Intraday Analysis by Forexsoup

[forexsoup]

The NZDUSD is in a situation similar to that of the AUDUSD. Unlike the AUDUSD, the NZDUSD completed its 5 waves down in an orthodox manner (rather than in a truncation). Short term resistance is at 7625, 7655, and 7685 but strong downtrend often result in shallow retracements (in other words, be careful not to wait for a rally to short that never materializes). From yesterday – “the decline from the November high unfolded in 5 waves and was succeeded by a sharp 3 wave retracement. Similarly, the decline from 7812 (one degree of trend less) unfolded in 5 waves and then experienced a sharp and deep retracement. A break of 7549 would shift focus to the December low of 7342.”

[forexsoup]

EURUSD: Rates in Focus as ECB’s Trichet Talks Down Outlook

Last week’s impressive Euro rally clearly looks to have owed to a parallel drop in credit-default swap (CDS) spreads from the currency bloc’s most debt-stricken periphery member states (the so-called PIIGS, meaning Portugal, Ireland, Italy, Greece and Spain). However, barring any unforeseen developments, the absence of scheduled event risk on the sovereign stress front this week may bring the monetary policy outlook back into focus. On balance, this seems to bode ill for the single currency after ECB President Jean-Claude Trichet backed off from the hawkish rhetoric accompanying the bank’s latest rate decision in an interview with the Wall Street Journal over the weekend. Preliminary German Consumer Price Index figures stand out on the economic calendar. Euro Zone Consumer Confidence and M3 Money Supply figures are also on tap.

GBPUSD: All Eyes on Bank of England Minutes for Policy Clues

Monetary policy expectations remain in focus as GBPUSD continues to track closely with the UK - US Treasury yield spread. This puts the spotlight on the Bank of England as it publishes minutes from January’s MPC meeting. The dramatic build in priced-in rate hike expectations for the year ahead (as tracked by Credit Suisse) suggests traders see the bank as likely to err on the side of price stability, stepping off the sidelines to raise rates as inflation continues to rise despite the threat that such action would pose to the nascent economic recovery, particularly as the government’s austerity program gains momentum.Indeed, the central bank argued throughout 2010 that inflationary pressure was temporary and would subside over the medium term without tightening. Clearly, this has proven wrong, hinting that putting off the issue for much longer threatens to become a credibility problem. A relatively robust fourth-quarter Gross Domestic Productreading will only add to the anticipation, with the annual growth rate set to print above its long-run average despite a shallow downtick from the prior period. With that in mind, traders will be keen to parse the meeting minutes for any clues on policymakers’ thinking ahead of February’s MPC sit-down, an event made all the more important given it coincides with the unveiling of an updated quarterly inflation forecast.

USDJPY: Spotlight Stays on US Yields, FOMC and US GDP on Tap

US Treasury yields remain most prominent in driving Japanese Yen price action, putting the spotlight squarely on the busy US economic calendar. Needless to say, the Federal Reserve monetary policy announcement and the preliminary fourth-quarter Gross Domestic Product reading stand out as top-tier event risk. For the former, traders will be most concerned with quantifying policymakers’ “threshold” for reducing or even suspending the second round of quantitative easing before its scheduled completion after hints at the existence of such a barrier suddenly emerged in Fed officials’ comments over recent weeks. Policymakers’ voting pattern ought to prove significant as well as five regional Fed presidents – including the hawkish Charles Plosser and Richard Fisher – will rotate into active positions on the rate-setting FOMC. Meanwhile, the GDP is set to show the annualized growth rate jumped to 3.5 percent, the highest in three quarters. Better yet, the outcome is expected to driven by the most robust pickup in private consumption in four years. This coupled with forecasts calling for stronger readings on Consumer Confidence, New Home Sales, and Durable Goods Orderspromise to push US yields higher, taking USDJPY along for the ride.

