Data Will Be The Lynchpin

[mercaforex]

By Mercaforex

The USD turned in an intriguing day of trading as it continued to exert pressure on the GBP and held onto its less significant gains against the EUR. There was little in the way of economic data from the U.S. Monday and the currency markets watched as Wall Street turned in a positive day because of the fervor built upon merger and acquisition talk coming from the likes of Abbot Laboratories. Today traders will get a mild dose of economic data as the CB Consumer Confidence reading is released and is expected to show improvement. Also the S&P/CS Composite-20 HPI is on the schedule and anticipated to turn in better numbers. The housing sector disappointed many investors last week as both Existing Home Sales and New Home Sales figures came in below projections. Economic data will build this week and will climax on Friday as the U.S. government releases its Non Farm Employment Change numbers.

Tomorrow in a precursor to Friday’s event, the ADP Non Farm jobless report is due, and on Thursday Pending Homes Sales calculations will be brought forth. Investors will keep their eyes on the stock market today, and the questions is if Wall Street can muster another good day. The currencies have been volatile the past week and that has been a reflection of the broad marketplace which has seen colliding sentiment. Economic data has not been as promising as had been hoped for, the housing sector in particular failed to provide good impetus. The debate among investors continues to be one about perceptions regarding the type of recovery underway. The question for some is what skeletons remain in the closet and the dangers they could pose. The FDIC in the U.S. may find itself under the microscope because there is speculation that it may be vastly under financed and have to seek alternative avenues in order to maintain its equilibrium. The USD will likely stay within the domain of risk appetite today and could provide fireworks.

EUR The EUR did lose ground to the USD on Monday but continues to linger within the higher end of its ranges. The Germany Preliminary CPI data was released yesterday and continued to turn in rather disappointing numbers coming in with an outcome of minus -0.4%. The CPI statistic basically underscores the fact that inflation remains practically nil and deflation – though a word everyone apparently wants to ignore – needs to be watched. Also making news were the German election results, which seemingly point to another ‘grand coalition’ that will be led by Merkel and this could give investors a sense of stability. Today the European Consumer Confidence reading will be released, tomorrow German Unemployment Change figures are due, and on Thursday Retail Sales numbers will be released too. The EUR has seen strong trading but it has come under some pressure the last few sessions and it may face further headwinds today.

GBP The Sterling has been hit by a rather negative wave of sentiment the past week and it continued to come under pressure on Monday from the USD. There was little in the way of economic data from the U.K. yesterday as the Nationwide HPI was postponed until the end of this week. Making news was the Labor Party conference being led by Gordon Brown yesterday, but it is questionable considering his poll ratings if this has any affect at all on investors. Today the U.K. will be releasing its Current Account data and a slight improvement is the forecast. Also the Final GDP numbers will be published and investors will be braced for any surprises. GfK Consumer Confidence numbers will be presented today too. The U.K. has been relatively quiet with data the past few sessions but with today’s wave of releases on schedule the Sterling could find itself moved in a volatile fashion taking into consideration its recent poor showing.

JPY The JPY gained again on the USD over the past two trading sessions. Its soaring value sparked contradictory responses by Japanese officials this weekend about the possibility of an intervention. A strong JPY will do nothing to help the export companies that make up a vital aspect of the Japanese economy. However, the JPY appears to be gaining on risk averse trading as Asian investors analyze their portfolios. Gold is now approaching the 990.00 USD mark as it has traded lower on the turnaround in the greenback versus the other major currencies the past few sessions. The JPY has had nothing but a strong run the past month and looks like it will continue to grab the attention of traders.

Equities Gain On Merger Talk, Dollar Stronger As Well. Which Will Prevail?

SPX/USD: The American equity market showed serious strength yesterday on the back of quite a few M&A announcements. We gapped up, opened at 1055, neared 1065 on the push up and basically settled down for a 4 point range the rest of the day. We are holding the uptrend here, but will have to see how the market trades today. If we close Monday’s gap, I expect us to try and break lower and test the true strength of this market. Support 1060.1, 1055.1, 1041.2, Resistance 1066, 1074.77, 1080.2

XAU/USD: Gold has retraced about 50% of its up move. The last few candles have some decent buying tails, where there seems to be some really solid around the 985 area. If we do not hold the 985 region, expect this precious metal to trade down to 971, with a chance of a down move all the way back to the $950 range. We will keep a close eye on the Dollar as we continue to rally. Support 989.95, 984.7, 982.4, 971.75 Resistance 997.35, 999.57, 1005.2, 1009.4, 1019.

GBP/USD: The GBP/USD has been trading in a text book fashion. This channel that it has traded in for the last few months has been holding and we continue to see the strength of the outer regions of the price band. As we finally tested 1.58 (even breaking about 30 pips below, we are now back at 1.5942), we see that this support level is relatively strong. It is necessary to hold here otherwise I expect us to push down to 1.5523. Support 1.5800, 1.5723, 1.5603, 1.5523 Resistance 1.5982, 1.6027, 1.6113, 1.6375, 1.6586, 1.6743

USD/CAD: The American Dollar is trying to rally off its lows. At the moment we are showing some strength, but not enough for this trader to believe that we are going to push higher. I believe this currency pair will continue to weaken as the week develops. Keep a close eye on any news announcement coming out of the United States, as any bump in consumer confidence etc could see the return of risk appetite, and thus investors will jump out of the safe haven currency and invest their money elsewhere. Support 1.0783, 1.0711, 1.0659, 1.0589 Resistance 1.0933, 1.0992, 1.1074, 1.1125