The Forex markets were mixed on Wednesday. The USD was weak against the EUR, British Pound and Canadian Dollar. The USD showed strength against the Yen, Australian dollar and New Zealand dollar. April Crude Oil and Gold hit new all-times that sent inflationary signals throughout the marketplace. The threat of inflation caused Fed Funds traders to lower their odds for a Fed rate cut of 75 bp on March 18. What does it all mean? It means that the Fed is caught between lowering rates to prevent a recession and raising rates later to combat inflation. The economic picture remains grim for the U.S. Another round of rate cuts may be too late to stop a recession.
U.S. economic news was also mixed on Wednesday. Fourth quarter productivity was up 1.9% against pre-market guesses of 1.8%. In addition, the ISM Non-Manufacturing Index rose to 49.3 versus forecasts of 47.5. The focus today was on the ADP Employment Report. The report stated that the U.S. private-sector lost 23,000 jobs in February. This was well-off the premarket guesses of a 10,000 job decrease. Private sector job growth in January was revised to 119,000. The primary focus on Friday will be the release of the U.S. employment data. Non-farm payroll estimates were revised down from earlier guesses of 34K to 40K to unchanged. Any negative number could put the USD into a tailspin.
The FED Beige book, which was also released on Wednesday, noted an economic slowdown, but no contraction. Thursday, the U.S. Weekly Jobless Claims will be released at 8:30 EST. Look for this number to confirm the deteriorating U.S. job situation. Finally, the ECB announces its interest rate decision. Expectations are for rates to remain unchanged. Inflation remains enemy number one for the ECB, but weak exports due to the strong Euro may change the scenario months down the road.
EURUSD: The Euro moved to a new all-time high on Wednesday to 1.5305 on both negative U.S. economic news and support from the Euro zone which shows no slow down in growth. Talk concerning more bank write-downs continues to weigh on the Dollar. On the technical side, the main trend is still up with no sign of weakness. The current short-term range is 1.444 to 1.5305. A normal correction of this rally could take the market back to 1.495. The old top at 1.496 is also considered support. Continue to look to enter on breaks. The chart pattern is getting a little steep so be careful buying at high. Up trending Gann angle support is at 1.524 and 1.482.
GBPUSD: Early in the NY session the market was trading based on a consensus of economists who were predicting no rate cut by the BoE. Some say that the BoE will keep rates at 5.25% after earlier reports of an impending 25 bp cut. Expectations are for the BoE to act against rates on a quarterly basis rather than month-to-month. Slow growth has been anticipated, but has not shown up in the reports. There is a growing concern that the longer the BoE waits to cut, the worse the problems will be. With the market under some pressure, but the main trend still in tact, look for a buying opportunity in the GBP on a pullback to 1.967 to 1.959.
JPY: The noticeably quiet BoJ has decided to keep rates at 0.5%. They will continue to monitor the Japanese economy for any signs of weakness. Deteriorating U.S. banking conditions will also be monitored as Japanese banks have been hurt because of sub-prime write downs. The next downside target is 100. The last time the market was below 100 was in 1995. Technically, the main trend remains down. Only a trade through 108.61 turns the main trend to up. The lack of follow through to the downside indicates some profit taking at current levels. Down trending Gann angle resistance is at 104.86 today. If the market fails there, then look to sell a retracement to 105.86.
USDCHF: The USDCHF lost some ground on Wednesday. The main trend remains down, but a stronger stock market may trigger a short-covering rally. The low for the week at 103.00 has been established as short-term support. Look to sell rallies back to the Gann angle at 1.0467. The main range is 1.11 to 1.03. This creates an additional selling opportunity at 107. Continue to monitor the U.S. equity markets for short-term clues as to market direction.
USDCAD: The Canadian Dollar bounced back with a vengeance following yesterday's interest rate related sell-off. On Wednesday strong export numbers supported the currency. With the Canadian economy relying on crude, gold and wheat exports, continue to look for strength as these markets are in strong long-term trends. The key area to overcome is 1.01. Regaining this price is likely to trigger more buying.
AUDUSD: The Australian economy is beginning to show signs of weakness. This means that another round of interest rate hikes is unlikely. Try to trade the short side on a retracement of the current break. On the downside the charts indicate that some buying interest may surface at .9186 to .9113.
NZDUSD: The Bank of New Zealand decided to leave rates alone at this time. Continue to look for profit-taking in this market as there is no fundamental reason for it to be trading at current levels. The market has been factoring in more aggressive hikes later in the year. Look for traders to take this premium away as profit-takers dominate the near term. Watch for a buying opportunity if the NZD corrects all the way back to .7798 to .7700. On the upside, look for a counter-trend selling opportunity on a rally back to .8068 to .8102.
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