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(Chart courtesy of FX Solutions' FX AccuCharts. Price on 1st pane, Slow Stochastics on 2nd pane; uptrend lines in green; downtrend lines in red; horizontal support/resistance lines in yellow; 200-period simple moving average in light blue.)
EURGBP- With a follow through higher on the back of its last week gains now underway, further upside momentum is likely in the days ahead. As long as the 0.8592 level continues to hold as support, EURGBP’s rally started from the 0.8354 level should recapture the 0.8671 level. A break of this level will open the door for a run at its Nov 08’10 high at 0.8690 and subsequently, the 0.8816 level. Its daily and weekly studies are bullish and pointing higher supporting this view. On the other hand, on a failure to break and hold above the 0.8671 level, risk of a decline back towards the 0.8592 level is likely to occur. This level is expected to reverse roles and provide support, but if it fails, its Jan 18’2011 low at 0.8332 will be targeted ahead the 0.8284 level, its 2011 low. All in all, having triggered a recovery higher, further upside risk is likely.
Mohammed Isah
Market Analyst
http://www.fxtechstrategy.com/
This report is prepared solely for information and data purposes. Opinions, estimates and projections contained herein are the author's own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the information nor the forecast shall be taken as a representation for which the author incur any responsibility. The does not accept any liability whatsoever for any loss arising from any use of this report or its contents. This report is not construed as an offer to sell or solicitation of any offer to buy any of the currencies referred to in this report
The previous day's risk aversion theme continued, with Libya and oil continuing to frighten investors. The S&P500 is down 1.1%, looking vulnerable. WTI oil futures rose 1.2% to a fresh 2/1/2 year high, now technically overbought. Fresh multi-year highs also in gold (+0.1%) and silver (+1.4%) boosted the CRB index to a fresh high, but copper (-3.5%) reversed sharply. US 10yr treasury yields reversed sharply from 3.55% around midday NY, coinciding with the fall in US equities, and are now 2bp lower at 3.47%. There was mixed Fedspeak from Lockhart (QE3 is possible), Evans (QE2 should not be curtailed), and Fisher (opposed to QE3 and QE2 could be curtailed). Moody's downgraded Greece three notches from Ba1 to B1, assigning a negative outlook. Its 10yr government bond yield rose 8bp to 12.33%, while the 2yr bond rose 41bp to 15.92% - a post-May high. Portugal's 10yr rose 8bp, near a decade high, but the other Eurozone peripherals were unruffled.
The US dollar index is slightly higher, falling in London to a fresh four-month low but bouncing in NY, mirroring the decline in US equities. EUR rose to a four month high of 1.4036 during London's morning, but reversed all of that to 1.3960 in NY. GBP underperformed, falling further from its noon peak of 1.6340 to 1.6183, and forming a technically bearish key reversal pattern. Safe-haven yen outperformed, USD/JPY between 81.95 and 82.30.
After peaking at 1.0186 midday London, pro-risk AUD fell sharply to 1.0091.
NZD's fall from 0.7402 to 0.7350 was less severe, probably because much bad news has already been priced in. AUD/NZD made a fresh decade high of 1.3794 before falling to 1.3715.
Fedspeak: QE3 can't be ruled out yet but QE2 may not be seen through to the end. Atlanta Fed president Lockhart says the Fed shouldn't rule out asset purchases beyond June: “given the emergence of new risks, I prefer a posture of [policy] fl exibility”. Meanwhile Dallas fed's Fisher remains doubtful about the effi cacy of QE2 and said he might vote to curtail it and would vote against extending or enlarging purchases “barring some frightful development”. Chicago Fed president Evans said the hurdle for altering the current program is pretty high.
Euroland Sentix investor confi dence rose from 16.7 to 17.1 in Mar, the highest since 2007. Current conditions rose but expectations slipped, with rising oil prices cited as a driving factor.
Canadian building permits fell 5.1% in Jan. The residential component was down 0.9% but non-res dropped by 13.2%.
AUD/USD and NZD/USD outlook next 24 hours: AUD is starting to threaten the lower boundary of its multi-month consolidation, today's ceiling at 1.0200 with a move to 1.0030 more likely. NZD is again testing major support at 0.7350, a break lower likely, 0.7270 the next target.
Events Today
Feb NFIB Small Business Survey Mar IBD-TIPP Economic Optimism Feb Bank Lending (Adjusted) %yr RBA Assistant Governor Lowe speakingThe GBP slid in today's trading after it was announced that Ben Broadbent was appointed to the monetary policy committee (MPC) by the Treasury on Monday. Mr Broadbent will replace Andrew Sentance on the MPC, starting with the June meeting. Mr Sentance has been the most hawkish member of the MPC and has been called for and voting for a quarter point interest rate increase in the benchmark rate since last June. We saw that 2 other members have moved over to his view in the previous rate decision.
