar lower against all of the major currencies. We did see dollar weakness, but it was only against the Australian and New Zealand dollars. The greenback increased in value against the Euro and British pound leading many traders to wonder why those currencies failed to participate in the rally.
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Compared to yesterday’s sharp moves in the currency and equity markets, trading has been relatively quiet. U.S. stocks meandered in and out of negative territory while the U.S. dollar traded higher against nearly all of the major currencies. Profit taking has hit the financial markets dragging equities and currencies lower. This consolidation gives investors the time to think about whether Monday’s rally is the beginning of a new bull market or just a strong bear market rally. Since March 6th, the S&P 500 has increased 23 percent, which is marginally less than some of the rebounds that we saw during the Great Depression. The point is that equities could still extend its gains while remaining in an overall downtrend.
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bank,
comments,
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chinas,
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report,
currencies,
china,
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war,
ifo,
us dollar
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intraday-rollercoaster-fails-to-break-key-technicals
Choppy waters leave little changed in terms of new pattern development...
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usd,
eur,
setups,
intraday,
trading,
bullish,
profit,
techincal analysis,
butterfly,
gartley,
pattern
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The U.S. dollar initially traded higher after the Treasury released details for the Public-Private Investment Program aimed at taking bad debts off bank balance sheets. Their actions help to create a floor under the toxic assets, reassuring global investors. However early gains in the U.S. dollar was overshadowed by the massive rally in the U.S. equity market. The 6.8 percent rise in the Dow or close to 500 point move reflected stronger risk appetite and growing demand for higher yielding currencies such as the Euro, Australian and New Zealand dollars at the expense of the greenback. If the Dow hits 8000, we could see a new 2 month high in the EUR/USD above 1.38.
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The start of the week revived the carry trade in the currency market with Aussie hitting the 70 cent mark for the first time since January 10th of this year as equity markets in Asia and Europe opened on a positive note. The stealth rally in commodities which saw oil prices hit $52/bbl in overnight trade while gold rose to $957/oz also helped contribute to AUD/USD strength.
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A new trend has emerged in the U.S. dollar this week courtesy of the Federal Reserve’s decision to start buying U.S. Treasuries. However judging from the price action across the financial markets, investors are not entirely convinced that the central bank’s actions will be enough to stabilize the U.S. economy. Stocks and gold prices have retreated after rallying on Wednesday while bond yields recovered. The U.S. dollar has also bounced but remains very weak. Given that the most significant consequences of the Fed’s action are higher bond prices (lower bond yields) and a weaker U.S. dollar, traders should not be distracted by the sell-off in U.S. equities. With no economic data or major announcements from the U.S. on Friday, profit taking has hit the currency market.
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On a very quiet night of trade with Japan markets closed for a holiday, EUR/USD held its ground, for most of the early European session pivoting around the 1.3700 level. However news of a weak EZ Industrial Production report triggered a slew of stops and the pair tumbled to 1.3550 within a matter of minutes by midday European trade.
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Eurozone Industrial Production contracted further in the month of February losing -3.5% versus expectations of -3.8% drop. On a yearly basis industrial output fell -17.3% vs. forecasts of -15.5% decline. The news was hardly surprising to the market given the continuing complete collapse of global demand.
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FOMC's stunning announcement yesterday that it will buy up to $300 Billion in Treasury bonds took the currency market by surprise and rallied the EUR/USD by more than 500 points in less than 24 hours. As we wrote earlier the FOMC announcement ,” represents an 'all-in' bet on massive monetary stimulus in order to stem the worst contraction in the US economy since World War II. The move is of course wildly dilutive to the currency with nearly $1 Trillion created out of thin air. Little wonder then why the dollar collapsed across the board even as other asset classes rallied. It also indicates that the Fed may have come to the conclusion that the two biggest customers for US debt – China and Japan – may be unable or unwilling to provide additional capital to finance the gargantuan expansion of US fiscal spending this year and next.”
