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Forex Daily News | Forex Articles | Forex Information
Friday, 29 October 2010 06:42

British Pound Working Towards Range High

Contributed by: DailyFx

British_Pound_Working_Towards_Range_High

The GBPUSD remains range bound. The specter of the recent double top with RSI divergence brings to the forefront the potential for a test of 15294 in the coming weeks. Trading above 16110 would shift focus to the trendline (triangle line?), which is at 16340 next week.

Published in Forex News
Friday, 29 October 2010 05:23

Crude Drifts Sideways

Contributed By: DailyFx

Crude_Drifts_Sideways

Crude continues to find support near the 200 day SMA and potential remains for strength in a small 5th wave to 8570 in order to complete the entire corrective advance from 7150. However, the channel support that has held for over a week is giving way today. Coming under 7975 would suggest that the larger decline is underway.

Published in Forex News

Contributed By: DailyFx

* Dollar Correction Dampens the Opportunity of a True Bullish Reversal on Friday’s 3Q GDP
* Japanese Yen Won’t Remain Resilient to Stimulus, Deflation, Chocked Growth Forever
* British Pound Climbs Despite Drop in Sales Activity and Posen’s Incessantly Dovish Musings
* Euro Climb Finds Support through Climb in Optimism, Looking Ahead to Inflation and Jobs
* Australian Dollar Slips Against Most Crosses Despite IMF’s Suggestion for more RBA Hikes
* Canadian Dollar Range Bound Ahead of August GDP Report

Dollar Correction Dampens the Opportunity of a True Bullish Reversal on Friday’s 3Q GDPAvoiding the actual performance of the dollar through Thursday’s session; if we were to evaluate the progress of the currency’s typical fundamental catalysts, the conclusion would be rather mundane. For the greatest potential energy at this point, risk appetite trends were steady. Looking to the S&P 500, the index ended the session little changed and just above the floor of its now-blatant two-month rising trend channel. And, if we were looking for a stimulus influence, it would be fair to suggest that speculative assets would have been nudged by a meaningful development. Even the macroeconomic docket was eerily quiet in the lead up to heavy event risk scheduled for the final 24 hours of trading. Yet, despite all of this, the trade-weighted Dollar Index would put in for its second largest daily decline in five weeks. Across the majors, this would pull EURUSD back from the edge of three-week lows, drive GBPUSD deeper into its congestion pattern, curb USDJPY’s nascent reversal effort and prevent AUDUSD from confirming the development of a new bear trend. Looking at this from a purely speculative point of view, such a move could be construed as defensive positioning – easing the possibility of a major breakout and trend development (perhaps dollar favorable) ahead of the more critical Federal Open Market Committee (FOMC) rate decision scheduled next Tuesday.

For those fundamental traders that can’t bear an explanation that relies on the market psychology; there were a few concerns that would generate significant concern for the greenback’s health. The most prominent of these matters was the carryover influence of the New York Fed’s poll of its Primary Dealers (those required to deal with open market operations and Treasury auctions) whereby they asked the banks what the expected size and time frame for a second round of stimulus would be. This is highly unusual; and their motivations can only be guessed at. Naturally, asking this group their expectations reflects an effort to establish the market’s expectations for the results. This is likely being done to determine what would constitute a surprise outcome to the markets next Wednesday. A shock could very well risk a major volatility event; which, if officials are concerned of, would indirectly suggest they believe risk appetite is flimsy. Another logical deduction from this poll is that the central bank is almost certain to offer a second wave of stimulus and perhaps attempt to meet expectations. The other lesser, dollar catalyst for the day was the suggestion by the IMF that the dollar was ‘on the strong side’ given its fundamental backdrop. That being said, their assessment loses credibility when they say the euro, pound and yen are generally ‘inline’ given their respective health.

Looking ahead to the final 24 hours of trading this week, the dollar has a big fundamental catalyst ahead of it. The advanced reading of third quarter GDP is inherently an important indicator; because it represents one of the broadest readings of health available. What makes this even more noteworthy is the fact that it comes just ahead of a second round of quantitative easing. In this capacity, officials and investors will benchmark the size and time frame for additional stimulus by this particular barometer of strength. Alternatively, with the outlook for what has dubbed ‘QE2’ already priced in, there may be a bigger impact on risk appetite trends (equities). That could trigger a significant move.


