EURUSD: The Euro moved to a new high on Tuesday as the negative news from the U.S. continues to weigh on the USD. Talk of more bank write-downs provided a negative tone for much of the market today. The Fed Funds contract continues to signal a greater chance of a 75 bp cut on March 18. With the U.S. Fed meeting on March 18 and the equity markets unstable, do not be surprised by a cut of 25 bp prior to the March 7 Non-Farms Payroll number. This is the most important report of the week. Early expectations are for a slight improvement of 35K â€“ 40K. A negative number could prove to be doom for the USD.
At this time, the ECB is standing pat on its mandate to control inflation. Although inflation is slightly higher than the benchmark of 2.0%, the ECB feels that holding rates steady is the best course of action. On Thursday, the ECB holds a central bank meeting. Expect rates to remain the same, however, there may be talk about the current level of the EUR versus the USD. This talk may just be a courtesy, as the ECB does not have any reason to intervene at this time nor to accommodate the U.S. with a surprise interest rate cut. Talk is stirring amongst the Euro nations that the USD is too weak at current levels. Exports are expected to be dismal in the near future, as fewer dollars have been spent on European goods recently. This is being interpreted as a sign that the U.S. economic weakness is spreading to Europe. There has been no official word from the ECB of any concerns yet; however, any reports that surface will definitely bring the issue to the forefront.
Another supportive feature for the EURO today was chatter that surfaced indicating the possibility of a 25 bp hike in the next nine months. The general feeling is that unless weakness in the USD begins to heavily cut into Eurozone exports, look for steady-to-higher interest rates. At this time, there may be attempts to talk the EURO down, but there has been no concrete evidence that the ECB is planning an intervention at current levels.
Technically, the main trend is still up with no sign of an imminent reversal. The inside day does indicate that the buying is not as aggressive at current levels as it has been in the past week, but without dramatic closing price reversal top, it does not look like a top yet. The current short-term range is 1.444 to 1.527. A normal correction of this rally could take the market back to 1.485. The old top at 1.496 is also considered support. It is still safest to buy on dips than on breakouts as the main trend remains up. Be careful buying strength because the charts indicate plenty of room on the downside if near term support fails. Up trending Gann angle support is at 1.52 and 1.48.
GBPUSD: Another slow news day in the GBP as traders await the results from the next BoE meeting. Expectations are for a minimum 25 bp cut. Technically, the GBP remains in a tight range following last week's attempt at a breakout to the upside. A rally through 1.997 sets up further strength to the upside with 2.02 the next reasonable target. There is talk of buy-stops building above this level. On the downside, with the main trend up, look for a buying opportunity on a pull back to 1.967 to 1.959.
JPY: Comments from U.S. Fed Chairman Bernanke calling for vigorous action by mortgage lenders to avoid foreclosures caused another flight to quality as traders bought the Yen and sold the USD. The Yen reached a 3-year high against the Dollar as the U.S. equity markets broke on bearish news regarding another round of bank write-offs. The BoJ remains quiet at current levels with no signs of an impending intervention evident. The next downside target is 100. The last time the market was below 100 was in 1995. Technically, the main trend remains down. Only a trade through 108.61 turns the main trend to up. The lack of follow through to the downside indicates some profit taking at current levels. The short-term range is 102.62 to 108.59. This sets up the first selling opportunity on a rally back to 105.60.
USDCHF: The USDCHF held steady today indicating that a short-term bottom may be in place. Look for selling opportunities on rallies, as there is no sign of a reversal in trend yet. The inside day indicates some profit taking, however, there was no rally following Monday's reversal bottom. This indicates a temporary bottom, but not strong buying. 1.03 has been established as short-term support. The main range is 1.11 to 1.03. This creates the next selling opportunity on a rally to 1.07. Watch the U.S. equity markets for short-term clues as to market direction.
USDCAD: The USD remained strong against the CAD following a somewhat surprising interest rate cut of 50 bp. The BOC talk also hinted of further cuts if evidence surfaces that the looming U.S. recession is spreading north of the border. Technically, the USDCAD is still rallying following last weekâ€™s low at .9717. The main range is 1.034 to .9709. This sets up a major upside target of 1.00 to 1.01. The short-term minor range is 1.02 to .9709. The first obstacle has been reached at .9953. This is followed by minor resistance at 1.01. With both the minor and main trend agreeing on 1.01 as resistance, look for sellers to emerge at this level. On the downside, look for a buying opportunity on a pullback to .9843 to .9811.
AUDUSD: Profit-takers once again crushed the AUD as RBA Governor Glenn Stevens said interest rate increases since mid-2007 are substantial and there are signs that consumer demand is slowing signaling heâ€™ll pause in raising rates. This action will definitely be a rally killer as the market had begun to factor in another hike for later in the year. Look for a substantial break as aggressive profit taking has hit the market. .9496 is the new main top. The short-term range is .8874 to .9496 making .9185 the minimum downside target. The main range is .8512 to .9496. This makes .9000 to .8887 the main downside target. Look for buying opportunities on pullbacks into the support zones. On the upside, start looking for selling pressure to emerge following a rally back to .9357 to .9390.
NZDUSD: The main trend is up, but the market remains vulnerable to a large profit-taking sell-off. Expect the NZD to follow the same path as the AUD. If growth is slowing in New Zealand, then look for steady rates the rest of the year. The market has been factoring in more aggressive hikes later in the year. Look for traders to take this premium away as profit-takers dominate the near term. Watch for a buying opportunity if the NZD corrects all the way back to .7798 to .7700. On the upside, look for a counter-trend selling opportunity on a rally back to .8068 to .8102.
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