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On Tuesday, we said that being long dollars equals being long pessimism, but what is more relevant to recent price action is that being short dollars equals being long optimism. The U.S. dollar has sold off across the board following the Federal Reserve’s decision to buy U.S. Treasuries. Although the act of buying U.S. Treasuries is in of itself dollar bearish, the sell-off in the greenback also reflects the market’s confidence in the Fed’s actions. Given the trend of the U.S. economy, buying Treasuries was inevitable but rather than wait a few more months, the Federal Reserve decided to deliver the stimulus now and in turn give the U.S. economy its best chance at recovery.
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british-pound-intraday-breakout-looming
The GBP/USD is poised for an intraday break-out as prices have been trapped within a narrow range.
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gbp,
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A bank report that we read this week had an interesting line summarizing investors’ attitude towards the U.S. dollar over the past few months. They said that being long dollars means being long pessimism and we believe that this is a valid description of the recent price action in the currency markets. Today, the dollar weakened against every major currency except for the Japanese Yen. This weakness as baffling as it may seem is more of reflection of the market’s optimism than pessimism because equities are higher and gold prices are lower.
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economic,
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dollar,
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dollars,
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fomc,
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open market committee,
bernanke,
fed chairman
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euro-and-sterling-intraday-targets-achieved
An update to this morning's GBP/USD and EUR/USD trades....
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intraday,
buy,
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profits,
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eur,
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euro,
british pound,
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sterling,
techincal analysis,
butterfly,
gartley,
geometric pattern recognition
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With no fireworks from this weekend’s 3 big event risks, the rallies in the currency and equity markets are fizzling. Having been up more than 150 points intraday, the Dow Jones Industrial Average ended the U.S. trading session down 7 points. This lack of follow through was replicated in the foreign exchange market with the Euro and British pound giving up earlier gains. Promises can only take the markets so far and the lack of concrete actions by the G20 has disappointed investors. Although we have previously mentioned that bear markets can rally as much as 25 percent, today’s intraday reversal is worrisome. Looking at the economic calendar this week, there is not much event risk to energize investors
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The euro and pound rose on the first trading day of the week as risk appetite returned to the currency market after US Treasury Secretary Tim Geithner promised to release details of a new plan to use a private and public partnership funds to remove toxic assets off the balance sheets of US banks. Both Asian and European equities rose providing a strong bid tone to the risk currencies. Cable rallied through the 1.4100 handle and euro approached the psychologically key 1.3000 level by midday European trade.
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In an interview to 60 Minutes Fed Chairman Ben Bernanke forecast that US economy will begin to stabilize by the end of the year and stated that the greatest risk to the recovery was lack of political will. “The lesson of history, “ he noted, “ is that you do not get a sustained economic recovery as long as the financial system is in crisis.”
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This past week has been marked by recoveries in both the currency and equity markets thanks to better than expected U.S. economic data and reports of profitability from banks. Although the price action that we have seen thus far is still in line with a bear market rally, the move higher has been a breath of fresh air for many investors. For the time being, the downtrend in the EUR/USD has been broken. Even though the currency pair continued to edge higher, it remains to be seen whether the strength can continue. There are a lot of economic data due for release next week, but not before this weekend 3 big event risks – the G20 Meeting, OPEC Meeting and Bernanke’s first ever on-the-record television interview as Fed Chairman.
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meeting,
bank,
economic,
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banks,
usd,
next,
canadian,
interest,
trade deficit,
unemployment,
g20,
opec,
bernanke,
fed chairman
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Euro spend most of the Asian session consolidating and correcting some of its massive gains from yesterday, but jumped higher to take out the 1.2950 level as European trading began. On a night when the economic calendar was essentially barren risk appetite flows dominated trade as the pair oscillated around the 1.2900 handle.
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Yen was the star performer in overnight trade gaining more than three big figures from yesterday on repatriation flows ahead of the Japanese fiscal year end. After trading as high as 99.12 just two days ago USD/JPY fell to a low of 95.67 in early European session on rumors of large bond redemptions that drove EUR/JPY lower by nearly 300 points and dragged EUR/USD down all night long.
