EURUSD: The U.S. Philadelphia Fed number crushed the USD today as more signs of slower growth and further interest rate cuts continue to weigh on the Dollar. Yesterday's action shows that the EUR will be sensitive to U.S. inflationary news, but the size of the rally today shows that traders are more willing to bet on a weaker Dollar and more interest rate cuts.
The Fed does not seem to be concerned about the level of the USD at all at this time, choosing to instead focus on keeping the U.S. economy out of a recession. The only slightly negative news against the EUR was the ECB's lowering of its growth outlook for the Euro Zone while raising its inflation outlook for 2008. Long traders fear that the U.S. recessionary pressures will soon spread to the Euro Zone. So far the slow down has not been great enough to merit any interest rate cuts by the ECB, but traders are watching closely for signs of weakness.
Technical Commentary: The main trend is definitely up as the EUR surged to the upside following the breakout through the major .618 point at 1.476. The strong close is now over a major support zone at 1.476 to 1.469. As long as the market can hold above this zone, the 11/23 main top at 1.497 is the next upside target. The first clue as to weakness will be a closing price reversal down or a close back under 1.476. If the market does meet profit taking at current levels, then look to re-enter the long side following a dip back to 1.4638.
GBPUSD: A surprise UK Retail Sales figure caught the shorts off guard on Thursday causing a massive short covering rally of more than 150 points. The pre-market expectations were for a rise of 0.3%, but instead posted a robust gain of 0.8%. This was the largest increase in 11 months as consumers led the charge. Earlier in the week, the GBP weakened considerably in the wake of stagflation chatter and BoE talk of perhaps another 25 to 50 bp reduction. Strong retail sales and better than expected labor market news may squash the notion of stagflation at least in the short run. Today's action may lead to less aggressive easing by the BoE.
Technical Commentary: The GBP held the main bottom from 1/22 at 1.934 and rallied sharply higher today. The move made 1.936 the new minor bottom. Despite the strong move, the main trend remains down until 1.9734 is taken out. With the main trend down, the market may still be in a sell the rally mode. This makes Friday a key timing date, as the market has not been able to put together two consecutive higher-highs over the past five days. Given the main range of 1.996 to 1.936, look for the first upside objective at 1.966 to repel buyers on the first test. Regaining this level sets up a further rally to the .618 price at 1.973. It is still too early to tell if this is a major bottom forming, but a close over last Friday's close at 1.940 would be a sign that the up move will continue into next week.
USDJPY: The up and down action in the U.S. stock market is playing with the Yen at this time as traders switch from taking on more risk to becoming risk adverse on almost a day-to-day basis. With the U.S. economy, still showing signs of weakness and the stock market seemingly setting up for another break, look for strength in the Yen. The key area to watch is 105 as the market could not hold minor support today. 105 is critical as most traders feel the BOJ will intervene at that level. Short-term traders should look at the short side of this market now rather than close to 105 as not to be caught short during an intervention.
Technical Commentary: The minor bottom at 107.20 was penetrated on Thursday indicating impending weakness. The main range is 104.96 to 108.59 which makes 106.78 a key 50% price followed by 106.35 the .618 retracement level. Buyers may step in to defend this level. The two higher bottoms at 105.91 and 105.71 are still very supportive to an up move. On the upside, 108.59 remains the key area, which needs to be taken out to accelerate the next move to 109.81. The magnitude of the next upside move will be determined by the size of the buying, if any, at 106.78. With the BOJ expected to defend the Yen at 105, and the market capped by a lack of buyers on upside breakouts, look for a choppy two-sided trade.
USDCHF: The weak U.S. stock market cause traders to seek the safety of the CHF on Thursday. As long as the equity markets remain strong, then expect the USD to gain on the Swiss.
Technical Commentary: The main trend in the USDCHF is down with the next downside target 1.072, then 1.05. The new minor top is now 1.110. Support also failed at 1.091 indicating building weakness. Some buying did come in at the .618 price at 1.087. This indicates that there is a little life left in the alongside, however it may be short-lived unless 1.103 can be penetrated. The market closed at 1.093 last Friday. A close over this indicates a potential double bottom is developing.
USDCAD: The trend remains up, but the action has been light as traders await the CAD Retail Sales figure tomorrow. The report due out at 8:30 EST is expected to show an increase of 0.8% versus 0.7% last month. If the actual reading is disappointing, then look for the up trend to resume with a vengeance. Currently, the fundamentals support an uptrend as comments from the Bank of Canada Governor Mark Carney indicate the possibility of an interest rate cut on March 4. A lower than expected retail figure could incite the BOC to enact a surprise cut. With trading subdued the past few days, do not be surprised by stronger than normal volatility.
Technical Commentary: The main trend is up, but the USDCAD still appears to be range bound at this time. Three ranges are actually controlling the trading action. The main range is 1.1875 to .90552 with a key retracement zone at 1.079 to 1.046. The second range is 1.086 to .9055 with the trading zone at 1.017 to .9961. Finally, based on the recent top, the last minor range is .9055 to 1.038, making .9717 and .9561 a major support zone and downside target. If the two bottoms at .9872 and .9755 fail, the down move could be sharp and decisive. There does not appear to be any price clusters for the market to grasp onto indicating volatile but range bound trading. If the retail number comes out stronger than expected, then look for a break, which means the key numbers to watch, are the bottoms at .9872 and .9755. A lower than expected figure could launch a move to 1.02.
AUDUSD: Favorable interest rate spreads and a robust commodity trade continue to be supportive to the AUD over the long run. Stock market stability is also a reason for its attractiveness. The past two days have been sluggish which is more technical in nature than fundamental. Traders lightened up positions recently as a soft labor report indicated that wages were not growing at a pace to warrant aggressive cutting at this time. March 4 is the key date to watch for the next interest rate hike.
Technical Commentary: The lack of upside momentum does not mean that the trend is turning down, but only that traders do not see the current trading level as a value zone to initiate new longs. The longer-term weekly chart indicates that the AUD has a clear shot at the 11/9 top at .9399. With the market seemingly tired at current levels, do not be surprised by a pullback into minor support at .9055 and .9012. Buyers are likely to surface in this zone as the fundamentals support a strong up trending market.
NZDUSD: The NZD is expected to benefit from strong commodity markets. Traders will also be watching the AUD for short-term direction. There does not seem to be any breakout momentum in this market following new move highs, so look to enter the long side on breaks.
Technical Commentary: Like the AUD, the NZD is suffering from a lack of momentum players at current price levels. The market looks very sluggish and could be vulnerable to a short-term correction back to .7702 to .7627. This would be the best-case scenario for long-term bulls to step back into the market. Daily chart trend line support at .7813 could stop any sharp break and may even attract some light buying. Think long, but do not get too aggressive at current levels. The value buyers are looking to buy dips. The upside target following any surprise breakout is .8108.
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