Japanese Yen Won’t Remain Resilient to Stimulus, Deflation, Chocked Growth Forever
An economy that has a heavy dependence on one particular sector, has battled deflation on and off for decades, faces deeply engrained credit troubles and is now pursuing an ever-increasing stimulus policy should reasonably maintain a weak currency. However, these are the conditions that the Japanese economy and yen face; and yet, the currency is just off record and multi-year highs against its primary counterparts. This is another example of speculative interests diverging from fundamental reality. This is certainly not uncommon; but the eventual corrections can be violent (just look at the dollar’s moves over the past three years). In the meantime, the BoJ’s rate decision Thursday morning was notable for details on the five trillion yen stimulus program the government approved with planned purchases of JGBs, lower grade corporate bonds, ETFs and REITs. More remarkable in this particular meeting was the revelation that the BoJ moved up its next decision three weeks to November 5th.

British Pound Climbs Despite Drop in Sales Activity and Posen’s Incessantly Dovish Musings
There was a smattering of scheduled event risk for the British pound; but it would ultimately carry little weight for price action. Housing prices reportedly grew at the slowest pace in a year according to Nationwide and the CBI’s sales report for October broke its expansionary pace for the first time since May. At it again, the BoE’s Posen remarked that he was afraid that QE was not enough and spending cuts would hurt growth.

Euro Climb Finds Support through Climb in Optimism, Looking Ahead to Inflation and Jobs
If we want to identify the source of the euro’s strength Thursday; we need look no further than EURUSD. When the dollar is weak, the natural liquidity link between these two currency leveraged buying of the shared currency. For fundamentals, the German jobs figures were already accounted for while the three year high in Eurozone confidence was notable. Tomorrow, we have inflation and employment to take in.

Australian Dollar Slips Against Most Crosses Despite IMF’s Suggestion for more RBA Hikes
Given the despair Aussie dollar bulls fell into after the modest deceleration of the 3Q CPI data early Wednesday morning; it seems pretty obvious that where the larger risk is in future moves. That said, there is plenty of support for a steady bullish and hawkish trend for the currency going forward. New to this column Thursday was the IMF’s suggestion to the RBA that hikes would be necessary is growth held steady.

Canadian Dollar Range Bound Ahead of August GDP Report
There was relatively little in the way of scheduled event risk for loonie traders to work with Friday; but the fundamentally inclined took note of Finance Minister Flaherty’s suggestion that the nation is moving towards a balanced budget in the medium-term – a significant deal nowadays. In the final 24 hours, all Canadian dollar traders will be watching US GDP; but it will be important to also take note of Canadian GDP for August.

Published in Forex News

Contributed By: DailyFx

Recent data out of Asia has been less than impressive, with a slew of Japanese economic releases coming in on the whole much weaker. The key takeaways have been disastrous industrial production figures, softer inflation readings, and a weaker household spending. The market reaction has been rather interesting however, with the Yen rallying over the past several hours and looking to once again close in on its record highs against the US Dollar from 1995, which stands at 79.75 Usd/Jpy. Also out in Asian trade has been a worse than expected New Zealand trade balance and a slightly improved UK GfK consumer confidence reading (albeit still very much in the negative and only fractionally better than the previous print and expectations).

It is certainly hard to assign a logical and fundamental spin on the price action in the Yen, with the market seemingly responding to the much weaker Japanese economic data through the purchase of more Yen on what might be described as flight to safety buying. But this type of logic doesn’t hold well with us, as the Yen is hardly a safe-haven currency in our opinion, and has more recently broken away from this correlation, instead trading more in reaction to broad based US Dollar sentiment. But so far in Friday trade, the USD is hardly offered, and in fact has started to come back a bit against most major currencies. So what gives?

In our opinion, at this point, the price action in the Yen is now isolated from all other market influences and correlations, and is really only now driven by one overriding theme. While all other major currencies have managed to take out some key levels in recent weeks against the buck (Franc to record highs, Aussie to post-float record highs by parity, etc.), the Yen still has not taken out its key level which comes in by 79.75 in Usd/Jpy, the record level from 1995. To us, market participants are fixated on taking out this level, and until the barrier is broken, we expect to continue to see the Yen well bid. Overall, our bias is actually quite Yen bearish, but markets have a real knack for needing to test and take out critical levels once they are in sight, irrespective of any other fundamental forces or influences.