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usdchf-forming-potential-short
There is a bearish Gartley pattern forming on the USD/CHF.
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Breakouts are beginning to occur across the foreign exchange market. After consolidating for the past few weeks, we have finally seen an upside breakout in the EUR/USD with the currency pair trading at the highest level since February 24th. USD/JPY has also fallen significantly and is at risk of breaking its March lows while the Australian and New Zealand dollars are attempting to break month long consolidations. The story today is dollar weakness. The greenback has weakened against every major currency except for the Canadian dollar. Other than the equity market’s feeble attempt to extend Tuesday’s gains, there was no major catalyst for the sell-off in the U.S. dollar.
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The rally in the Dow Jones Industrial Average is doing nothing for USD/JPY, which held steady despite the more than 5 percent appreciation in U.S. equities on Tuesday.
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With U.S. equities rising more than 5.5 percent today, one would expect the improvement in risk appetite to drive the U.S. dollar lower against all of the major currencies. Unfortunately we did not see a broad based sell-off in the U.S. dollar. The greenback only weakened against the Euro and commodity currencies because investors continued to bail out of British pounds and Swiss Francs. It is also interesting that the EUR/USD is well off its highs indicating that the market’s appetite for dollars has not waned dramatically. The catalysts for today’s rally are not convincing and the moves in the currency market are fizzling, which suggests that we have witnessed nothing more than a bear market rally.
Tags:
dollar,
rally,
usd,
government,
banks,
recession,
bank,
financial,
economic,
index,
interest rates,
usd/cad,
aud/usd,
eurodollar,
eur/usd,
gbp/usd
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Markets are once again entrenched in a fear induced environment. Global equity markets are spiraling downward on continued disruptions in the stability of the global financial system. The promise of stability is nowhere to be found, as situations are only worsening despite continued governmental efforts. The concerns over the financial sector in particular have added to investors fears. Between the British nationalization of Lloyds Banking Group and AIG’s proposal for another bail-out, the survivability of financial companies is in question. Currencies have reacted with a determination on dollar strength. As the yen continues to lose its status as safe haven, the availability of a risk-free environment is almost completely limited to the United States. The dollar advanced against the Euro, Pound, Yen, Canadian dollar, Australian dollar, and New Zealand dollar.
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All of the major currencies ended Friday’s trading session virtually unchanged against the US dollar. However the muted performance masks significant intraday volatility. The Euro for example raced to a high of 1.2754 following the US non-farm payrolls release but choked up nearly all of its gains on more uncertainty in the financial market. Similar price action was seen in USD/JPY. The currency pair dropped to a low of 96.58 in the European trading session but after a post payrolls rally it ended the US session above 98. The equity market was not spared from the volatility with the major indices falling to fresh 12 year lows before significant reversals. With no major US economic data near the beginning of the week, fear and uncertainty could lead to more volatility in the currency market.
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The EUR/USD rose sharply in Asian and European trade today ahead of the critical US Non Farm Payroll report as currency markets feared that the number could approach 1 million unemployed in the worst reading since 1949. The pair rose to a high of 1.2727 in a bout of short covering ahead of the release before easing slightly below the 1.2700 figure.
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As we have promised, trading currencies have become more interesting following the interest rate decisions in Europe. The next 24 hours should prove to be just as exciting for forex traders with the February non-farm payrolls report due for release. The US dollar has rallied significantly ahead of the payrolls report, which is traditionally the single most market moving economic data for the EUR/USD. The cohesive rally in the US dollar and the price of gold along with the sell-off in US equities indicate that risk aversion is the main theme of the day. This also provides a clue on how the dollar could trade following Friday’s non-farm payrolls report (February Non-Farm Payrolls Preview).
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british-pound-short-still-in-play
An update to yesterday's GBP/USD short as initial target of 114 pips achieved.
