EURUSD: The week started with the Institute for Supply Management reporting that its manufacturing index declined to 48.3 in February from 50.7 in January. The pre-report forecasts were for 48. This was another sign of an impending recession as it signaled a contraction. At the Chicago Board of Trade, the Fed Funds contract traded to levels which indicate the odds have increased for a 75 basis point (bp) cut by the Fed on March 18. In my opinion, the market is set up for a 25 bp cut prior to this meeting and 25 to 50 bp at the meeting. The Fed is not going to ignore U.S. equity turmoil this week or a bearish Non-Farms Payroll number on March 7. They are likely to take action if the markets look bad this week. Looking ahead, forecasters are looking for a slight improvement of 35K â€“ 40K; however, a negative number is likely to pressure the USD further.
The EURO was supported by inflation data rising at an annual rate of 3.2% in February. This figure was well above the target rate of 2.0% and signals that the ECB is likely to keep interest rates at 4.0%. There was talk, however, that the ECB is beginning to become concerned about the accelerating EURUSD. The concern is that exports are expected to suffer which may slow down the growth in the Eurozone. This report halted the early market rally and put some pressure on the EUR throughout the late session. Rumors of a possible cash intervention circulated, but nothing was proved. Right now, it seems the ECB is committed to just talking the EURO down.
Technically, there was no follow-through to the downside following last Friday's daily closing price reversal down. Today there was decent selling pressure at 1.5270, but no reversal top. The 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. Based on the action the past two days, it is 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.
GBPUSD: Not much to report on as far as news is concerned. This week traders are waiting for the results from the BoE meeting. Expectations are for a minimum 25 bp cut. Technically, the GBP remains in a tight range following last weekâ€™s attempt at a breakout to the up side. A short-term break of 1.976 does not change the trend, but would indicate more downside to follow. Currently, look for buyers to come in following a break back to 1.966 to 1.959. If the rally once again picks up, then look for a test of the next upside target of 2.02.
USDJPY: The Japanese stock market seems to be more concerned about the level of the Yen than the BoJ. After rumors of possible BoJ intervention at 105.00 never materialized, the BoJ has been noticeably quiet following the recent hard break in the USDJPY. Traders talked about a 100 level as a downside target. The last time the market was below 100 was in 1995. Resistance is at 104.95 to 105.50. Without intervention at current levels, expectations are for the downtrend to continue. Look for more selling on rallies.
USDCHF: The USD continues to get hammered against the CHF as traders seek safety from U.S. stock market turmoil. Support is at 102.00 then 101.25. The daily closing price reversal up indicates some profit taking and counter-trend buying pressure. Look for a follow-through rally on Tuesday to confirm the reversal bottom. A confirmation of a reversal could trigger a rally to 1.0670 before new sellers emerge. A failure to confirm the reversal bottom is likely to attract more selling pressure. Watch the U.S. equity markets for short-term clues as to market direction.
USDCAD: The USD rallied slightly against the CAD early in the session as the markets were reacting to lower-than-expected Canadian GDP. The report showed growth of only 0.8% versus premarket estimates of 1.0%. Rumors of a 50 bp cut by the BOC also surfaced attracting more sellers in the CAD. Today the BOC is expected to cut rates 25 bp to 3.75%. This announcement is due out at 1400 EST. Currently, the BOC is stuck deciding between a 25 bp and a 50 bp interest rate cut. The concern is that exports look bad, but domestic spending is way up. The CAD is still vulnerable to a slowdown due to poor conditions in the U.S.
AUDUSD: Profit-takers crushed the AUD the past two days, but strong buying came in late in Mondayâ€™s session to resume the uptrend. The RBA is expected to raise rates 25 bp to 7.25%. This report is due out at 3:30 am EST. Technically, the market broke a major uptrend line on the daily chart that accelerated the break to the downside. Although it did not reach any important support levels, buyers came in, and the market recovered the trend line. On the upside, counter-trend traders should look at .9385 to .9411 as the next short-term resistance zone. Based on the current main range of .8874 to .9496, the market is still vulnerable to a major correction back to .9185 - .9112. This would only take place following some major economic surprise, however.
NZDUSD: The main trend is up, but the market remains vulnerable to a large profit-taking sell-off. .7798 to .7700 are still downside targets. On the upside, counter-trend sellers are likely to come in at .8068 - .8105.
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