Over the past several weeks, currencies have been directly correlated to USD sentiment. If the USD Dollar goes down, than it goes down across the board, and if the US Dollar goes up, then it goes up across the board. However, the Yen has been ignoring this theme of late in what we can only classify as isolated flow related demand in an effort to finally take out the critical 79.75 level. The Yen is effectively the last man standing, the final holdout currency that has not been able to break its own critical levels of late. As such, we continue to expect to see more downside pressures in Usd/Jpy over the coming sessions until the 79.75 level is finally taken out. But once the level is broken, we will be aggressively looking for an opportunity to fade the move as there no longer will be as much need to drive Yen strength, and many Yen longs will surely be looking to book profits on an overdone currency at record highs with arguably no convincing fundamental lure and plenty of reasons to be fearful of a central bank that will be looking to pull the trigger and intervene.

We do not think the Bank of Japan is done by any means, and we also think that the central bank is very much in tune with market levels and knows that at this point, intervening ahead of 79.75 would most probably be an exercise in futility (efforts in recent weeks have already failed). However, once the level is finally taken out, timing for an intervention in our opinion would be more than perfect, and could spark a major reversal in the currency. This aligns well with our overall view for a stronger US Dollar, and we also see risks for additional broad based USD strength over the coming weeks. The buck is currently in the process of attempting to mount a comeback, and should the Greenback manage another push, it could very well open the floodgates and really help to fuel massive Yen liquidation and fresh Yen selling all at the same time.

Looking ahead, German retail sales(0.5% expected) are due at 6:00GMT, followed by UK M4 money supply, mortgage approvals (46k expected), net consumer credit (0.0B expected) and net lending sec. on dwellings (1.0B expected) at 8:30GMT. Eurozone CPI estimates (1.8% expected) and the unemployment rate (10.1% expected) are then out at 9:00GMT, with the KOF Swiss leading indicator (2.16 expected) capping things of for the European session at 9:30GMT. US equity futures and commodities prices are tracking moderately lower into the European open.

Published in Forex News

Contributed By: DailyFx

Talking Points

* Japanese Yen: Gaining Ground Against Most Currencies
* British Pound: U.K. Lending Unexpectedly Improves in September
* Euro: Inflation Gathers Pace, Policy Makers Hold Cautious Tone
* U.S. Dollar: 3Q GDP, U. of Michigan Confidence on Tap

The Euro slipped to a low of 1.3806 during the overnight trade as European policy makers maintained a cautious outlook for the region, and the single-currency is likely to face increased volatility going into the end of the week given the large batch of economic data scheduled for Friday. With the EUR/USD struggling to hold above 1.3900, the 61.8% Fibonacci retracement from the 2009 high to the 2010 low, the exchange rate looks poised to fall back towards the 50.0% Fib around 1.3500 to test for short-term support, and the euro-dollar looks to have put in a clear top around 1.4150 after being heavily overbought earlier this month. Meanwhile, European Central Bank President Jean-Claude Trichet said fiscal imbalances in the euro-region could spark a “sudden” drop in confidence during an interview with Politis, and argued that “implementing a sound fiscal policy is a necessary preconditions for achieving sustainable growth in the long run” as the governments operating under the fixed-exchange rate system struggle to manage their public finances.

As the ECB aims to encourage a sustainable recovery, we expect the central bank to maintain a neutral policy stance throughout the remainder of the year, but the Governing Council may adopt a hawkish tone going forward as price pressures intensify. The consumer price estimate for the Euro-Zone unexpectedly increased to an annualized pace of 1.9% in October to mark the highest reading since November 2008, and the central bank may look to normalize monetary policy further heading into 2011 as it maintains its one and only mandate to ensure price stability. Speculation for a rate hike in the beginning of the following year could gather pace as the ECB expect to see a moderate recovery going forward, and a rise in interest rate expectations could strengthen the euro over the near-term as investors weigh the prospects for future policy.

The British Pound bounced back from a low of 1.5877 during the European trade as the economic docket reinforced an improved outlook for the region, and the GBP/USD may continue to pare the overnight decline throughout the day as it maintains the upward trend from May. Mortgage approvals in Britain increased 47.5K in September, which topped forecasts for a 46.0K rise, while consumer credit unexpectedly expanded 0.3B during the same period after holding flat in August. As growth prospects improve, the Bank of England is likely to maintain its current policy in November, and the British Pound may strengthen over the following week as investors curb speculation for another expansion in quantitative easing. As a result, we expect the GBP/USD to retrace the decline from earlier this month as price action works its way back towards 1.6000, and we could see a test of 1.6230-40, the 23.6% Fib from the 2009 low to high, as it carves out a near-term bottom around the 50-Day SMA at 1.5673.

