Forex Go!

Risk FX was under pressure in listless event free European trade as uncertainties surrounding both Greek and French election results weighed on investor sentiment pushing euro, cable and Aussie  lower as the day progressed. With Greece seemingly unable to form a working coalition chances are increasing that the country may have to face another round of Parliamentary elections after the two major parties took the worst drubbing in more than 40 years in yesterday’s Parliamentary results. 

Meanwhile the German government of  Angela Merkel rebuffed any notion of becoming more fiscally liberal in order to stimulate the EZ economy. France’s newly elected President Francois Hollande ran on a platform of ending the “all-austerity” approach which would in essence modify the current fiscal compact in the union. However, Ms. Merkel’s spokesman, Steffen Seibert, said: “It is not possible to renegotiate the budgetary pact which has already been signed by 25 out of 27 EU countries,” effectively cutting off any debate on possible fiscal stimulus.

Wit

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Dollar is trying to rebound as risk sentiments are hurt by disappointing US durables and UK GDP. Headline durables in US rose 2.2% in February, below expectation of 2.9%. Meanwhile, ex-transport orders also rose less than expected by 1.6% versus consensus of 2.0%. European major indices failed to sustain earlier gains and dipped mildly while US futures point to slightly lower open. Most major currencies are mildly lower against dollar as risk appetite recedes in quarter end trading. Though, Sterling and Aussie are particularly weak.

Sterling dropped sharply today as UK GDP was unexpectedly revised lower to -0.3% qoq in Q4. Annual rate was also lowered to 0.5%. More worryingly, household real disposable income dropped -0.2% qoq, -1.2% yoy, the largest annual decline since 1977. Savings ratio also dropped from 7.9% to 7.7%. The data showed than consumers had less to spend and needed to dig into their savings to maintain their living. Recent economic data suggested that UK will return to growth in Q1 and was affirmed by recent comments of Chancellor of Exchequer Osborne.

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EURUSD Forecast The EURUSD had another indecisive movement yesterday. Price attempted to push lower but found a good support around the lower line of the bullish channel as you can see on my h4 chart below, keep the bullish phase since bounced from 1.3000 remains intact with nearest bullish target around 1.3400. A clear break and daily close above that area could trigger further bullish scenario at least testing 1.3480 – 1.3500 region. On the downside, only a clear break below the bullish channel and 1.3240 could stop the bullish phase testing 1.3130 – 1.3000 support area.

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Risk FX came under moderately heavy pressure in morning European trade today with EUR/USD dropping below the 1.3300 level despite relatively strong German labor data and improved yields from the Italian 10 year BTP auction. The markets ignored economic data and focused instead on increasing concerns about slowdown in global growth with Aussie taking the brunt of the selling in Asian and early European trade.

The Aussie was heavily pressured by sales in AUD/JPY as general risk off sentiment prevailed throughout  the night with talk in the market that end of quarter rebalancing flows in equities could exacerbate the selloff as the day  proceeds. T

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GBPUSD Analysis. GBPUSD remains in short term uptrend from 1.5602, the pullback from 1.5913 is likely consolidation of the uptrend. Support level is at 1.5800, as long as this level holds, uptrend could be expected to resume, and another rise to test 1.5991 previous high resistance is possible. On the downside, a breakdown below 1.5800 will suggest that a cycle top has been formed at 1.5913 on 4-hour chart, then further fall towards 1.5602 could be seen.

AUDUSD Analysis. AUDUSD failed to break above 1.0668 resistance and dropped from 1.0636. The fall would possibly be resumption of the downtrend from 1.0855. Support is at 1.0421, a breakdown below this level could trigger another fall towards 1.0200.

USDJPY Analysis. USDJPY is in consolidation of the uptrend from 76.02. Lengthier sideways movement would likely be seen in a couple of days.

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As expected, the SNB left its monetary policy unchanged in March. The central bank maintained the 3-month Libor target range at 0-0.25% and pledged to maintain the minimum exchange rate of CHF 1.20 per euro ‘with utmost determination’. While acknowledging the mixed macroeconomic outlook, policymakers warned once again of the strength in the Swiss franc.

At the policy statement, the SNB noted recent improvement in the US economy, stating the nation’s growth was ‘surprisingly positive’ in 4Q11. Yet, it raised concerns about the contraction in the Eurozone as well as Japan. While the second bailout plan on Greece has finally been approved, it’s not expected to be the end of the debt problems in the Eurozone. The SNB said that ‘It is unclear whether the advances in solving the European sovereign debt crisis will succeed in defusing the situation permanently’. The SNB also showed concerns about the impacts of recent spikes in oil prices on global economic recovery.

Domestically, policymakers stated that growth has ‘slowed significantly over the course of the past year’. For 2012, the SNB is now forecasting moderate growth, at close to 1%.

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EURUSD Forecast The EURUSD had a significant bearish pullback last week after formed the double top formation around 1.3480 and slipped below 1.3200. The bias is bearish in nearest term testing the trend line support and 1.3150 area as you can see on my h4 chart below. The bullish scenario since bounced from 1.2625 should remain intact but a clear break and daily close below the trend line support could end the bullish phase and give further confirmation to the double top bearish reversal scenario testing 1.3000 even lower. On the upside, we need a movement at least back above 1.3320 to keep the bullish phase intact retesting 1.3480 key resistance area.

The Market Word – Crude Oil

US Crude Oil and the distillate demand is up as of September due to the increase in growth from the manufacturing sector! Energy consumption was up 2.5 % to 19.929 barrels a day. Recent reports are regarding the third quarter showing a modest recovery. The API demand statistics reveal a higher than anticipated demand. Demand for gasoline was up 0.3 % to 9.144 million bpd in September. Jet fuel also reflected an increase of 3.6 %  to 1.509 million bpd. These figures account for the increase in consumer confidence. US Crude Oil monthly production has actually decreased 5.4 % to 5.349 million bpd from this time last year. Crude Oil and other energy imports were down 9.9 % from last year.  Total imports were down 60.8 % from last year. The Euro Zone summit would also contribute to a bullish case if a plan is drawn from the meeting. Increased growth globally translate to increased demands. Libya, while now free from the tyrannical rule, will take time to get back to their production schedules.

Technically, the Crude Oil is in buy mode according to the Wilder’s Parabolic SAR!

Sample Trade Opportunity! 

Buy December Crude Oil (ECLZ11) at $86.50. If Read more…

UK Retail Sales surprised to the upside printing at 0.9% versus -0.3% eyed triggering a rally in cable that pushed the pair through the 1.5850 level in mid morning London trade. This was the second positive reading in a row and fourth out the past five months, indicating that UK consumer demand  is far more robust than the market consensus view.

The strong jump in retail sales volumes was particularly surprising given the  weak BRC data which showed spending fell by -0.3% last month. Growth was driven by 5.9% increase in “other” category which includes chemists, computer stores, bookshops and jewelry stores. Household goods stores also saw a sharp rise to 4.8% indicating that the housing sector is beginning to recover.

The surprisingly strong retail sales data provides tangible proof of better consumer sentiment, which just rose to a five month high indicating that the UK economy is likely to rebound in Q1 of 2012. The news also tempers expectations of further increases in QE from BOE which  should prove positive for the pound.

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