EURUSD â€“ Comments by Fed Chairman Bernanke put downside pressure on both the USD and U.S. equity markets. Highlights from the Bernanke statement are as follows:
- the outlook for the economy has worsened in recent months
- downside risks to growth have increased
- conditions could worsen in the housing, labor and credit markets
- sluggish growth in the short term, but strong later in the year as monetary and fiscal stimulus begin to
effect the economy
- CPI should ease. No real inflation fears.
- Fed easing policy is expected to continue
- the Fed stands ready to intervene when necessary to support growth and provide protection against downside risk
These comments contributed to across the board weakness in the USD with the EUR trading to a 1-week high and erasing most of the loss from last week.
Looking at the European side of the market, continue to monitor the markets for any sign of action by the ECB regarding interest rates. Any slowdown in economic growth in the Euro Zone area is expected to fuel the possibility of a rate cut in the short term. The European financial markets have already priced in two cuts after April. Traders are anticipating the slowdown in U.S. economic growth to begin to trickle down into the European economy if it has not already begun to do so.
Technical Commentary: The strong rally in EUR fell short of a full retracement of last week's break from the Feb. 7 high at 1.465. Aggressive buying at current levels could trigger short covering to 1.469 to complete a 50% retracement of the recent break. Sellers could step in at this level especially if fundamental data supports a strong Dollar. Additional short covering could drive the market to a full .618 retracement to 1.475. Based on todayâ€™s rally, a new support zone moves up to 1.454 to 1.452.
GBPUSD â€“ The U.S. was weak against the GBP due to Bernanke's negative comments. Continue to monitor the UK economic reports for any sign of inflation as this may slow down the BoEâ€™s easing policy. Despite the recent spate of stronger than expected reports, the financial markets are anticipating another interest rate cut as slow growth from the U.S. moves overseas. The BoE believes that the strong reports are temporary and that growth should at some point ease back down. Any change in this outlook would be bullish for the Pound.
Technical Commentary: After erasing all of last weekâ€™s down move, the GBP rallied sharply higher into a key retracement zone at 1.967 â€“ 1.973. The high of the day actually fell just a little short of a complete .618 retracement of the break. If 1.973 becomes the short-term high, then look for a pull back to 1.956 to 1.9519. In summary, with two-sided fundamental news effecting the market, look for selling pressure at 1.973 and buying support if the GBP breaks back down to 1.956 â€“ 1.9519.
USDJPY â€“ There was no real economic news today in the USDJPY market other than the comments by Bernanke. The break in the U.S. equity markets was the cause of the break in the U.S. against the Yen as traders sought safety. Fundamentally, the stock market seems to be having a bigger influence on the short-term direction of the market. Intervention is not expected to be a factor unless the market trades down to 105.
Technical Commentary: The lack of follow-through and slowdown of the recent upside momentum is discouraging for bulls. The closing price reversal down indicates another retracement down is likely. A follow through break tomorrow could take the USDJPY down to 107.25 to 106.93. Look for buyers to come in at this zone. On the upside, renewed strength could trigger a near term rally to 109.11.
USDCHF â€“Like the USDJPY, the USDCHF felt pressure all day as U.S. equity markets fell. Continue to monitor U.S. economic reports for direction.
Technical Commentary: There was no short-covering rally today as momentum and buying dried up near the high of the day. The current pattern suggests a retracement to 1.092 to 1.087 is likely. With the short-term trend higher, look for fresh buying in the retracement zone. On the upside, any breakout rally targets 1.112.
USDCAD â€“ Canada's merchandise trade surplus narrowed to 2.4 billion Canadian Dollars in December. This was lower than the first forecast of 3.4 billion Canadian Dollars. The drop in the indicator took it to its lowest levels in 9 years. A strong Canadian Dollar and slow U.S. economy were blamed for the decline, which is expected to continue throughout 2008.
The release of this figure shows the effects of the sluggish U.S. economy on the Canadian economy. This supports statements earlier this week by the Bank of Canada, which implied an easing of interest rates. There is some chatter circulating that the market is likely to see 100 basis points cut over the near term.
Technical Commentary: Today's action makes 1.013 the new main top. This lower top formation indicates more downside pressure is indicated with a break to .9872 likely. Taking out this price turns the main trend to down and could attract aggressive shorting down to .9755 then .9717. Parity remains a key pivot price, but has no effect on the trend. This market does not get bullish unless 1.013 gets taken out.
AUDUSD â€“ The strong employment report released overnight supported the market. The unemployment rate dropped to 4.1% following a forecast of 4.3%. Based on the strength of this employment data, the financial markets are indicating another interest rate hike in March.
Technical Commentary: The market regained the short-term Fib price at .8955 indicating new buying. Based on the higher top, higher bottom pattern developing, look for the next move to breakout over .9099. Aggressive buying over this level could trigger more rallying to .9399. A failure to hold .8955 indicates a test of .8874 is likely. Breaking this price turns the main trend to down, indicating a full retracement to .8806.
NZDUSD â€“ NZD reports December retail sales tomorrow. Expectations are for the report to show a slowdown in customer spending due to higher energy and food costs.
Throughout 2007, the Reserve Bank of New Zealand aggressively raised rates to slow down the heated economy. This procedure apparently worked, and its effects should show up in the retail sales number tomorrow. Although NZ retail sales are expected to be down tomorrow, the 4th quarter is expected to show an overall growth that will support the tightening policy of the Reserve Bank.
Technical Commentary: The market needs a breakout through .7966 to reach the next upside target is .8108. On the downside, breaking .7838 is likely to attract selling pressure down to the recent low at .7781. With four tops in this zone, we could be looking at a major top formation with .7674 the minimum downside objective. For this to happen we must begin to see signs of weakness such as lower highs and lower lows.
This week's reports include: Jan export Prices ex-ag (2/15 8:30 EST), Jan Import Prices ex-oil (2/15 8:30 EST), Dec Net Foreign Purchases (2/15 9:00 EST), Jan Industrial Production (2/15 9:15 EST), Jan Capacity Utilization (2/15 9:15 EST), and Feb Michigan Sentiment prelim. (2/1510:00 EST).
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