| EUR/USD: The Euro has been ranging over the past couple of days between 1.2800 – 1.3100 and as mentioned previously traders around the world are undecided as to where to take the pair next. The main reason is the uncertainty that exists in the markets. We will continue to see consolidation (range trading) in the pair. Play the range until a breakout occurs. A break below 1.2850 – 1.2800 will see the pair challenge 1.2700 – 1.2650. GBP/USD: Cable yesterday lost more ground and made a low near the 1.4300 level. A break below 1.4300 will see the pair trade towards 1.4050 – 1.4000. USD/JPY: The USD/JPY yesterday lost more ground and met with our 1st profit target of 89.67 which is a strong level of Sup & Res. If this level gives way then 89.00 will be challenged. USD/CHF: The Swisssie yesterday was very subdued and failed to break the 1.1500 level which is now a triple bottom. It is possible to say that the pair has formed a H & S pattern with the neckline at 1.1500, which ultimately has bearish implications. We are going to present you with 2 scenarios for the pair. Firstly, if risk aversion is still the theme in the markets then the Swiss Franc’s safe haven status will force the pair lower and a break of 1.1500 will see the pair eventually challenge the 1.1000 handle. Secondly, if 1.1500 holds then expect the pair to range between 1.1500 – 1.1780. | US Dollar, Japanese Yen End Mixed as House and Senate Agree on Fiscal Stimulus, Ahead of US Retail Sales The US dollar and Japanese yen ended the day mixed versus the majors as equities traded within narrow ranges, signaling indecision in the markets. Nevertheless, both the DJIA and S&P 500 finished the day mildly higher, suggesting risk appetite may be able to pick up in the near-term. Perhaps the biggest question mark in regards to investor sentiment, though, is what happens with the US fiscal stimulus bill. The House and the Senate have come to agreement on respective difference in the bill, bringing the total cost down to $789.5 billion over two years from $930 billion last week. A final vote could come before the end of the week, and has potential to provide a big boost to risky assets and subsequently weigh on the US dollar and Japanese yen. British Pound Drops as BOE’s King Signals Further Rate Cuts, UK Jobless Claims Hit Nearly 10-Year High The British pound tumbled on Wednesday as UK jobless claims rose for the twelfth straight month in January to a nearly 10-year high of 1.23 million, adding to evidence that the combination of a slowing global economy, sharp declines in domestic consumption, and the continuous collapse of the UK housing sector are bound to make the UK economic contraction extend for a lengthy amount of time. Even worse, Bank of England Governor Mervyn King said that the UK economy was in for a “deep recession” during opening remarks for his inflation report press conference regarding the UK economy. King was highly dovish, saying that "further easing in monetary policy may well be required.” Indeed, forecasts in the BOE’s Quarterly Inflation Report were based on market expectations for a drop in the Bank Rate to 0.75 percent by mid-year, with GDP projections showing growth remaining negative throughout 2009 followed by a rebound in 2010, while CPI is anticipated to fall well below the BOE's 2 percent target in the first half of 2009, though the outlook beyond that appears uncertain. However, the BOE’s dour outlook has led expectations to shift for the Monetary Policy Committee’s next rate decision on March 5, as some anticipate that they could slash rates to zero and signal a move to quantitative easing. There are no economic indicators for the UK due to be released through the end of the week, but traders should see continued volatility in GBP/USD, especially since the pair has been trading in line with risky assets like equities. |
| Japanese Yen Crosses Trail Lower as Risk Appetite Falters JPY traded on a firmer footing after the Nikkei played catch up with other regional equity markets. JPY buying was noted from speculative accounts and there was talk of a pick up in repatriation interest, which may have led to some of the heaviness in the JPY crosses. Nevertheless, USD/JPY remains close to the familiar 90.00 level, with the influence of outstanding option exposure limiting ranges. EUR/JPY is also at familiar levels after it recorded 115.98 lows before edging higher with the firmer EUR/USD tone, while GBP/JPY traded in to 129.00 before rebounding above 129.50. AUD/JPY tested levels under 59.00, but there was talk of local name buying in to 58.80, while NZD/JPY remained heavy under 47.50. The fragile tone across global equity markets coupled with recessionary conditions should underpin JPY in the near-term. Elsewhere, the weekend G7 meeting may also hamper speculative activity, although there is expected to be little in the way of fresh impetus for the FX market. |
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