Forex Markets Feel Tired

March 24 2011 by Spencer McKay in Forex Release |No Comments

Markets seems to have cut out for the weekend early. German IFO data saw no sustained impact in FX markets despite decent numbers across the board. Traders seem to be struggling (myself included) with overall fatigue from the last three weeks and liquidity looks to be way down given the ease which USDJPY pushed up to 81.38. EUR has held up surprising well considering the recent news from Portugal. To compliment yesterday’s rating downgrade by Fitch, S&P followed with a sovereign credit rating cut to BBB from A-. The downgrade followed Portugals government failing to pass an austerity package wednesday. Despite the ratings cut and still fluid political situation in Portugal, risk appetite remained stable. Regional equity markets were higher with the much battered Nikkei up 1.07% and Shanghai climbing to a respectable 1.06%. The gain in regional stock markets were also assisted by a strong Wall Street session that saw a slew of companies releasing better than expected earnings results. From Japan, encouraging news regarding a decrease in radiation and nuclear power plants that are moving closer to being stable, had non domestic investors returning to net buyers of Japanese stocks. Speculation on whether Portugal will seek or be force to accept an international rescue is still buzzing around. Considering what occurred with the Irish bailout and political turmoil resulting from the original package, we suspect that Portugal will resisted accepting aid and its ridge guidelines as long a possible. In preparation EU Council President Van Rompuy stated that EU leaders had agreed the EFSF will have €440 bn effective capacity by June. Overall, our feeling is that given the relatively diminutive size of the bailout, the spillover effect in to the Eur should be limited, as long as contagion pressure is suppressed. The primary beneficiary of the renewed risk appetite in the Asian session has been the AUD. Strong demand from leveraged buyers pushed the AUDUSD to all time highs at 1.0233. We remain constructive on the currency, as restructuring demand from Japan and interest rate differentials will continue support of the AUD. And on a final note, yesterday the Fed announced that it will begin holding press conferences following its rate decision(similairly to the ECB) in and effort to provide additional tranparency. On the schedule today is the US GDP, consumer spending and U.Mich consumer sentiment. In addition, Fed President Kocherlakota, and Fisher and Evans will all be speaking. Given the malaise we have seen in Europe we suspect trading will remain subdued today.

00:00 USD European council meeting
09:00 EUR Kocherlakota Speaking on “Bubbles and Unemployment”
09:00 EUR M3 Prior 1.5 Y/Y 1.7 3mma Exp 1.9 Y/Y 1.7 3mma
09:00 EUR Private sector loans Prior 2.4 Exp 2.5
09:00 EUR German IFO Business Climate Prior 111.2 Exp 110.4
09:00 EUR German IFO Current Assessment Prior 114.7 Exp 114.2
09:00 USD German IFO Business Expectations Prior 107.9 Exp 106.6
11:30 USD Fisher Speaking on The US economy
12:30 USD Evans Speaking on creating jobs and fixing the economy
12:30 USD Real GDP Prior 2.8 Exp 3.2
12:30 SEK Real Consumer Spending Prior 4.1 Exp 4.1
12:30 USD Riksbank council meeting
13:55 EUR Michigan Sentiment Prior 68.2 Exp 68.0
18:15 Gonzalez Paramo speaking

The Risk Today: EurUsd Very impressive reversal. Originally markets have taken a dim view of Portugal’s failed austerity budget vote yesterday, and the knock to risk appetite has sent us tumbling down from Tuesday’s 1.4249 highs to lows of 1.4053 yesterday. However, there is a decent area of support eyed on the horizon between 1.4015-40 we noted held, and pushed the pair back up to 1.4220. Today we are seeing bearish feel creep back into the pair. The next levels to watch are still 1.3980 (Friday’s lows), 1.3856 (15 Mar low), 1.3744 (2 Mar low), 1.3705 (24 Feb low), and 1.3635 (minor corrective low on 22 Feb). If the 1-month uptrend can hold and elicit a recovery rally, then levels on the topside stand at 1.4249 (Tuesday’s high), 1.4281 (4 Nov high), and 1.4415 (19 Jan 2010 high and upper edge of 1-month uptrend).

GbpUsd GBPUSD continues to retrace considerably from its Tuesday peak of 1.6401, having slumped all the way back to lows of 1.6060 this morning. Next significant support now stands at 1.6060 (trend line support from 28 dec), 1.5975 (11 Mar low) then 1.5873 (50% retracement of 1.5345-1.6401). Should the trend line support hold the next area of supply should come into play at 1.6267 (24 Mar high) and 1.6458 (18 Jan & 2010 high).

UsdJpy Have to keep tapping my monitor to check it’s still working when the USDJPY chart is up – barely any movement in this pair of late, and a less than 30 pip range for the past couple of days; not exactly a trader’s delight. The consolidating range hints of a demand overhang and gives the pair a bearish feel. Currently the 80.51 level (Friday’s closing low) is the key support on the downside to break if we want to see another push for the lows. Only weak support is eyed at 78.25 before the all time lows of 76.40 – but expect central bankers to be swift in buying USDJPY if we look to get close to either of those levels. Next resistance levels are still 82.05 (15 & 18 Mar high), 82.45 (14 Mar high), 83.30 (11 Mar high), 83.55 (18 & 21 Feb highs), and 84.00 (roughly the 16 Feb high).

UsdChf It’s been a rather frustrating 48 hours for us in USDCHF however; the pair is starting gain a bullish tone. It now appears that buyers have taken control (and have already negated Friday’s high 0.9091) so the next level to watch on the topside is 0.9150 (former support turned resistance), followed by 0.9198 (16 Mar high), and 0.9252 (15 Mar high). Supports are now listed as 0.8979 (yesterday’s low), 0.8964 (17 Mar low) and then the all-time low 0.8896 which was printed on 17 Mar.

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