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Things will get very interesting in the currency market over the next 48 hours. The Bank of England and the European Central Bank will be making interest rate decisions on Thursday and non-farm payrolls are due for release in the US on Friday. Alone, any one of these releases could trigger significant volatility in the currency market but together, they could easily lead to major breaks especially since the EUR/USD and GBP/USD have been fluctuating within tight trading ranges. The US dollar traded lower against all of the major currencies except for the Japanese Yen. Risk appetite has improved thanks to a new stimulus package for China, more details on the Treasury’s $75B mortgage plan and a stronger than expected service sector ISM report. The Fed’s Beige Book report signaled worsening economic conditions across the nation, but that failed to cause a dent in the currency or equity markets.
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EUR/USD broke the psychologically important 1.2500 level in early Asian trade after a much worse than expected Australian GDP report triggered a broad dollar rally and tripped stops taking the pair to 1.2457 before it recovered above the 1.2500 handle in early European trade. USD/JPY also saw a tremendous amount of flow taking out the 99.00 barrier and now appears to be poised to tackle the 100 level within the next few sessions.
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The EUR/USD dropped through the 1.2500 barrier in early Asian trade after weaker than expected Australian GDP numbers triggered a dollar rally taking out stops at the key psychological level. The 1.2500 barrier was heavily defended by option sellers over the past few days, but once the level broke EUR/USD quickly tumbled to 1.2457 before yet more option related defensive buying ahead of the 1.2450 strike propped up the pair.
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The US dollar extended its gains against the Euro, British pound and Japanese Yen as the key players in the recovery story disappoints the market. Overall the price action in the currency market has been muted and the dollar lost ground against other major currencies such as the Australian and New Zealand dollars. US economic data was weak but the dollar rally continued as traders focused on external rate decisions. The central bank of Australia left rates unchanged while Canada cut theirs by 50bp; next up are the Eurozone and UK rate decisions, both of which are expected to lower interest rates.
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Both the euro and pound gapped lower in Asia at the start of weekly trade after a disappointing EZ summit failed to come up with any coordinated solution to the growing Eastern European debt problem which threatens many Western European banks. With nearly $400 Billion of consumer and corporate Easter European debt, most of it denominated in euros and Swiss francs, due to be rolled over this year, EZ financial institutions face a specter of massive loans defaults unless some sort of a restructuring deal is reached.
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The euro tumbled at the start of trade this week after the Eurozone summit on Sunday failed to produce any coordinated response to the growing financial crisis in Eastern Europe. Instead, EU officials led by German Chancellor Angela Merkel opted for out for “case by case” country solution, refusing to provide any specific details at the present time.
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The uncertainty expressed over the threat of a deep US recession and the third CitiGroup bail-out drove the dollar index to a three year high. Apparently, the dollar has maintained some of its safe haven status. Equities have finished a volatile trading day as a result, plummeting 125 points at the open, only to rally back. Unfortunately the bears won out in today’s battle at the tune of -60 points. The month of February reaped a toll on any possibility of a US rebound, as the Dow stumbled to lows not seen since the nineties. Hopefully, March will have more to offer
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Since the beginning of the month, the US dollar has skyrocketed against the Japanese Yen. The strength of the currency pair has baffled nearly all forex traders. For the past 12 months, USD/JPY has traded in lockstep with US equities, but as the Dow Jones Industrial Average hits a 12 year low, USD/JPY has soared to a 3 month high. The correlation that once provided currency traders with a reliable explanation for day to day price action is only adding to the confusion. Risk aversion was the predominant theme in the financial markets this past week and yet USD/JPY, “the” barometer of risk is rising and not falling.
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multiple-patterns-forming-on-the-usdcad
There is a bullish Gartley pattern forming on the USD/CAD.
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All eyes have been on Washington today with Fed Chairman Ben Bernanke testifying before Congress and Treasury Secretary Geithner releasing details on the US’ capital assistance program. The financial markets have been waiting for the details from the Treasury since they first announced the Financial Stability Plan and now investors have reacted positively. The Dow Jones Industrial Average turned positive temporarily after having been down close to 200 points this morning. Interestingly enough, the recovery in US equities has failed to have a meaningful impact on the currency market. The US dollar strengthened across the board and has remained strong going into the close of the US trading session.
