EURUSD - An early session rally fizzled in EURUSD, and the market settled lower in the afternoon session. Traders cited rising risk aversion and a slow data day as the main reasons gains could not hold. Comments from ECB president Trichet supported the EUR early. Trichet stated that there had been no discussions regarding the lowering of interest rates below 4.00 percent. Last week the ECB held rates steady, maintaining their strong stance against inflation. The European financial markets have begun to price in a rate decrease after April, however. Euro traders will be closely watching for signs of an economic slowdown to confirm this action.
Rising risk aversion finally crept into the market as UBS and Commerzbank are expected to reveal the extent of their exposure to subprime losses. These losses will be compared to similar U.S. bank losses. A bearish conclusion could be supportive to the USD. The Group of Seven meeting over the weekend yielded commentary, which also put rising risk aversion into the Forex markets. In a statement, the G-7 said, downside risks persist including the U.S. housing slump and tighter credit conditions.
Technical Commentary: The EURUSD is still holding the two main bottoms at 1.431 and 1.436 as well as last weeks low at 1.443. Today's higher high, higher low formation could be a sign that the market is poised for a retracement to 1.469. Look for strong selling at this price if tested. Short-term support is at 1.449. Buyers may step in at this area.
GBPUSD - The UK Producer Prices surged more than expected. This triggered an early session rally. Traders failed to sustain the gain, and the GBP traded mostly lower and range bound. Following last week's interest rate cut because of slow growth, one strong report is not enough to change the current downtrend against the U.S. It is, however, enough to spark inflationary fears.
Output prices rose a monthly 1.0% after a 0.4% increase in December. This was above analyst expectations for another increase of 0.4%. Input prices rose by 2.6% in January, well above the forecasted 1.3%. The report only fuels a continuing fear of impending inflation. Traders now expect the BoE to maintain a steady stance on interest rates as they currently monitor all new economic data for signs of further inflation.
Traders will focus tomorrow on the release of Jan UK CPI and RPI
Technical Commentary: The higher high, higher-low formation today puts the GBPUSD in a position to begin building a support base for a retracement rally to 1.967. This price is likely to attract aggressive selling. On the down side, 1.934 and 1.939 are major bottoms. Short-term traders should look for minor support at 1.946.
USDJPY - Over the weekend, the Group of Seven nations met and concluded that the markets are still susceptible to further financial turmoil. This warning served as a catalyst for investors to dump holdings of higher-yielding assets and triggering a rally in the JPY against the USD. Warnings of global bank problems triggered one of the largest drops in weeks in the USDJPY market. This puts the USDJPY in a position to test the 105 neighborhood, which may be the key price for a BOJ intervention.
Technical Commentary: Another attempt to change the trend to up through 107.88 failed, and the JPY traded down to a key pivot price at 106.42. This price is controlling the short-term direction of the market. Sustained intraday closes under this level is likely to pressure the market to the downside with 105.71 and 104.96 potential downside targets. Be careful adding to shorts near 105 as rumors persist of a potential BOJ intervention at this level. The tighter the wind this range, the bigger the ensuing breakout. A breakout through 107.88 is likely to trigger a huge rally to 109.82.
USDCAD â€“ This market was range bound today as it traded on both sides of parity. Last Friday's strong jobs data failed to trigger a follow through rally today. The slow down in upside momentum was blamed on Bank of Canadaâ€™s governor Mark Carney's comment that despite the strong employment figures he is comfortable with the statement that additional monetary stimulus is likely to be required in the near term. Without an economic catalyst, the USDCAD appears to be content to trade at parity. Carney did not drop any hints as to when or how much of an interest rate reduction can be expected. This leaves open the possibility of a surprise cut, which would be the trigger for this market to break out of its recent range.
Technical Commentary: Last week the short-term rally reached the upside objective of 1.0128 and sold off to parity. This action completed a 50% retracement of the 1.0378 to .9872 range. With the market trading between 50% retracement points, continue to look for two-sided trading until a major support or resistance price is taken out. Clearly, 1.0125 is controlling the short-term direction of the market on the upside. Regaining this level will be a sign of higher markets to follow. With 1.0185 the next upside target. Parity becomes short-term support with .9916 minor support and .9812 major support.
USDCHF â€“ Short-term resistance has been established at 1.110 while the main trend turns up on a move through 1.112. On the downside, a full retracement of the recent rally takes the market back to 1.089 â€“ 1.085. If the market is truly ready to change the trend to up, then look for buying to come in this zone. A failure to hold 1.085 sets up a continuation of the main downtrend and targets 1.072, then 1.05. A breakout through 1.1122 could meet resistance at 1.116 â€“ 1.126.
The AUD surged higher today as comments from the Reserve Bank of Australia led to aggressive buying. The RBA is expected to continue its campaign of raising borrowing costs as the bank is forecasting an increase in inflation.
Technical Commentary: The strong rally today makes .8874 the new main bottom. A trade through this price turns the main trend to down. The market is currently trading inside of a major 50% and .618 retracement zone with .8956 and .9061 the key numbers to watch. Holding above .8956 is bullish while regaining .061 especially on a closing basis sets up a test of the last main top at .9099. With renewed talk of further interest rate hikes, watch for a breakout to the upside over this level.
The NZD basically followed the tone set in the AUDUSD. Unless the New Zealand central bank softens its comments, expectations are for the bank to refrain from cutting interest rates over the near term.
Technical Commentary: Another tight range day indicates a build up of potential momentum. A breakout through .7912 could trigger a rally to the recent top at .7966. 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 U.S. Treasury Budget (2/12 14:00 EST), Jan U.S. Retail Sales (2/13 8:30 EST), Jan Retail Sales ex-auto (2/13 8:30 EST), Dec Business Inventories (2/13 10:00 EST), Initial Claims (2/14 8:30 EST), Dec Trade Balance (2/14 8:30 EST), 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. (2/15 10:00 EST).
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