EURUSD â€“ Despite the higher high, higher-low trade today, the market basically traded in a narrow range throughout most of the session as traders awaited the release of key U.S. economic data on Wednesday. Early in the day Germany's ZEW survey helped firm the market as economic sentiment improved to -39.5. In January, this indicator reached a 15-year low at -41.6. Additionally, the current conditions survey deteriorated to 33.7. The market had priced in a decline to 50.8. December industrial production is next on the Euro economic calendar. An improvement to 0.6% is expected.
In the bigger picture, traders are still closely monitoring the markets for any sign of action by the ECB regarding interest rates. Any slowdown in economic growth in the Euro Zone area is expected to fuel the possibility of a rate cut in the short term. The European financial markets have already priced in two cuts after April. The market has traded slightly higher the past few days with relative calmness. The release of numerous U.S. economic reports the rest of this week is expected to deliver above normal volatility.
Technical Commentary: The EUR rallied today but did no real damage to the upside. The Feb. 7 high at 1.465 is still in tact. A trade through this level will only make 1.444 a new main bottom. Active buying at current levels could trigger short covering to the retracement zone at 1.469 â€“ 1.475. Look for sellers to surface if the market trades into this zone.
Minor support is at 1.453. This is retracement support and has not been tested. It is not an attractive value area unless you are an aggressive trader. On the bull side, there is the potential of an up-trending triple bottom launching the next major leg to the upside. You have to be patient with this pattern, as we have not even retraced 50% of the last break yet.
GBPUSD â€“ The GBP remained relatively strong throughout the trading session after stronger than expected UK retail sales figures. Consumer price inflation is next. This report is expected to show a 2.3% rise compared to 2.1% in December. Higher commodity and food prices are perceived to be the cause of this slight increase.
Last week the BoE cut rates due to slow economic growth. This week, however, there are developing concerns that consumer inflation is likely to increase throughout the year. Although this may limit the BoEâ€™s drive to lower borrowing costs, the financial markets are still reflecting more interest rate cuts later in the year. This CPI report will likely give guidance as to how the BoE will respond over the short term.
Technical Commentary: The GBP had a strong reaction to the upside following the release of a key UK economic report. The market regained the Feb. 7 high at 1.962. This move erased last weekâ€™s big sell off from this price. The next upside target is 1.967 â€“ 1.974. A rally to this zone will complete a retracement of the 1.996 â€“ 1.939 range. The bulls are citing a potential double-bottom as the driving force of the current rally. The main bottom is 1.934. The developing second higher bottom is 1.939. Currently, we are holding both bottoms. A true double bottom will only be confirmed on a trade through 1.996.
Sellers are expected to re-emerge in the 1.967 â€“ 1.974 zone. If the GBP cannot penetrate this zone, then look for the down move to resume with a break to 1.934 likely.
USDJPY â€“ Slow day in the JPY. There was no follow through to the downside following Monday's hard break, which indicates that the dumping of higher-yielding assets the other day may have been overdone. The firm U.S. equity markets also contributed to the slight upside bias. U.S. economic reports later this week could contribute to volatility throughout the week. Any break to 105 may be met with BOJ intervention.
Technical Commentary: The JPY is still trading inside of a tight range. 107.88 is still the upside breakout price. A move through this level is likely to trigger a sharp rally to 109.82. Pivot price support is 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 in this range, the bigger the ensuing breakout.
USDCHF â€“Credit Suisse reported stronger than expected results. This was somewhat of a surprise as traders have been concerned that European banks would announce subprime losses this week. This news stabilized the market as well as a strong U.S. equity market.
Technical Commentary: The market traded inside of a tight range today. The upside momentum that was key to last week's rally has dissipated. The lack of buying could cause long traders to take profits at current levels and wait for a full retracement down to 1.08 â€“ 1.085 before new buyers step in. Short-term resistance has been established at 1.110 while the main trend turns up on a move through 1.112. A breakout through 1.112 could meet resistance at 1.116 â€“ 1.126. A failure to hold 1.085 sets up a continuation of the main downtrend and targets 1.072, then 1.05.
USDCAD â€“ This market continued to trade on both sides of parity. The combination of bullish and bearish news has forced the market to range trade over the near term until more solid news stabilizes things. Without an economic catalyst, the USDCAD appears to be content to trade at parity.
Technical Commentary: The USDCAD had an outside range today indicating uncertainty. The early trade tried to break out to the upside, but ran into resistance at 1.004 before dropping to .9936. Strong selling came in at the high, and the market settled slightly lower. Parity is a good price to start as far as resistance is concerned although it really should be considered more of a pivot price. Breaking under .9872 is likely to attract strong selling down to .9755 then .9717. A breakout over the last main top at 1.012 is likely to trigger a strong rally especially if it regains the .618 retracement price at 1.019.
AUDUSD â€“ The news that the RBA is forecasting an increase in inflation should be in the market for a while. Today's action represented more technical trading than fundamental.
Technical Commentary: Strong upside action early in the session was met with selling in front of the main top at .9099. The new high at .9084 triggered a daily reversal down indicating the potential for a corrective break back to .8980. The AUD is currently trading inside of a major retracement zone at .8956 to .9061. If the upside momentum dies up here, then look for a short-term sideways drift inside of this zone. Building a support base at .8956 may be what the market needs to trigger a breakout over .9099. On the downside, the trend remains up unless .8874 gets broken. Look for higher markets following a short-term setback as bullish fundamentals support a strong long-term uptrend.
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: The tight range trade over the last few days set up the rally today. Buying at current levels is hard, but breaking out of a four top formation often triggers large short covering rallies. Following a breakout through .7966, the next upside target is .8108. On the downside, 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. 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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