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Currencies and equities have strengthened across the board suggesting that risk appetite may be improving. The dollar, which has been a refuge for safe haven flows, fell against all of the major currencies except for the Japanese Yen. In fact, the rally in USD/JPY has been voracious with the currency pair rising 2.5 percent to an 11 week high. The move today has been driven by a variety of factors, none of which in our opinion are meaningful enough to sustain the rally.
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usdcad-intraday-losses-ahead
An excellent risk-to-reward opportunity as selling pressure likely to continue...
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The EUR/USD gave up much of yesterday’s gains in Asian and early European trade as risk aversion and woeful PMI flash readings kept the unit under pressure for most of the night. UK data on the other hand registered another upside surprise keeping pound within reach of the 1.4300 figure.
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usdjpy-approaching-critical-resistance
94.00 may test current USD/JPY strength....
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usdcad-forming-ideal-long-opportunity
There is strong convergence of independent support levels suggesting strong support may be ahead for the USD/CAD.
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With US equity and bond markets closed for Presidents Day, trading was relatively quiet for currencies. The G7 meeting did not lead to any fireworks but the dollar did gap higher against all of the major currencies except for the Japanese Yen at the Asian open on Sunday.
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It is a dollar story in the foreign exchange market today as the greenback rises against every major currency. Although earlier risk aversion contributed to the strength of the US dollar, the underperformance of the Japanese Yen suggests that revenge of the low yielders is not the theme in the currency market. Since we are still waiting on the economic stimulus package, the market has shifted its focus away from politics and back onto economics. The comments about sovereign debt ratings by ratings agency Moody have spooked currency traders.
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usdjpy-intraday-resistance-approaching
Look for bearish reversal at approx. 11:45am EST. Here's why...
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usdjpy-nearing-bottom
Long term bullish pattern is emerging on the USD/JPY.
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The much anticipated announcements from Washington have triggered a dramatic turn in the currency and equity markets. With investors flocking back into the safety of US dollars and the Dow Jones Industrial Average falling 381 points, it is clear that investors are not satisfied with the Obama Administration’s new programs to unlock the credit the market and rescue the financial sector. If today’s announcements were to be measured by their ability to restore confidence in the financial markets, then the new President has failed miserably. Fortunately we are more optimistic and believe that economic stability will be restored under Obama’s leadership, but patience may be needed.
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how-will-obamas-plan-impact-intraday-technical-opportunities
An update to this morning's technical report as wicked volatility follows Geithner's Financial Stimulus Plan roll-out...
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tecnical analysis,
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Over the next 24 hours, the crisis of confidence will be tested. A number of speeches and announcements are expected from the Obama Administration ranging from the President himself, the Treasury Secretary and the Chairman of the Federal Reserve. The big test tomorrow will be whether or not investors are satisfied with the government’s efforts. Is the rescue plan enough to turn around the US economy or will the critics crush any optimism? The US dollar is trading lower against all of the major currencies suggesting that forex traders are holding out hope that Obama’s plan is well received but this same sentiment is not being shared by equity traders.
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This morning, the Bureau of Labor Statistics reported that January was another month of massive job losses. For the third time in a row, more than 500k Americans lost their jobs. The market was looking for payrolls to drop by 540k, but instead they fell by a whopping 598k (Instant Insight on January Non-Farm Payrolls). Yet, currencies and equities traded like non-farm payrolls increased rather than decreased but this baffling response to a very negative number can be easily explained by the prospect of help from Washington.
