Daily Forex Commentary

Majors: Japanese economic growth data beat expectations of an increase in year to date GDP to around 3.5% coming in at a whopping 4.6% during Q4 2009. The weak Yen helped exports and with improvements in global demand mainly led by China also playing a big role growth in the region beat economist forecasts. Despite the positive news the JPY weakened against the USD trading to 90.20 in Asian trade as many analysts expect the rise in GDP to be relatively short lived. With little in the way of offshore economic data for direction overnight it emerged that the Greece finance ministry had entered into interest rate swaps as a means to defer interest payments by several years, a common practice however one that cast some doubt as to the true debt burden. The news hit risk appetite with EUR/USD trading to a low of 1.3580 on two occasions, down from its overnight peak around 1.3635. With the U.S scheduled back from a long weekend this evening and more comments from EU officials likely to emerge the volatility is expected to increase once again as EUR/USD continues to edge closer to 1.35.

Elliott Wave Bias - USD/JPY

The USDJPY rally (from 8481) is corrective, which leaves the pair vulnerable to weakness below that level.  Still, a larger correction may underway since the decline from 9380 is not impulsive either.  8832 and 8736 are potential supports.  A rally above 9130 is required in order to turn bullish.  Cautiously favor the downside against that level at this point.

USD/JPY - Long Term Forex Market Analysis

USDJPY stays in a falling price channel and remains in downtrend from 93.75. As long as the channel resistance holds, we'd expect downtrend to resume and one more fall to 88.00 to reach next cycle bottom on daily chart is possible next week. However, a clear break above the channel resistance will indicate that a cycle bottom has been formed and the fall from 93.75 has completed, then bounce to 92.00-92.50 area could be seen to follow.

For long term analysis, USDJPY has formed a cycle bottom at 84.82 level on weekly chart. Bounce towards 100.00 area is expected after consolidation.

European Morning Wrap: USD, JPY Firm on Heightened Risk Aversion

• China’s central bank raises reserve requirements by 0.5%
• Swiss National Bank intervenes in EUR/CHF over EBS as cross hits session low 1.4637
• Euro zone Q-4 GDP +0.1% q/q, weaker than median forecast +0.3%
• ECB’s Trichet: Will work with European Commission on proposals for additional Greek measures
• ECB’s Stark: A lot of ideas being discussed for Greece are counterproductive
• French Q-4 GDP +0.6% q/q, slightly stronger than median forecast +0.5%
• Italian Q–4 GDP -0,2% q/q, weaker than median forecast +0.1%
• Germany Q-4 GDP flat q/q, weaker than median forecast +0.2%

The USD and JPY have seen general strength this morning against the backdrop of heightened risk aversion. The move by China to raise the reserve requirements by 0.5% caught the market on the hop.  European stocks have given up decent gains, oil is off over 1 1/2  bucks and gold has been hit hard.
EUR/USD started around 1.3665 and initially edged higher but the rally soon ran out of steam. Sell orders were tipped up at 1.3700/20 and they were never seriously threatened. Ongoing concerns over Greece and the EU’s ability to address the situation are never far from the surface and some weak German and Italian Q-4 GDP data helped to put the pairing under pressure.

The coup de grace came in the form of a triple-whammy, when around 10:00 GMT we first had the news China had raised reserve requirements 0.5%, quickly followed by disappointing euro zone GDP and industrial production data. There was no recovery from that and we’re presently down at 1.3540.
Cable is down at 1.5600 from an early 1.5695 having traded as high as 1.5740 and as low as 1.5584. It’s been that sort of morning. EUR/GBP is down at .8675 from early .8705, with two clearers seen notable sellers today.

USD/JPY having started around 89.70 rallied strongly over 90.00 to reach session high 90.35 only to do a sharp about turn, presently back 89.95 as the jpy saw across the board improvement as risk aversion rose in wake of China’s move.

EUR/CHF little changed at 1.4650. However inbetween we’ve experienced a healthy 1.4637-1.4693 range. The pairing iniitally sold off only to run into SNB intervention. The central bank is said to have intervened over EBS causing a brutal spike higher before falling back.
Bad morning for aussie, AUD/USD down at .8793 from early .8891. Not surprisingly aussie took it on the chin when the China news hit the wires.

