Forex Go!

Forex

Asian trading hours today rendered the Dollar a slight lift as a sort of correction of the recent downmove. Right now in the European morning a consolidation in the major pairs has set in. For EUR/USD (now at 1.4170) and GBP/USD (now at 1.6070) we see another upmove to set in during today`s trading, to 1.4230 and 1.6149 correspondingly. For USD/CHF and USD/JPY (presently at 0.9210/83.60) we expect a slight selling tone in today`s trading to remain, testing the levels around  0.9175/83.35.

Stock Indices

After a mixed picture of Asian trading today (Hongkong up, Tokyo down) the Euronext 100 (presently trading at 717.77) started almost unchanged, consolidating its higher levels in this cyclical upmove, a move we expect to overwhelm the Euronext 720-mark today. DJII and NASDAQ bear further upside potential in our view, to 12375 DJII and 2365 NASDAQ. 

This morning the ADP employment change figures came out showing a gain of 201K jobs which was slightly lower than the expectation of 208K. This seems to be good enough for the markets to continue to plow higher to start the morning, ahead of Friday’s all-important Non-Farm Payrolls Report.

The weak Dollar story continues to drive markets and the market is willing to suspend its disbelief that anything can derail the move higher. This includes risk.

One potential risk event is the slow but sure deterioration of Euro fundamentals, yet the market’s blind eye to the problems resurfacing only masks what is taking place. S&P joined the downgrade party and lowered ratings on Portuguese debt, though this went largely unnoticed. Also, the Irish bank stress tests could show that the government may need to take control over all banks. Yet the market’s singular focus on the potential for a rate hike shows little appreciation for risk.

Let’s also not forget the Japanese nuclear crisis and the Libyan civil war as potential risk events.

Overnight, Asian equity markets were up big-time, following the lead of yesterday’s US stock market gains. Commoditi

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The sterling is lower in currency trading on the FX market today as concerns about Britain’s economy are brought into focus. Indeed, the latest retail sales data is emphasizing the slow rate of the economic recovery — and possibly even indicating that it is not there.

On top of that, Moody’s is cautioning that a downgrade may be coming for Britain. Economic issues are pressing on the country, and sovereign debt is a bit of a concern. This warning is also weighing on the U.K. pound in forex trading against the euro and the dollar.

The Bank of England remains between a rock and a hard place for now. Governors are still taking a wait and see approach to the interest rate. They are afraid to raise it — even though inflation is becoming a problem — because they don’t want to halt the little economic activity there is.

Forex Commentary:

The Aussie dollar rose to $1.0278, above a previous 29-year peak of $1.0257 touched on the last trading day of 2010. Traders said a break of stop-loss orders around $1.0260 helped accelerate gains.

The U.S. dollar extended gains versus major currencies Friday after a Federal Reserve official said the central bank should aggressively tighten monetary policy within a year.

The dollar index (DXY 76.16, +0.50, +0.66%) , which measures the U.S. unit against a basket of major rivals, rose to 76.242, up from 75.665 in North American trade late Thursday.

For the week, the dollar index has gained 0.7% and the euro has declined 0.8%

Trading Setups / Chart in Focus:

EURUSD

The EURUSD moved lower today, closing just above the key level support at 1.4030 and forming an inside bar.

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Last night, the Portuguese Parliament rejected the austerity measures put forth in budget prompting the Prime Minister to make good on his promise to resign. This is pushing Portugal closer to having to seek a bailout, yet the Euro is trading higher this morning. Part of the issue is that interest rates are way to high for countries like Portugal to service their debt, and without the help of the EU to lower those rates, it is unsustainable.

This comes ahead of the two-day EU Summit, and apparently the market is turning a blind eye to these issues and directing its focus toward a possible ECB rate hike at the April meeting. But with re-financing costs so high for the PIIGS countries, it is unclear how raising rates is going to help this situation.

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European equities are currently pointed lower as the small relief rally during the Asian session ended when the city of Fukushima experienced several earthquake aftershocks, creating obstacles for production rebuilding operations.  The FTSE 100 futures have dropped 0.6 percent on the news release.

Today, traders will be paying attention to the Bank of England Minutes from its last policy meeting, which will give some insight into the Bank’s opinion for future interest rate decisions.  These have taken on a higher level of importance after yesterday’s consumer price index rose higher than anticipated on a yearly basis.  Inflation at these levels makes the situation difficult for the BoE and they may have no choice at this point but to increase interest rates.  Other headlines out of the U.K. will focus on the Chancellor of the Exchequer’s budget statement to parliament.

The Japanese government released a statement this morning, attempting to assess the extent of the damage costs from the earthquake.  These figures came in much higher than other recent forecasts, at the equivalent of 310 billion U.S. Dollars, w Read more…

Its been another highly dramatic week on the markets, but its been pretty good overall. My main 4 hour trading system (see right for more details) generated one good trading opportunity and the Forex Morning Trade system, after having a very rare losing week last week, bounced back to form with a total profit of 68 points, as you can see below:

This system was 40 points ahead going into todays session, but after the price fell just short of the 40 point target earlier this morning and then started falling, I decided to take profits of around 28 points and call it a week. After all it would have been very disappointing to see if fall back to break-even (which is exactly what happened) and not bank any profits at all.

My 4 hour trading system produced a few possible set-ups on both the GBP/USD and EUR/USD pairs, but none of them were ideal set-ups because either the breakout candle was too long, or there was no pull-back for me to get a good entry point.

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For the first time in nearly 11 years, currency intervention by the G-7 has helped weaken the Yen in the wake of the catastrophe taking place in Japan. Thus the G-7 has been selling, though it will be interesting to see just how weak the Yen can go given the economic climate. Japan had trying to weaken on it is own, though the tide it was facing was too great to manage alone.

Meanwhile, the nuclear situation is still very uncertain, though efforts to contain the problem persist and the hope is that a disaster can be avoided. To what extent the damage has already occurred is uncertain at this time. Speaking of uncertainty, let’s not forget about the situation in Libya, where the international community may be ready to take action.

Despite the risk in the marketplace, the G-7 actions have encouraged financial markets as a backstop for Yen will stabilize the economic situation. S

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- The GBP/JPY, like all the yen-crosses saw a sudden decline in the yen due to the multilateral JPY intervention.

- The GBP/JPY in the 1H chart shows that it has completed 3 waves, and could therefore be done with a correction.

- However, the strength of the rally suggests otherwise, though we know this is not just based on market forces. The 4H RSI is testing 60, if it sustains a break above it, the RSI would show a market killing the bearish momentum.

- Much like the USD/JPY, we should stalk to see if the current rally is part of an impulse wave development. If it rallies before dipping below the 127.60 pivot, it should be an impulse wave, suggesting the market has further bullish attempts.

- The 133.00 is a key resistance, and a break above that suggests the bullish scenario.

- The 135.00-135.45 area is an important resistance, and the market is threatening to test it. Read more…

Wednesday was one of the most volatile trading days in the FX market for USD/JPY in years. Through it all GFT provided traders with consistent spreads of 3 pips or less, executed all market orders requested, and executed all stops and limits which were due to be filled.