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ppi
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On Friday, the Bureau of Labor Statistics is expected to tell us that US employers fired another 500k people in the month of January. Surprisingly enough currencies and equities are trading higher ahead of the non-farm payrolls report which suggests that traders are not afraid of a bad number. Everyone knows that the US economy is very weak and major job losses will continue. Since traders are becoming immune to bad data, it may take job losses in the area of 600k to spook them (January Non-Farm Payrolls Preview). Instead, traders are looking beyond Friday’s non-farm payrolls report to the Monday, February 9th speech by US Treasury Secretary Timothy Geithner. According to a Treasury official, Geithner is expected to unveil a bank rescue plan next week. This is one of the few things that could strike a meaningful recovery in the currency and equity markets. If traders deem Geithner’s plan as satisfactory, we could see a further recovery in the financial markets despite the fact that the US economy will get worse before it gets better.
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nfp,
non-farm payroll,
unemployment,
eur/usd,
gbp/usd,
interest rates
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Over the past 6 months, being long US dollars has been one of the best trades in the currency market but as the dollar extends its gains, many traders wonder how much further it can rise. In the currency market, trends can last much longer than anyone would normally anticipate especially if it is driven by fear. As humans, we run from uncertainty and not towards it. Risk aversion has been pushing investors into the safety of the US dollar and out of higher yielding currencies. When Main Street reads in the papers tomorrow about the slowest pace of economic growth in 26 years, their shock could turn into more selling. Next week, we also have the US non-farm payrolls report due for release. A sour mood could hang over the markets for most of the week as traders fear that another 500k jobs were lost in the month of January. The only thing that could improve risk appetite and give investors a reason to cheer would be if the Senate passes President Obama’s economic stimulus package.
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usd/cad,
gbp/usd,
nzd/usd
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The US dollar is stronger across the board today as risk aversion returns to the market. Like Florida weather, where it can be hot one day and cold the next but warm most of the time, we can occasionally see an improvement in the market’s risk appetite but the bias is still towards risk aversion. Traders have quickly realized that nothing new came out of the Fed’s monetary policy meeting yesterday and until we have another major announcement from the US government, currencies will be vulnerable to negative US economic data, earnings report and developments abroad.
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warning-signs-on-the-eurusd
Why to watch out for Gaps and Wide-Ranging Candles within Geometric Pattern Recognition...
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The EUR/USD rallied through the 1.3300 level in early European session on the back of better that expected IFO results, but couldn’t hold that level for long as profit taking pushed equities lower and curbed some of the risk appetite that dominated overnight trade. The IFO survey of business climate surprised to the upside printing at 83 versus 81 forecast while the current assessment component also beat expectations coming in at 86.8 versus 85 projected.
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The Federal Reserve is currently holding a two day monetary policy meeting and it will be interesting to see whether they are desperate enough to introduce radical programs that can incite the enthusiasm of investors. With interest rates virtually at zero, a rate cut is not expected, but the central bank is under pressure to take further action. So far, their effort which includes 500bp of easing has helped to prevent the recession from turning into a depression but it has yet to stabilize the economy. The latest string of economic data indicates that the US economy is still on a downtrend and headed lower. The FOMC rate decision tomorrow could be a nonevent for the US dollar, but if the Federal Reserve is desperate enough, they still have the power to surprise the markets.
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aud/usd,
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usd,
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ifo,
cpi
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US Leading indicators shocked to the upside, rising 0.3% against a forecast of -0.2% decline. This was the first positive print for the index in six months as a rebound in financial components outweighed the losses from increased jobless claims and stock market declines.
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The EUR/USD ran to 1.3000 in early European trade today spurred by a major short squeeze in the Asian session as risk appetite returned to the currency market. However the pairs gains were tempered by a very weak French consumer spending report which suggested that growth in the region is likely to contract more severely than initially forecast.
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There has been a lot of volatility in the foreign exchange market this morning, driving currencies to historic levels:
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usdjpy-falls-off-a-cliffwhat-does-this-mean-for-days-weeks-ahead
A 300 pip nose dive has sent the USD/JPY right back down to major support just above 87.00 completing a solid double bottom formation.