U.S. dollar price action was mixed overnight, with the USD/JPY extending the previous day’s decline to reach a low of 80.53 on Friday, and the greenback is likely to face increased volatility going into the North American trade as the economic calendar is expected to reinforce an improved outlook for future growth. The world’s largest economy is forecasted to expand 2.0% in the third-quarter, while personal consumption is projected to increase another 2.5% during the same period after rising 2.0% in the second quarter, and the data could trigger a breakout in the major currencies as investors weigh the prospects for a sustainable recovery. Moreover, the final U. of Michigan confidence survey is expected to tip higher in October, with market participants anticipating the index to increase to 68.0 from an initial forecast of 67.9, while the Chicago Fed PMI is projected to fall back to 58.0 from 60.4 in September. However, as we have the Fed interest rate decision as well as non-farm payrolls lined up for the following week, there could be mixed reactions following the slew of data scheduled for today as investors speculate the central bank to expand monetary policy further in November.

Published in Forex News

USD Dollar (USD) – The Dollar strengthened across the board in Forex trading, as stocks in the U.S. approached session lows. Core Durable Goods Orders came out at -0.8%, worse than the expected 0.2%. New Home Sales came out at 307K better than the expected 300K. The Stock Markets in the U.S. closed mixed with the Dow Jones losing 0.39% and the NASDAQ advancing by 0.24%. Crude Oil fell by 0.7%, closing near $82 a barrel. Gold (XAU) also declined and closed at $1325 an ounce. Today, The Initial Jobless Claims report is expected at 455k vs. 452k previously.

Euro (EUR) – The Euro weakened against the Dollar for a second day in a row, although the German CPI came out unchanged at 0.1%. Holding above the 1.3740 support level might rebound the pair back to 1.38 zones and push it higher. Overall, EUR/USD traded with a low of 1.3733 and with a high of 1.3877. Today, ECB President Trichet will speak.

EUR/USD – Last: 1.3824

Resistance

1.3840

1.3880

1.3980

Support

1.3740

1.3700

British Pound (GBP) – The Pound weakened against the dollar and almost erased all the previous day's gains. The pair weakened after negative a Wall Street opening and strengthening of the Dollar across the board. Holding above the 1.57 support level might rebound the pair back to 1.58 zones and push it higher. Overall, GBP/USD traded with a low of 1.5728 and with a high of 1.5863. Today, the Nationwide HPI is expected at -0.3% vs. 0.1% previously. CBI Realized Sales are expected at 44 vs. 49 previously.

GBP/USD - Last: 1.5803

Resistance

1.5900

1.5945

Support

1.5755

1.5685

1.5650

Japanese Yen (JPY) – The Dollar gained versus the Yen for a second day in a row but still seems capped under the 82 zone. Retail Sales came out at 1.2%, worse than the expected 3.2%. Breaching the 82 resistance level in the pair might fuel a positive trend for the USD/JPY. Overall, USD/JPY traded with a low of 81.30 and with a high of 81.97. Today, the Interest Rate Decision is expected unchanged at 0.1%. The Tokyo Core CPI is expected at -0.8% vs. -1% previously.

USD/JPY-Last: 81.56

Resistance

82.00

82.30

Support

81.50

80.90


Canadian dollar (CAD) – Canada’s dollar weakened for a second day against the U.S. Dollar as the USD strengthened against all of its major counterparts on speculation that bond buying by the FED will be less than expected. Breaching the 1.0340 resistance level in the pair might fuel a positive trend for the USD/CAD. Overall, USD/CAD traded with a low of 1.0225 and with a high of 1.0337. No economic data is expected today.

USD/CAD - Last: 1.0267

Resistance

1.0300

1.0340

Support

1.0220

1.0160

 

Published in Forex Articles

Contributed by: DailyFx

Commodities – Energy

Crude Oil Barely Moves Ahead of Inventory Data

Crude Oil (WTI) - $82.14 // $0.41 // 0.50%

Commentary: Talk about a boring day in financial markets on Tuesday. Crude oil had a daily range of 74 cents, or less than 1%, while the S&P 500 stock index fluctuated about 10 points from high to low, also less than 1%. Fitting for such a day, crude settled $0.03, or 0.04%, higher, to end at $82.55. Both crude and stocks are trading near the highest levels of this year, so it is little surprise that we aren’t seeing huge moves to the upside from here. Instead, prices are very gradually creeping higher, climbing the proverbial wall of worry. We would only expect volatility to reintroduce itself were there some catalyst to push prices meaningfully lower. Right now there is no such catalyst for the global economic landscape is rosy and the Fed’s promise of further easing still lies around the corner.