Traders are pricing in a rate hike in May.
Mr Broadbent is a private sector economist for Goldman Sachs and his views are less hawkish than that of Mr Sentance and makes the anticipated interest rate increase from the BoE less certain. Still, he has argued that there are good arguments for both sides of the debate within the MPC, and has a view that Britain is well placed to withstand the fiscal tightening that the country will go through with a damaging effect on the economy. That makes him have a pro-growth outlook for the UK.
He sees plenty of scope for British consumers to increase spending and believes the depreciation of sterling will allow the economy to recover as the public finances are repaired.
He sees the MPC perhaps a bit too worried about the health of the economy at the expense of inflation, but still, his view is not clearly as defined as that of Mr Sentance. Until we see which side of the debate he falls on, and which way he will vote, today's news was a negative for the GBP.
Here is a collection of some more of Mr Broadbent's comments and views: Recent comments from BoE MPC nominee Broadbent
Also over the weekend, we did have some rather alarming comments from BoE Governor King in which he said the seeds for another financial crisis are still there.
From the Telegraph: Britain at risk of another financial crisis, Bank of England chief warns
"When asked whether there could be a repeat of the financial crisis, Mr King says: "Yes. The problem is still there. The search for yield goes on. Imbalances are beginning to grow again." Mr King, who rarely gives interviews, suggests that the culture of short-term profits and bonuses within the banks may ultimately be responsible for the problems.
The Governor's remarks are a warning to George Osborne, the Chancellor, as a government commission considers whether to force high street banks to sell off their investment banking arms. Mr Osborne is thought to be against such a plan, but Mr King is due to ultimately become responsible for banking regulation and his views are, therefore, critical."
His comments were met with outrage and indignation by UK financial institutions, but more importantly will be the publishing of an interim report next month on whether to break up full-service banks.
We bought EUR/JPY in early part of last week at 112.85 and the single currency found renewed buying interest at 112.54 and rallied from there throughout rest of the week, easily met our indicated upside target at 114.20 (with 135 points profit) and price eventually surged to as high as 116.00 on Friday before retreating.
We sold the EUR/GBP after seeing the retreat from 0.8593, however, last week’s rebound from 0.8461 turned out to be stronger than expected and in view of the strength of the bounce from there, we exited our short position entered at 0.8540 at 0.8550 and euro then rallied to as high as 0.8632 today.
In aussie, we sold the pair at 1.0170 last week and price did retreat from 1.0189 to as low as 1.0075, however, the currency pair jumped again from there today, our lowered stop at 1.0160 was hit and the position was closed with 10 points profit.
No position was entered in USD/CAD.
In short, 3 positions were squared among the 4 currency pairs last week with a total profit of 135 points and the positions are listed below.
1 Mar: EUR/JPY - Long at 112.85, exited at 114.20 (+135 points)
2 Mar: AUD/USD - Short at 1.0170, exited at 1.0160 (+ 10 points)
3 Mar: EUR/GBP - Short at 0.8540, exited at 0.8550 (- 10 points)
AUD EURJPY EURGBP CAD
Jan -110 -65 +45 +162
Feb -12 +220 -17 +54
Mar +10 +135 -10
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Y-T-D -112 +290 +18 +216
EUR/USD closed lower due to profit taking on Monday as it consolidates some of the rally off February's low. The low-range close sets the stage for a steady to lower opening on Tuesday. Stochastics and the RSI remain neutral to bullish signalling that sideways to higher prices are possible near-term. If it extends the rally off January's low, the 87% retracement level of the November-January decline crossing is the next upside target. Closes below the 20-day moving average crossing would confirm that a short-term top has been posted.
USD/JPY closed slightly lower due to short covering on Monday as it consolidates some of last Thursday's rally. The high-range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI have turned bullish hinting that a short-term might be in or is near. Closes above the 20-day moving average crossing would confirm that a short-term bottom has been posted. If it renews the decline off February's high, February's low crossing is the next downside target.
GBP/USD closed lower due to profit taking on Monday and the low-range close sets the stage for a steady to lower opening on Tuesday. Stochastics and the RSI are turning neutral to bearish hinting that a short-term top might be in or is near. Closes below the reaction low crossing are needed to confirm that a short-term top has been posted. If it extends the rally off December's low, weekly resistance crossing is the next upside target.
USD/CHF posted an inside day with a higher close on Monday as it consolidates some of this winter's decline. The high-range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI remain neutral to bearish signalling that sideways to lower prices are possible near-term. If it extends the aforementioned decline, downside targets will now be hard to project now that it has declined into uncharted territory. Closes above the 20-day moving average crossing would confirm that a short-term bottom has been posted.
