Saturday, February 12, 2011

FOREXYARD: Forex News Blog

FOREXYARD: Forex News Blog

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A Fundamental Recap of the Week of Feb. 7-11

Posted: 11 Feb 2011 04:02 AM PST

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Market volatility was low at the beginning of this week, as a slow news cycle failed to generate significant amounts of trading activity. That all changed on Wednesday, when a speech from Fed Chairman Ben Bernanke caused investors to overwhelmingly short their USD positions. Bernanke sounded a pessimistic note with respect to the US employment sector and budget deficits. As a result of the speech, the EUR/USD took off, reaching as high as 1.3742 by the end of the day. The USD/JPY dropped close to 30 pips, while the GBP/USD moved up close to 80.

The markets shifted course on Thursday, following the release of the latest US Unemployment Claims figure. The figure came in at 383K, well below initial estimates and represented a 2 1/2 year low in new jobless claims. Investors reverted back to the greenback as a result, and the currency moved up against virtually all of its main counterparts. The EUR/USD dropped close to 100 pips as a result, while the USD/JPY went as high as 83.35 before the end of the day.

The USD remained bullish to close out the week, as the combination of renewed confidence in the US economic recovery continued to grow, while fresh concerns regarding European debt drove investors to the greenback. Whether or not the greenback can maintain this trend into next week is yet to be seen. Next Wednesday in particular looks to be a particularly big day for US fundamental news. Positive results from any of the more significant economic releases are likely to generate more momentum for the dollar.

GBP/JPY Likely to See Downward Reversal

Posted: 10 Feb 2011 11:51 PM PST

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The pair has recorded much bullish behavior in the past several days. However, the technical data indicates that this trend may reverse anytime soon. For example, as I demonstrate below, the daily chart signals that a bearish reversal is imminent, and it might have the potential of reaching towards 1.3200 levels in the coming days. This might be a good opportunity for forex traders to enter the trend at a very early stage and a great entry price.

• Below is the 8-hour chart for the GBP/JPY.

• The technical indicators that are used are the Relative Strength Index (RSI), Slow Stochastic and Williams Percent Range.

• Point 1: There is a "doji" candlestick formed in the chart, indicating that a reversal should take place.

• Point 2: The Slow Stochastic indicates an impending bearish cross, which may signal a downward movement is going to occur in the near future.

• Point 3: The Relative Strength Index (RSI) indicates that the price of this cross currently floats in the overbought territory, signaling downward pressure.

• Point 4: The Williams Percent Range has peaked at the 0 marker and has turned bearish; this means that there may actually be a strong level of downward pressure.

GBP/JPY 8-Hour Chart
EUR-GBP 11-2-2011

USD Bullish as Euro Zone Debt Concerns Reemerge

Posted: 10 Feb 2011 11:00 PM PST

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Recent data out of the United States has helped boost the strength of the dollar in recent trading. The USD climbed against most of its currency rivals in trading yesterday as euro zone debt concerns flared up and US unemployment claims came in lower than expected this week.

A decline in US Crude Oil inventories over the past week also suggests a growth in oil usage, hinting towards industrial expansion in the world's largest oil consuming country. This week's close should round off these latest price movements with a few minor publications directly related to the strength of the greenback.

Here is a summary of today's leading events:

13:30 GMT: USD – US Trade Balance

The trade balance measures the difference in value between imported and exported goods over the previous month. This month's figure is expected to show a widening in the American trade deficit. Should the actual figure come in line with expectations, the USD could see a minor correction to yesterday's strength.

14:55 GMT: USD – UoM Consumer Sentiment

The University of Michigan (UoM) releases this monthly report which represents the sentiment of consumers regarding their economic conditions. A higher reading represents a growth in consumer confidence. This month's release is expected to reveal a growth in consumer sentiment and thus may grant the USD a second boost before the closing of the week's trading.

Technical Tip – USD/JPY Triangle

Posted: 10 Feb 2011 12:26 PM PST

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Following 10-weeks of consolidation, the USD/JPY has broken out of a triangle pattern.

Typically triangle patterns result in a continuation of the long term trend. However, as the daily chart shows, the USD/JPY has breached above the upper leg of the triangle.

An estimate of the price move from the triangle pattern calls for a 3.5 yen appreciation from the breakout price. A more conservative target may be the September high of 86.00. Along the way, resistance will be found at 83.70 and the top of the triangle pattern at 84.50.

In the direction of the long term trend, support is located at the declining upper leg of the triangle which comes in today at 82.80. 81.80 may come into play should the price retrace back into the triangle. Further support is the lower leg of the triangle at 81.40 and the January low at 80.90.

USDJPY_Daily

Interest Rate Differentials Drive EUR/CHF

Posted: 10 Feb 2011 10:58 AM PST

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The euro came under renewed pressure today as spreads on Portuguese debt widened versus its German counterparts. The rise in spreads may have been caused by renewed fiscal worries in the euro zone. However, deflationary pressures in Switzerland may prevent the SNB from raising interest rates, driving the EUR/CHF higher.

Yesterday and today, Dow Jones and the Financial Times reported the ECB has renewed its sovereign bond purchases today in order to support European debentures.

Tensions in the euro zone have fallen dramatically since the height of the Greek debt crisis over the spring. The same can be said for the rise in pressures from the Irish banking crisis during the fall. To counter these tensions, the ECB announced a controversial bond buying program. Since an end to these tensions, the ECB has not been active in the markets. However, according to Dow Jones the Financial Times, the ECB has once again resumed its purchases of Portugal's sovereign bonds.

A recovery in CDS spreads as well as a reduced difference in spreads versus the European benchmark German Bunds and the Portuguese equivalent has allowed for the euro to make a dramatic recovery, rising from its lows versus the dollar and the Swiss franc.

But this situation appears to be different. As tensions rise over Portugal's fiscal difficulties, renewed selling appears in the EUR/USD, but the EUR/CHF continues to rise.

One explanation for this may be expectations for interest rate differentials in Europe versus Switzerland. Recent comments by ECB President Trichet have increased expectations of an ECB rate hike in the near term.

Today, data from Switzerland showed lower than expected CPI with an actual decline in inflation by 0.4%. Expectations were for a decline of 0.1%. This may give the SNB an opportunity to hold rates steady at 0.25% when the bank next meets in March.

The EUR/CHF is encroaching on the 200-day moving average at 1.3200, a resistance level which the pair has failed to breach in the past. A move above this level could take the pair to the 1.3400 level. Should the 200-day moving average hold, support comes in at 1.3070, followed by 1.2775.
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