Tomorrow brings the Department of Energy’s weekly report on U.S. petroleum inventories. If the less-authoritative API survey (an industry source) is anywhere close to accurate, perhaps crude markets will get that jolt of volatility traders are hoping for. The API numbers indicate that last week crude oil inventories increased by a whopping 6.4 million barrels, while gasoline inventories fell by 1.8 million barrels, and distillate inventories increased by 0.8 million barrels. These figures are much more bearish than the 5-year average which is for a crude build of 0.4 million barrels, a small gasoline draw, and a distillate draw of 0.4 million barrels.

Regardless of tomorrow’s numbers, crude oil inventories remain extremely high currently. That is going to keep a lid of oil prices and prevent the commodity from spiraling higher from here. And while the global demand picture looks robust, we need to see evidence of that demand eating into this excess supply before crude prices break above $90.

Technical Outlook: Prices continue to linger near the top of a downward-sloping channel set from the swing high set earlier this month. A turn lower from here will see the bears targeting $79.21, the 38.2% Fibonacci retracement of the 8/25-10/7 advance. Near-term resistance stands at the channel top, now at $82.97.

Crude_Oil_Barely_Moves_Ahead_of_Inventory_Data_1

Commodities – Metals

Gold Shrugs off Dollar Rally and Advances

Gold - $1335.90 // $4.55 // 0.34%

Commentary: Gold managed to close in the green on Tuesday, moving contrary to the strong inverse correlation the metal has had with the U.S. Dollar recently. Though down for most of the day, gold managed to eke out a $0.60, or 0.04%, gain. This performance was especially impressive considering the strong upward move the dollar put in. As measured by the trade-weighted Dollar Index, the greenback rose 0.78%.

Much of the strength in gold may be attributed to the enormous reversal we saw in silver prices. Typically we see gold as the primary driver of the precious metals complex, but when silver rallies from a 2.09% loss to go green and end up with a 1% gain, that is definitely going to have a spillover impact.

Now the question becomes, if the U.S. Dollar continues to rally, can gold rally as well? Has the gold-dollar correlation broken down? We don’t see that as a likely scenario. By any measure, gold prices are extremely overbought and ripe for some profit taking. Gold ETF holdings have topped and are trending lower. There is little reason to believe that traders will bid gold prices higher in such an environment. Indeed, we have speculated that gold could potentially fall even if the dollar remained at recent lows or fell even further. Now that it is rising, the impetus for a gold correction is that much greater.

Technical Outlook: Prices are testing the top of a falling channel set from this month’s swing high (now at $1339.81), with a break higher exposing horizontal resistance at $1361.25. A turn lower sees support at $1332.99, the 23.6% Fibonacci retracement of the 7/28-10/14 advance, followed by a rising trend line now at $1317.89.

Silver - $23.903 // $0.02 // 0.07%

Commentary: We referenced silver’s incredible move on Tuesday in the gold section above. Prices rebounded from a low of $23.16 to as high as $23.95, before settling at $23.88, up $0.23, or 0.96%, on the day. Silver’s parabolic rally over the last several weeks has attracted a lot of attention. Momentum traders and trend followers are eyeing the metal intently. It’s plausible that some of those that missed the run up in prices saw this latest dip as an opportunity to buy. Is it sustainable? Like we said in the gold section, if the dollar continues to rally, we don’t see much upside for the precious metals complex from here.

The gold/silver ratio plunged to 55.7, a new low for the year and the lowest level since August 2008. (The gold/silver ratio measures the relative performance of gold and silver. A higher number indicates gold outperformance, while a lower number indicates silver outperformance).

Technical Outlook: Prices have broken above the top of a falling channel set from October’s swing high to stall at resistance marked by the 50% Fibonacci retracement of the 10/14-10/22 decline at $23.87. A break above this level exposes the 61.8% Fib at $24.12. Near-term support lines up at $23.63, the 23.6% retracement level.

Crude_Oil_Barely_Moves_Ahead_of_Inventory_Data_2

Published in Forex News
Wednesday, 27 October 2010 13:15

EUR/CHF Classical 27/10/2010

Contributed by: DailyFx

 

EURCHF_Classical_27102010

EUR/CHF: The market could finally have found a major base by the recently set record lows at 1.2765, with weekly and monthly studies starting to correct. The cross has finally managed a close back above some major falling trend-line resistance from May to further encourage the prospects for a shift in the trend and additional recovery over the coming weeks. Next key resistance comes in by 1.3820, while setbacks should be very well supported in the 1.3450-1.3500 area.

