All Trade Ideas and trading scenarios found on FX360.com are hypothetical. FX360.com has not placed these Ideas in a live trading environment. Forex Trading involves high risks, with the potential for substantial losses that exceed your initial deposit and is not suitable for all persons. Past performance is not necessarily indicative of futures results.

Euro Holds Support at 1.4000

Last updated 1/27/2010 4:42 AM ET (GMT -5) 1 Comments

Overnight Eco

AUD MI Leading Index 1.0% vs 0.5%
AUD CPI 0.5% vs.0.4%
JPY Trade Balance 0.52T vs.0.61T
EUR German Prelim CPI n/a
GBP CBI Realized Sales n/a

Event Risk on Tap

USD New Home Sales expected at 372K
USD FOMC Rate Decision expected at 0.25%

Price Action

USD/JPY bounces back to 89.45 after 89.00 holds but riak aversion weighs
AUD/USD cannot hold .9000 despite hot CPI data as risk aversion overwhelms
GBP/USD holds up best but presses to 1.6100 before sharp bounce
EUR/USD within 20 pips of key 1.4000 level but rebounds strongly

With equities hitting their lowest levels in more than a month risk FX has been under pressure all night long, but due to the barren eco calendar the ranges have been relatively tight and so far high beta currencies have managed to hold on to key support levels as markets turn their attention to the FOMC meeting at 19:15 GMT later today.

The one key piece of news came out of Australia where the CPI numbers printed essentially in line with expectations sparking speculationc that the RBA will raise rates yet again at their meeting next Tuesday. However, after initially rallying to .9045 the Aussie fell apart as the night wore on, dropping to a low of .8945 in morning European dealing.

We noted earlier that despite markets pricing in an 80% probability of a rate hike, there is room for doubt as to the outcome of the RBA meeting. We noted that, “Australian policymakers must balance the strong domestic recovery against the much more lackluster rebound in global demand. Friday’s US GDP report could be key to the RBA’s decision making process. If US data prints significantly worse than the expected 4.5% q/q increase, monetary officials in Sydney may err on the side of caution, given the recent signs of a slowdown in global growth. For the time being the risk of no further rate hikes from the RBA remains real despite the high level of expectation in the markets and is the key reason for why Aussie has had only a modest response to the CPI data.”

Meanwhile the EUR/USD came within 20 points of the psychologically key 1.4000 level but has managed to hold support so far. News of Greece offering China 25 billion euros of bonds had little impact on the unit as risk aversion flows dominated trade. The pair may make another run at that level later in North American session today especially if stocks are driven lower by weak New Home Sales numbers. With Existing Homes data printing materially below market expectations chances are good that New Home sales may miss as well.

However, currency markets are likely to be quiet until the FOMC announcement later this afternoon. As our colleague Kathy Lien noted yesterday we doubt that the Fed will address the recent weakness in the US economy, but it does acknowledge the slowdown in data, the flows in FX could reverse themselves even if equities drop as the focus will change from risk aversion to relative growth

Finally, today will also bring President’s Obama’s first state of the union address and the significance of that event to the FX market should not be underestimated. President Obama has seen his political capital contract as the electorate is increasingly frustrated with lack of progress on the economic front. If President Obama cannot regain his political momentum the greenback could lose some of its luster as a safe haven instrument with markets beginning to focus on the disarray in US fiscal policy.

FX Upcoming

Currency	GMT	EST	Release	Expected	Prior
USD	15:00	10:00	USD New Home Sales	372K	355K
USD	19:15	2:15	USD FOMC Rate Decision	0.25%	0.25%

The information, including Commentary and Trade Ideas, provided on FX360.com should not be relied upon as a substitute for extensive independent research which should be performed before making your investment decisions. Global Forex Trading and FX360 .com is merely providing this information for your general information. The information and opinions presented do not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision and should tailor the trade size and leverage of their trading to their personal risk appetite. Any projections or views of the market provided by FX360.com may not prove to be accurate.

The views of the authors and analysts are not necessarily those of Global Forex Trading, its owners, officers, agents or other employees. FX360.com and the currency research team will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained on FX360.com. Global Forex Trading and the currency research team do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.

Comments (1)

Clancy

January 27, 2010 at 06:48 AM ET

I don't know what's going to happen, but looks to me the Euro is putting in a descending triangle with 1.4030 area as the base..The AUD is in the same boat with 89 area as the floor. The USD index seems to in a consolidating trading range between 79 and 78.30. The CDN keeps putting in lower lows and lower highs...gold was very impressive yesterday with the USD index up about half a percent and gold edging out a small gain, which was impressive.
Finally we have the S&P looking like it might break down and break that 1080 level but who knows maybe it retest the 1125 area before breaking which would be a nice short.
All in all, it looks like a continuation of risk aversion with some fireworks looking to go off today but as always you never know, maybe the fed says something to juice the markets and get the risk trade back on for a few days.

About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.

currency		trade idea
CAD/JPY Long term Opened 2/10/2012		Long from 77.6500 Stop at 76.65 Target at 78.9
GBP/CHF Medium term Opened 2/8/2012		Short from 1.4470 Stop at 1.4602 Target at 1.4352
AUD/CAD Medium term Opened 2/6/2012		Long from 1.0740 Stop at 1.0655 Target at 1.085

Euro Holds Support at 1.4000

Boris Schlossberg

Director of Currency Research, GFT