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After climbing back to 1.4000 in early Asia session on profit taking by the shorts GBP/USD tumbled for the third night in a row as traders treated the currency as though it was covered in radioactive waste. An article in London Times which basically called for selling every UK asset was the trigger for the latest downdraft, and the overnight economic data did little to bolster the case of pound bulls.
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The theme in the markets this morning is a return of risk appetite. The US government has bailed out Bank of America for the second time, reminding investors that they are still here and ready to help the banking sector. BoA received another $20B to ease their absorption of Merrill Lynch.
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Better than expected US economic data was like a breath of fresh air for the currency markets today. Producer prices fell less than expected last month while manufacturing conditions in the Empire State and Philadelphia regions improved. The dollar rebounded against the Japanese Yen indicating that risk aversion is abating, albeit modestly. The overwhelmingly pessimistic investors will not be easily swayed by a few pieces of secondary economic data, especially since all of the numbers are still in negative territory. Looking ahead, we will have another busy day in the currency market with US consumer prices, the Treasury International Capital flow report, industrial production and consumer confidence due for release.
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The EURUSD erased almost all of its Asia session gains after a news report that Ireland may call in the IMF if the country’s economy worsens hit the wires at the start of European trade. The currency market which was steadily bidding up the EUR/USD pair in a bout of short covering ahead of Thursday’s ECB interest rate announcement was caught completely wrong footed and the unit plunged 100 points in 20 minutes on fears that such a move would create unprecedented political stress in the region.
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Trading in equities very closely mirrored yesterday’s volatile session. It is clear that investors are still uncertain, as direction in the Dow has been largely range-bound. Equities have swerved between two extremes, at one time positive by more than a hundred points. Even though the excitement and enthusiasm behind the newly proposed relief program has managed to give equities a new leg, we are still undeniable seeing the levels of concern that have pervaded the markets for most of last year. This level of fear was a big factor that led to the original implosion of the equities market. Trading in the dollar has been likewise mixed, with strength against the euro and yen, but weakness against the pound and commodity currencies.
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The resonance of the New Year is starting to show its true colors at the start of the first full trading-week this year. The Dow finished a volatile day lower, in some ways ruining the sense of stability that pervaded in last week’s market. Volatility in equity prices was complemented by some extreme moves in the fx markets. Looking at today’s biggest percentage movers we can see the sheer magnitude of price action today, with some moves extending to more than 3.0%. The dollar in particular was heavily mixed across the board. We have seen some substantial gains against the euro and yen, in conjunction with weakness against the pound and commodity currencies. Today’s trading was a truly unorganized and unpredictable force.
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Today’s trading comes across as mostly a denial of facts. Perhaps it is the jubilation that comes with the start of a New Year, or the low volume at the end of a holiday week, but today’s numbers certainly cast a concerning picture on an already weakened economy. Price action in the dollar is also equally perplexing, as the currency posts broad gains in today’s market. However, we warn that the facts in the marketplace will inevitably catch up with those who are once again convinced that the economy has hit the bottom.
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Thin market conditions continue to dominate in the currency market on the eve before Christmas. Trading ranges for all of the major currency pairs have been relatively narrow, especially when compared to the large swings that have been characteristic of the third and fourth quarters of 2008. There were both upside and downside surprises in this morning’s economic data but even the upside surprises were numbers that reflected a contraction in US economic activity. This has fueled the mild sell-off in the greenback that began at the European open.
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The US dollar appears to be unfazed by this morning’s mixed economic reports. Thin trading conditions continue to dominate in the currency market, leading to inconsistent trading for the US dollar. The greenback strengthened against the Japanese Yen and British pound but weakened against the Euro. The latest reports on the US economy were weak but not as weak as the market had expected. There was the potential for really bad numbers and the fact that they did not materialize has actually helped the dollar.
