EURUSD â€“ The USD finished lower this week as U.S. economic reports and comments by Fed Chairman Bernanke painted a negative picture for the U.S. economy. On Friday, Consumer Confidence came in lower than expected with a reading of 69.6. With housing down, employment falling, stock markets volatile, food, and energy on the rise, there is no question the U.S. consumer is spooked at this time.
To recap the week, Bernanke did not help matters with his dreary outlook for the economy in the short run. His statements reaffirmed that the economy had weakened in recent months. He mentioned sluggish growth in the short term possibly fueled by worsening conditions in the housing, labor and credit markets. His stance on inflation is that it should ease. Although we recommend watching energy and food for signals.
Bernanke remained optimistic that the Fed's monetary policy would trickle down into the economy later in the year and that fiscal stimulus should aid the ailing economy. Despite having confidence in these policies, Bernanke announced that the Fed stands ready to intervene when necessary to support growth and provide protection against downside risks.
Not only did the EUR erase all of last week's losses, it also recaptured half of the break for the month. At this time, the only factor holding the EUR from assaulting on new highs is the presumption that slow growth in the US is beginning to affect the European community. Continue to monitor the markets for any sign of action by the ECB regarding interest rates. Watch for any slowdown in economic growth in the Euro Zone area to fuel the possibility of a rate cut in the short term. The European financial markets are anticipating at least two cuts after April.
Into next week and especially over the long weekend, watch for news regarding the bond insurers. This is a potentially explosive situation as these insurers await a bailout or risk failure.
Technical Commentary: The EUR completed a 50% retracement of the break from 1.495 to 1.444. Regaining this key 50% price at 1.470 indicates a further rally to the .618 retracement price at 1.476. There may be some light selling in this area that could trigger a short-term break to 1.457. If the market has bottomed, then look for aggressive buying following this retrace.
GBPUSD â€“ There was talk in the market today of a possible write off of bad loans at Swiss Bank UBS. This put fears in UK banking circles, and the GBP sold off as a result. Overall, however, the main concern in the short run is controlling inflation and at the same time stimulating growth. Inflationary fears are being caused by rising food and energy prices. The BoE, however, believes that the strong reports are temporary and that growth should ease back down at some point. At this time, they remain set on keeping rates steady to lower. Any unexpected surge in inflation may alter this course, however.
Technical Commentary: After erasing all of last week's down move, the GBP sold off on Friday, pulling back near retracement support at 1.956. A failure to hold this price may trigger more selling to complete a .618 retracement to 1.952. The current chart pattern is reflecting uncertainty in the market as resistance comes in at an upside retracement zone at 1.967 to 1.974 while support comes in at a retracement zone at 1.956 to 1.952. The market could trade inside of this narrow range for a few days before traders decide which way to take it. The tighter they wind this range, the larger the move is expected is be. The charts are reflecting the fundamental situation as the bears focus on resistance levels, the possibility of lower rates and a poor banking situation, while the bulls are watching for support zones and inflationary reports, which may indicate that an ease is not likely.
USDJPY â€“ The only news of note was the BOJ decision to keep interest rates at 0.5%. This was expected. The only other BOJ factor is the perception of an intervention if the market nears 105. This has been in the market for a week. After an early sell off, the market regained most of the loss as the U.S. equity markets recovered into the close. At this time, it appears that only extraordinary news will move this market, otherwise, traders will continue to use cost of carry as a reason to buy or sell Yen. It seems to be at the mercy of the U.S. equity markets.
Technical Commentary: The USDJPY followed through to the downside following Thursday's closing price reversal top. The lack of follow-through and slowdown of the recent upside momentum was the most discouraging action for the bulls this week. Expectations were for a huge surge to the upside on this breakout given the tight and narrow range it had built over the past two weeks. This move may happen if buyers step in following a retracement to 106.78. The short-term top indicated the possibility of a retrace to 107.25, which did occur. Buyers did step in as expected. Continue to look for choppy two sided trading until the USD regains 107.88. If it can build support at this level, then the next upside target is 109.11.
USDCHF â€“Like the USDJPY, the USDCHF felt pressure all day as U.S. equity markets fell, but regained. Continue to monitor U.S. economic reports for direction. Watch for news from UBS regarding the Swiss bankâ€™s situation.
Technical Commentary: The USDCHF completed at retracement into a key support zone at 1.092 â€“ 1.087. If this market is going to turn higher, then aggressive buying has to come in at this support zone. This zone represents 50% to .618 of the recent rally from 1.110 to 1.072. The main trend turns up on a move through 1.110. Until this occurs look for selling pressure from the bears especially if the market retraces to 1.099 and fails. We are a critical point on the charts. Holding in this area could set the tone for months while any sign of weakness sets off another aggressive round of selling.
USDCAD â€“ Technical Commentary: The strong outside move reversal puts the USDCAD in a position to challenge the last main top at 1.013. If this price is taken out, then the main trend will turn up signaling a further rally to the key .618 price at 1.019. Minor downside support is at 1.00. Two bottoms at .9919 and .9872 are the major support points.
AUDUSD â€“ The AUD continues to be one of the best performers worldwide as talk of interest rate hikes in March and again in June fueled speculative buying.
Technical Commentary: Watch for a technical breakout over .9099 with the market headed for a technical objective of .9399. Short-term support is at .8986. The fundamentals are forecasting a long-term technical rally.
NZDUSD â€“ Technical Commentary: Not much to report on in the NZD. The focus in the area seems to be on the AUD. This market needs a breakout through .7966 to reach 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. The market seems to be content at current levels.
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