AUDUSD: Gold Correlation Hints Aussie Weakness to Continue

The Aussie’s bearings are best revealed via its clear correlation with gold prices, with the high yielder likely to continue following the yellow metal lower as investors’ dominant forecast for the evolution of the global recovery shifts away bullish and bearish extremes.Gold had thrivedon the back of its appeal as a store of value for bulls and bears alike, with theformer camp calling for runaway inflation courtesy of ultra-loose monetary policies while the latter projected renewed collapse as fiscal stimulus expired. However, investment demand suffered a major setback, with gold ETF holdings dropping precipitously over recent weeks. The reversal seems to owe to the combination of improving US economic data, rising sovereign stress in Europe and looming slowdown in China amounting to an environment where a back-slide into recession looks unlikely while pointing to a slow and uneven recovery over the years ahead. The increasingly apparent shift in the markets’ consensus toward this scenario bodes ill for the Aussie much the same as it does for gold. Indeed, a protracted recovery hints that major central banks will now get their chance to catch up as the RBA – until recently the leader in post-crisis monetary policy normalization – as Glenn Stevens and company look increasingly likely to sit on their hands for much of the coming year. The fourth-quarter Consumer Price Index report headlines local event risk.

NZDUSD: RBNZ Rate Decision to Yield Familiar, Dovish Outcome

The rising link between NZDUSD and yield spreads puts the spotlight squarely the Reserve Bank of New Zealand. The result may yet prove to carry little weight however after last week’s disappointing inflation report and pointedly dovish comments from Prime Minister John Key seemingly dashed any reason to suspect the central bank would abandon its accommodative posture.

[kochtgr]

When the Rates of ECB’s will be anounced?

[forexsoup]

Check in the economic calendar.

[forexsoup]

Dollar Shows Limited Reaction to Consumer Confidence, What about the FOMC Decision?

Though the dollar would show signs of life early in Tuesday’s trading session; the benchmark currency would ultimately end the day once again in the red. At this point, we have seen the dollar slide for the third consecutive session on a trade-weighted basis and 10 of the past 12 days against its benchmark counterpart the euro. It may surprise some that the dollar has maintained this disappointing trajectory despite promising event risk that would emerge throughout the trading day. But, the reality is that it takes a greater degree of influence to knock speculators off established trends; and the updates we have seen simply don’t meet the necessary criteria. On the other hand, the greenback may not be doing as poorly as EURUSD suggests. Over the past week, we have made the effort to differentiate the dollar’s performance against its various counterparts to garner a better sense of its individual performance. And, while the world’s most liquid exchange rate is still set up in its bull trend, we see that the dollar has held up far better against the other majors. The commodity bloc is still restrained to congestion, the disputed safe haven pairs (USDJPY and USDCHF) are trading within January’s range and GBPUSD saw its strongest dollar move in six weeks.

With prominent fundamental catalysts due later this week, there is a natural tendency to defer major positions (and thereby trend generation) until market participants are sure of the outcome to these upcoming events. With this distraction, the market would see a limited response to the scheduled event risk through the day. On the economic docket, the housing sector was given a disappointing bill of health after the S&P/Case-Shiller composite home price index saw a 1.6 percent annual pace of contract through November while the FHFA’s own home price index passed the month unchanged. However, the top economic report was the Conference Board’s consumer sentiment survey for January. The 60.6 reading was far better than expected, an eight month high and drew a distinct contrast to the disappointing University of Michigan figure. Yet, it was the details from the report that was truly encouraging. According to the statistics, the percentage of respondents that said jobs were plentiful hit its highest level since March 2009 and the fraction expecting an increase in income over the next six months rose to an eight-month high. Perhaps this economic recovery is on a far surer footing that many are expecting.

Conjecture about the return of the consumer sector is hard to translate into immediate trading. The same can be said about President Barack Obama’s State of the Union address. There was a tangible shift from monetary profligacy to conservancy; but it will take some time before stimulus measures are unwound and deficits are reined in. In the meantime, we have two events ahead that can significantly alter the course of the dollar in the short-term. Of the two, the advanced reading of 4Q GDP is top risk; but that is later down the line. Tomorrow, the market’s attention will be on the FOMC rate decision. Given the stubbornly high level of joblessness, the absence of pressing inflation and Fed members’ commentary these past weeks and months; there is unlikely to be any meaningful change in the group’s policy stance. That said, these meetings are just as much about nuance as blatant changes. If the market interprets an early end to the stimulus program, the dollar will rally.