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It is the first trading day of what is typically the least liquid period in the financial markets. As a result, there was no consistent trading pattern in the US dollar today. The greenback weakened against the Euro but gained strength against the British pound and Japanese Yen. We still believe that the US dollar has hit a top and could be at the cusp of a major reversal. The EUR/USD’s resilience to the US stock market sell-off indicates that we are finally seeing the weak outlook for the US economy reflected in the weakness of the US dollar. In 2009, the greenback may no longer be the market’s safe haven currency of choice as yields on Treasury bills sit at zero to negative levels.
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It has been an extremely volatile week in the currency market. On Monday, the EUR/USD was trading at 1.3364 and shortly after the European open on Thursday it hit a high above 1.47. However since then it has reversed violently to end the week back at 1.39. This type of price action is characteristic of an illiquid market that is uncertain about how to react to the drastic measures taken by central banks around the world. There was no US economic data released today, but there are reports that the White House has given $17B in loans to the Big 3 automakers. The US dollar strengthened against all of the major currencies except for the Japanese Yen. Next week is a lightened trading week with the Christmas holiday. US economic data is therefore jammed into Tuesday and Wednesday. We expect the final figures for third quarter GDP, housing market numbers, personal income, personal spending and durable goods next week. The data should continue to reflect the weakness of the US economy.
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After seeing the US dollar sell off for 5 straight days against the Euro and Japanese Yen, we were not entirely surprised to see today’s recovery, especially on the heels of better than expected economic data. The market has become accustomed to disappointments so good news was a welcome change. The European Central Bank has also reduced the interest rate that it offers to banks that deposit with them in order to encourage lending. The 15 percent rally in the Euro has led many to people to believe that the ECB may reconsider their plan to hold interest rates steady in January and the deposit rate cut was seen as a step in that direction. Thin market conditions near the holidays have exacerbated the volatility in the currency market. However even though the greenback is higher today, we had both positive and negative news impacting the dollar.
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In a liquidity starved session, the EUR/USD skyrocketed past the 1.4700 barrier in early European trade as momentum players ignored the worst IFO reading since 1982 and sent the unit flying after it tripped stops at the 1.4500 barrier. The breath taking ascent took place against the background of deteriorating economic conditions as the mantra of the currency market continues to be - yield, yield, yield.
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With dollar denominated assets yielding next to nothing, we have continued to see money flow out of the US dollar. The greenback fell to the lowest level against the Euro since September and dropped to a new 13 year low against the Japanese Yen. The losses have been even more staggering since the beginning of the month. The dollar has fallen 14 percent against the Euro and 8 percent against the Japanese Yen. This significant sell off begs the question How Much Further Can the Dollar Fall? If you watched the price action in the currency market this past year, you will know that trends dominate. With only 2 weeks until the end of the year, we could be stepping into a longer phase of dollar weakness.
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The US dollar fell to a 2 month low against the Euro following the Federal Reserve’s decision to cut interest rates by 75bp to 0.25 percent. The greenback is now the lowest yielding G10 currency and for that reason, we should see foreign selling of US dollars exacerbate. At 0.25 percent or more specifically, a target range of zero to 0.25bp, foreigners may not find the yield attractive enough to warrant the risk. Despite the selling that we have already seen in the dollar today, this could just be the beginning of a longer phase of dollar weakness that may last into the first quarter of 2009.
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After several straight days of triple digit gains both EUR/USD and GBP/USD stalled in early European session as traders locked in profits ahead of the FOMC decision scheduled for 17:15 GMT later today. In relatively quiet night of trade the euro fell back from the 1.3700 level hitting a low of 1.3628 as data from the EZ showed continued weakness in both service and manufacturing gauges. Cable dropped even harder to 1.5210 after reaching a high of 1.5477 yesterday despite hotter than expected CPI numbers.
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EUR/USD got off to a strong start on the first trading day of the week, as optimism among Asian equity investors, whetted risk appetite pushing the pair to within a whisker of 1.3500 level in early European trade. Both Nikkei and Kospi propelled higher rallying more than 5% each on the day, boosted by a variety of factors from the expectations of bailout of US automakers to the more than 7% spike in Baltic Dry Goods index on Friday.