 

Published in Forex News

Contributed by: DailyFx

USD_Graphic_Rewind_Dollar_Sentiment_Finally_Shifting

The dollar index managed to register a second consecutive day of gains and gained broadly as the market begins to pay some attention to the hawkish comments from Fed officials. We have been saying for some time now that we think the market has been selling dollars without cause, especially after Fed officials have been saying repeatedly that QE2 is not a certainty and the Fed will not be forced to act because of market expectations. Now that the FOMC (on Nov. 3) comes on to the horizon players are finally heeding these comments and preparing for a smaller second round of easing, which is bullish for the dollar considering how brutally it has been beaten down. Supporting this view we cite the euro closing below key levels which should open the trap-door to further losses, the yen seems to be carving out something of a short-term base and the commodity currencies have come under the cosh.

Looking ahead, while it is too early for euphoria we do believe that sentiment toward to dollar is finally shifting and the dollar will see the material correction we have been calling for play out in coming days. With quiet European calendar trade will likely remain muted and pick up in the US session with US durable goods orders early and Fed’s Dudley speaking late in the session.

Published in Forex News

Contributed by: DailyFx

For those who have been following me, you are all well aware of my approach to the markets and equally aware that while all of my strategy and trading ideas are rooted in a technical methodology, I am always trying to find a way to align my technical views with some form of a fundamental justification for my ideas. I love this approach to the market as I believe that looking at things technically gives the trader a pure unbiased and objective read on direction, and also allows the trader to notice small shifts or subtle changes in price action, that might otherwise not be recognizable to the pure fundamental trader.

People always ask about technical analysis and question its effectiveness as an analytical tool. To me, technical analysis is the purest form of fundamental analysis, in that it is simply a blueprint for all that is being factored into the market. If we are to believe that everything is priced into the markets, then it would seem that looking at a chart, which incorporates all that is priced into the markets and all that is known (this includes fundamentals, quants, flows etc), would be an excellent way to formulate an opinion, with all of the facts essentially right in front of your eyes.

Over the past few weeks, we have been talking a lot about price action and highlighted that technical levels have extended to the point where we should see some form of a correction. Throughout this period we have been trying to anticipate what the fundamental catalyst for such a move could be, and we have suggested that it very well could be that market expectations for asecond round of quantitative easing (“QE”) from the Fed have been too aggressive, and that much of the Dollar slide on the back of these expectations, would reverse sharply if expectations for more QE were scaled back. This is precisely how things have played out, and we have seen Fed officials come out with some much less dovish talk over the past week, while the latest WSJ article overnight has accelerated the round of USD buying, after the paper reported that indeed the Fed was preparing a much lighter round of additional stimulus than had been anticipated.

Another interesting observation we would like to offer is the fact that when we finally do see the fundamental catalyst that confirms price action was indeed quite stretched and due for a correction, there are often a number of other fundamental developments that creep in and help to snowball the shift in the market. To cite this latest trend reversal, on top of the scaled back QE expectations which have been the main driver for the reversal, in recent trade, we have also seen China come out with a higher than expected USD/CNY fix, inflation data out of Australia much softer than expected, and downbeat comments from ECB Weber who says that the recovery in Germany is not yet self-sustaining.

It is amazing how things fall into place so perfectly when we finally do see the reversal in the market. The Australian Dollar which had been one of the most overextended and overbought currencies, has come off the hardest overnight, with the relative weakness driven by the much softer than expected inflation data. Meanwhile, the currency that had relatively underperformed against all other currencies throughout the broad based USD weakness, has now emerged as the strongest on a relative basis. Here too, we have seen a perfectly timed fundamental catalyst for the relative strength, with QE expectations in the UK being scaled back dramatically after a much stronger than expected GDP print on Tuesday.

Of course, trading the markets is no simple task and just because we might notice a technical shift, or what we think to be a technical shift, does not mean that we will be right. However, we do think that our approach to the market allows us to formulate sound and compelling strategies that factor in all of the key variables. Indeed, technical analysis is no magic future predictor, but at the end of the day, it is a highly effective tool that offers a tremendous amount of insight into price action and sentiment in the market.

Looking ahead, the European economic calendar is anemic, with the only notable releases coming in the form of Eurozone M3money supply (0.9% expected), and German inflation data due at 8:00GMT. US equity futures and commodities prices are tracking lower into European trade on similar correlations to price action in currencies.

Published in Forex News
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