Following last week's expected interest rate cut, GBP traders will focus on signs of inflation this week. Many traders are convinced that the BoE has a hold of inflation as expectations are for it to dip below the target rather than above. Based on how hard the market sold off after the rate cut, it seems that aggressive shorts are thinking the same thing. There are two key reports this week that may change the minds of the bears. On Feb. 11 at 4:30 EST, the January UK PPI Output will be released. The previous number was 11.3; the expected number is 14.3. A output surge of this magnitude may trigger inflation suspicions. This could trigger short covering. Also on Feb. 11 at 4:30 EST, the December UK Visible Trade Balance will be released. This report is expected to show a continued slowdown in exports.
Technical Commentary: The GBP traded in an inside range on Friday. The market finished the week sharply lower after major support failed at 1.9576. This price is now resistance. The market is in a position to test the recent bottom at 1.9336. A failure to hold this price is likely to trigger a further decline to 1.9103. In the short run, holding 1.9336 could develop into a double-bottom with 1.9671 the next upside retracement target. Longer-term traders should begin to focus on the big picture should the GBP continue to remain bearish. Based on the 2006 â€“ 2008 range of 1.7047 to 2.1159, the next major retracement area will be 1.9103 â€“ 1.8618.
The EUR traded inside yesterday's range on the daily chart, but closed sharply lower for the week. This was the largest weekly break since August 2005. Traders have to ask themselves a series of questions this weekend. What is this market telling us about the growth rate in the Euro zone? Is this a counter trend move against the long-term trend or is the double top chart formation a sign of an impending change in the trend? The Euro financial markets are indicating slow growth later in the year as traders have priced in interest rate cuts past April. This action helped accelerate the move to the downside. Late last week the ECB held rates steady as expected, but comments by ECB President Trichet indicated a softer tone toward interest rates. The ECB has maintained a staunch stand against higher inflation figures, however, there are signs of slow growth beginning to appear. Should the slowdown in the U.S. economy spread to Europe, the weakness is likely to appear first in the Euro zone unemployment figures.
Technical Commentary: The new short-term resistance is 1.4589. The weakness puts the market in a position to challenge the recent bottoms at 1.4363 and 1.4309. Breaking 1.4309 turns the main trend down on the weekly chart and indicates more downside is likely. Penetrating this 1.4309 will also confirm the developing double-top formation. If 1.4438 holds as minor support, then watch for a retracement to 1.4695 â€“ 1.4756 before resuming the short term downtrend.
The JPY finished the week slightly higher despite the tight trading on Friday. Expectations are for the market to try to attack the 107.88 price and turn the main trend to up on the daily chart. A trade through the price is likely to trigger a further rally to 109.82. Given the recent tight trading range, expect strong volatility evidenced by expanding ranges. The market must continue to make higher bottoms in order to support this developing rally. 106.86 must hold if tested. There is talk of a possible BOJ intervention to defend the JPY making the rounds. This action would likely take place following a trade back to 105.00. Watch U.S. long-term interest rates for a clue as to the JPY's direction. If rates go up, triggering an equity break, then look for the JPY to test 105.00.
The CAD fell to two-week lows and traded at parity last week. The initial cause of the break was based on a fear of a global economic slowdown in commodity prices. On Friday, the Canadian Labor markets surged to a greater than expected net employment change of 46,400. This was preceded by an 18.700 decline in December. The country's unemployment rate fell to a 33-year low of 5.8 percent.
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.
Higher fuel and food costs triggered the Swiss CPI annual rate to climb to 2.4%. This is the first time in over 12 years that it has climbed above the SNB's tolerance level of 2.0%. Despite the rise in the annual rate, the January Swiss CPI eased to 0.3%.
Technical Commentary: The CHF closed higher for the week following a closing price reversal on Feb. 1. The support base indicates higher markets to follow with a minimum upside objective of 1.112. The ultimate upside target of the current rally is a 50% retracement of the last major break at 1.116, followed by the .618 retracement to 1.126. Profit-taking or new selling may surface in this price zone. Look for the market to continue to back and fill as it tries to maintain a higher bottom formation. Watch for counter trend buyers to step in at 1.091.
The AUD closed lower for the week as it sets up for a retracement of the short-term break to .8986. If the trend is turning down, then sellers should step in at this price. Fear of the liquidation of high yielding assets is likely to continue to weigh on the market.
Technical Commentary: Look for selling to surface at .8986. If the market turns at this level, then the next move to the downside is like to be to .8805.
Despite firming up slightly on the daily chart, the NZD closed lower for the week. The week started out with selling pressure, but short-covering surfaced later in the week as speculators bought NZD based on trader talk that the central bank would be refraining from cutting interest rates over the near term.
Technical Commentary: Despite the sell-off earlier in the week, the NZD has recovered nicely, putting it in a position to challenge the recent high at .7966. Take a 'watch and see' approach at current levels as the market is now in a zone which has featured four tops. Short sellers may surface if there is any hesitation on this current rally. The downside objective of this potential four-top formation remains .7674 - .7605.
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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