[forexsoup]

Euro Confidence Fading as Disputes Over Coordination Overshadows EFSF Bond Sale

The euro is riding off its own momentum at this point. If it weren’t the fundamentals of the past 24 hours would have driven the currency lower. Since the market learned of tentative proposals to coordinate the effort to solidify the region’s finances and a nascent hawkish bearing from the ECB, we have seen both drivers loose traction. Today, the EU sold a first round of 5 billion euros worth of EFSF bonds to 40 billion euros in bids. Yet, the encouraging outcome here is once again marred by Germany’s insistence that the bailout program is large enough.

[forexsoup]

Bank of England's Weale Joins Sentance in Calling For Rate Hike

The central bank's monetary policy committee split three ways in its latest meeting, with Martin Weale joining Andrew Sentance in voting for an increase in the bank rate by 25 basis points.....

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[forexsoup]

Federal Reserve policy makers held the Federal Funds Rate between 0-0.25 percent, while maintaining plans to purchase $600 billion of Treasuries through June. The accompanying statement said that the economy continues to expand, though "at a rate that has been insufficient to bring about a significant improvement in labor market conditions." The Fed also stated that inflation is too low, and unemployment too high, to be consistent in the long-run with the central bank's mandate of stable prices and full employment. Policy makers did, however, recognize upward price pressures in commodities, but said that "measures of underlying inflation have been trending downward." The FOMC decision was a unanimous vote, as new voting members Charles Plosser and Richard Fisher supported maintaing the stimulus after indicating opposition to the move in November.

The currency market was relatively unchanged following the decision, although the U.S. dollar initially fell against the euro and its commodity counterparts on the Fed's decision to continue QE2 through its scheduled expiration in June. The greenback quickly stabilized, however, with traders looking ahead to durable goods orders, pending home sales, and the U.S. fourth quarter GDP reading later on this week.


by Forexsoup

[forexsoup]

US Dollar Forecast Turns Bearish Short Term

* EUR/USD - Euro Forecast Remains Bullish in Short Term
* GBP/USD - British Pound Could Rally Further
* USD/JPY - Japanese Yen Trading Bias Unclear
* USD/CHF - Swiss Franc Sentiment Points to Trend Continuation
* USD/CAD - Canadian Dollar Could Continue to Strengthen
* GBP/JPY - British Pound Likely to Rally Against Japanese Yen


Continued crowd selling of the Euro, British Pound, Swiss Franc, and Canadian Dollar gives contrarian signal that these currencies could continue higher against the US Dollar through short-term trade. That said, recent Forex Futures and Options sentiment readings warn that the USD could soon set an important bottom on a noteworthy divergence between sentiment and currency price action. It is exceedingly difficult to time market reversals, but it is likewise difficult to ignore early signs that few options and futures traders are betting on and hedging against further US Dollar weakness.



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Fundamental Outlook

Economic activity in the world’s largest economy is expected to rise 3.5 percent in the fourth quarter after climbing 2.6 percent the quarter prior. Indeed, a reading in line with expectations will mark the highest level since the first quarter of 2010. Expansion will likely be due to a pickup in private demand. Meanwhile, the breakdown of the release may show that auto sales extended last quarter's gain as motor vehicles posted an impressive December return after showing normal returns n October in November. Growth in equipment and software may pare some of its gains, while nonresidential and residential investments is predicted to continue its southern journey.

Not to overlook, consumer spending probably provided a boost to economic activity. Spending is a key gauge heading into the GDP report due to the fact that it accounts for almost 70 percent of the overall economic activity. Tomorrow' report trails new and pending home sales data for the month of December which showed an increase of 17.5 and 2.0 percent respectively. Both readings bode well for the U.S. as many economists have been referring to growth in the world's largest economy as a homeless recovery because the housing market stayed at depressed levels longer than expected. All in all, the recent housing data paired a better than expected GDP release may provide the dollar with a much needed correction as the currency started the new year weighed by poor fundamentals.

USDJPY: The pair recently broke above descending trend line that remained intact since earlier this month. This level also coincides with the 100-day simple moving average. If price action can hold above this level, additional gains may be in the horizon. However, it is worth noting that our speculative sentiment index stands at 4.56and signals for losses in pair.


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