AUD/JPY - Daily technical outlook

Trading strategy: long at 80.15, stop at 79.60(1% risk), objective at 81.15
The Aussie dollar recovered against the Yen and resistance into the 80-80.10 region is under pressure as price is consolidating pips away from it since yesterday. A break out seems possible, opening 82 in case it occurs. On the lower side, support is formed by the downward trend line which provided resistance since January. 81.20 is in focus while maintaining the bid tone – barrier formed by the median retracement of the full decline from 86.20 to 76.20.

Current quote is 79.97 @07:00 GMT
Support: 79.50, 79.00 and 78.50/60
Resistance: 80.00/10, 80.50 and 81.00/20

 

INTRA-DAY USD/JPY

Range Forecast
+89.65 / 90.00+

Resistance/Support
R: 89.89/90.05/90.15
S: 89.57/89.25/88.82

Euro Remained Prone To Volatile Trading

The Euro remained prone to volatile trading on Wednesday as market sentiment fluctuated sharply. There was selling pressure above the 1.38 level in European trading and the currency then dipped sharply to lows below 1.37 in New York.

There were renewed doubts whether a credible budget-support package for Greece could be put together and underlying stresses continued to undermine confidence in the Euro. There were also fears that any relief measures for Greece would undermine the medium-term commitment to budget stability and weaken underlying Euro support. Thursday’s EU meeting to discuss the situation will inevitably be watched very closely and failure to agree a package would tend to put the Euro under renewed selling pressure. Any support measures may also provide only limited currency support given the medium-term reservations.

The dollar was hampered initially by a larger than expected trade deficit of US$40.2bn for December as oil imports rose strongly. The wider deficit will tend to trigger a downward revision to fourth-quarter GDP data, although the impact may prove limited.

In contrast, there was initial dollar support from Fed Chairman Bernanke’s testimony as he suggested that the Fed would need to increase the discount rate soon to help normalise market conditions. The remarks triggered increased expectations of a near-term policy tightening which boosted the US currency. Bernanke also stated that rates would need to stay low for a protracted period which dampened support for the dollar and the Euro found firm buying support below the 1.37 level.

Risk appetite improved in the Asian session on Thursday which pushed the Euro back towards the 1.3790 region in choppy trading conditions.

 

Yen

The dollar dipped sharply to lows near 89.25 against the yen during US trading on Wednesday before finding support. The Japanese currency was unable to sustain the advance and the US currency was able to re-test resistance levels above 90 in Asian trading on Thursday.

Immediate yen demand was stifled by an improvement in risk appetite following stronger than expected Australian employment data and a higher than expected figure for Chinese new loans.

Trends in risk appetite will remain very important for the yen in the short term with the currency still likely to derive support from unease over US and Euro-zone fundamentals.

Sterling 

Sterling pushed above 1.57 against the dollar in early Europe on Wednesday following stronger than expected industrial production data.

The UK currency was unable to hold this level and was subjected to renewed selling pressure following the Bank of England inflation report. There was a slight downgrading of GDP growth forecasts within the data while the bank also expected inflation to fall back sharply to below 1.0% in the medium term from an initial peak above 3.0%.

The comments resulted in a downgrading of interest rate expectations which undermined the UK currency while there were also some fears that the bank was being complacent over medium-term inflation risks.

Sterling dipped to lows near 1.5570 against the dollar before finding some support with the currency bolstered by a general improvement in global risk appetite. Underlying confidence is still likely to be very fragile in the short term as underlying government-debt fears persist with further speculation surrounding a credit rating downgrade likely to be a continuing feature.

Swiss franc

From lows near 1.0620 on Wednesday, the US currency strengthened sharply to highs around 1.0720, but it was unable to sustain the advance and retreated back towards 1.0620 on Thursday. Although the Euro was able to find support above 1.4650 against the franc, it was unable to make significant headway.

The franc will tend to lose some defensive support if there is a credible support package for Greece or a sustained improvement in global risk appetite, although the underlying risks suggest that a mood of caution will tend to dominate which will curb any selling pressure on the Swiss currency.

Australian dollar

The Australian currency found support above 0.87 against the US currency on Wednesday and consolidated above the 0.8750 level as risk appetite was generally stronger.

The latest employment data was much stronger than expected with an increase in employment of over 50,000 for January while unemployment declined to 5.3% from 5.5%. The data reinforced expectations that the Reserve Bank would move to increase interest rates again and the Australian dollar moved sharply higher to a peak above 0.8880 as risk appetite was also firmer.