Forex thoughts...

Further Dollar Strength Ahead?

2007-05-18T06:22:00.000-07:00

As the week comes to an end, there is mixed feelings in the dollar camp, with the EUR/USD moving like a rollercoaster reaching 1.3610, a weekly high, then retracing the following day to 1.3470. From the start of the week we saw the dollar firming in most of the pairs and with the market eyeing up the CPI data and the Housing data, there was choppy trading all across the board.

After a poor CPI data result and a frankly awful NAHB housing index, the EUR/USD skyrocketed towards 1.36, which after it broke the level, immediately reversed towards support of 1.3570. However, yesterday the dollar bulls were happy again as more data came out of the US and Housing Starts were better than expected, the same with Industrial Production. The market was clearly caught by surprise as most forecasts predicted a bad number.

Today we had more news coming out which again was slightly mixed as Jobless claims printed a lower than expected number, but Leading Indicators was much worse than expected. By the time the better than expected Philadelphia Fed Manufacturing Index came, the market was buying the dollar all across the board, with EUR/USD dropping down to new lows for the week of 1.3470.

With most of the important data gone, the question is what happens now for the greenback? As we have mixed data almost every day, it’s hard to predict what the future will be for the dollar, and the market will need more signs in order to assess what the next move of the Fed will be.

Furthermore, another important event of the week was the Bank of Japan’s rate announcement which was once again unchanged and from what Fukui told the press there is no hurry at all for the Bank to hike its interest rates any time soon. This news along with a worse than expected GDP was welcomed with a hard sell off in all yen related pairs, giving the chance for EUR/JPY to print new lifetime highs once again and USD/JPY to break important level of 121. The curry trades become very popular again as rates differential grow even bigger with GBP/JPY becoming even more lucrative after the last rate hike of BOE.

Today is the start of the G8 meeting of Finance Ministers which will be monitored closely by the market for any mention of yen weakness or further global imbalances. If there is indeed mention of the recent weakness in all yen pairs then we might see a yen rally all across the board and maybe a chance of some curry unwinds which is widely expected to happen soon. However, if the G8 comes and goes without anything important being mentioned then there is scope for further yen weakness all across the board.

Look out for any breakouts in recent ranges in EUR/USD as it threatens the 1.34 level and if that breaks then there is a chance of further loss in the pair. For the moment the 1.36 level stands as good resistance level if that breaks then there is good chance of revisiting 1.3670, highly unlikely for now though as the negative dollar sentiment has calmed down a bit, so there is a chance of a consolidation towards 1.33 before that happens.

This Weeks Data Might Give Dollar A Boost

2007-05-02T03:15:00.000-07:00

Another week has ended with more life time high’s reached all across the board. The EUR/USD finally broke 1.3666 and staged a rally towards 1.3690 and the EUR/JPY also managed to break the important level of 163, when the pair climbed its way to a new life time high of 163.30.

Although the week was not busy data wise, due to the markets important psychological levels there was a lot of trading action driven mainly by negative US data. With the new week started and a busier economic calendar coming out of the US, it will be very important to see how and if the euro will perform on those high levels near 1.37.

So far the dollar has started on a positive note, with the EUR/USD not being able to sustain its gains at 1.3680. With better than expected ISM Manufacturing data and Prices Paid coming out of US yesterday, we saw a boost in all dollar related pairs with EUR/USD breaking 1.36 and trying to break the support level of 1.3585 and USD/CHF finally coming out of its recent 1.20-1.21 range and posting new weekly highs at 1.2180.

Although the greenback is not in the clear yet, this weeks payroll data is the one thing on traders minds, which may help the dollar bulls make a relief rally that has been needed for some time. It will be interesting to see the ISM Non Manufacturing data come out tomorrow in order to see if all the talk of the economic slow down is actually becoming fact.

Furthermore, the EUR/USD is still at very high levels and we see that the market is trying its best to push the pair up on every chance it gets with main target to break the 1.37 level and move further up. We believe that at those levels it will be difficult to accomplish that so easily, however given the fact that US keeps the negative economic data coming, the 1,37 may come sooner rather than later.

As the main event is Non Farm Payrolls all eyes will be there on Friday analyzing every aspect of the news while analysts already speculate a lower figure. Even though this number is difficult to predict, we might have some clue today from the ADP report.

So, as the week progresses and more volatility appears, we should be looking for more trading chances and maybe for a dollar rally at the end of the week, providing that data is not all doom and gloom, and maybe there is a small hope that the US economy is not as bleak as everyone seems to make out.

Is Dollar Ready To Regain Its Losses?

2007-04-16T03:02:00.001-07:00

Last week we saw the dollar taking a hit from most currencies and the EUR/USD breaking a psychologically important level of 1.35. With few pieces of economic data coming out of the US, the only event worth seeing was the FOMC minutes, PPI and Trade Balance. All these events were better than expected with FOMC minutes being on the hawkish side.

The PPI headline number was bit higher although its core number was unchanged, and the Trade Balance was lower for the second time in a row beating the forecasts that expected it much wider above 60. All these events were not seen by the market as good news for the dollar and therefore the greenback continued its slide all across the board with Euro the main winner of the week.

We also had the G7 meeting this weekend, which traders were watching closely for any mention of the weakness of yen and strength of euro. However nobody said a word about yen or euro so Monday saw an uptake on all curry trades with EUR/JPY hitting new life time highs of 162.40 and EUR/USD getting dragged up towards 1.36. The market seems to be waiting for an excuse to push the Euro higher, and the lack of worry from European and Japanese officials gives them the green light to do this.

As we said last week, it was very important for EUR/USD to break the 1.35 level for any upside strength towards the 2004 1.3660 target. The pair was within tight ranges for most of the week as there was not enough news to support big moves, however it managed to not only break 1.35 but closed the week at 1.3530, its daily high.

What happens this week though? Will EUR/USD sustain its gains and push for more strength towards life time highs? Or will it find enough selling pressure to start the correction process which is widely expected? Only data and time will tell.

This weeks calendar is looking busier, starting with US Retail Sales, TICS, Empire Manufacturing, CPI, Housing Starts, Industrial Production and last but not least the Philadelphia Index. There is also quite a bit of data coming out of the Eurozone too, so get ready for a busy trading week with the possibility of big volatility.

It is imperative for the Dollar bulls to see some good news for the US currency this week, as they need to be relieved from the pressure that seems to have been built up recently, mainly from the US economic slowdown and the trade relationship with China.

The market will be looking to see better numbers on Retail Sales in order to go back to buying the dollar, as a better number will give confidence that at least consumer sector is not suffering too much. Another thing to watch is the CPI core number, which could print higher this time after Fed officials all stated that inflation risks are still there and if they see proof they will act on it.

With many currency pairs still at life time highs and EUR/USD doing a great job in getting close to printing one, watch out for any correction which is awaited by many traders. It will also be interesting to see the high levels of EUR/JPY or EUR/USD, how will officials react and if there will be any kind of verbal intervention in order to prevent further upward pressure.

So, get ready for what seems like an exciting week with lots of data and many promising trading pairs.

EUR/USD Ready To Break 1.35?

2007-04-12T07:05:00.000-07:00

With the Easter Holidays gone and traders back at their desks, we anticipate lots of trading action this week after a few days of very low volatility. Firstly, let’s revisit last week’s busy calendar including news from the ISM Manufacturing and non Manufacturing as well as Non Farm Payrolls.

All week there was pressure on the dollar, with the greenback losing ground against most currencies due to bad numbers from the ISM data and higher oil prices due to geopolitical risks. As we said in last week’s article, what saved the day for the dollar was the better than expected payroll data, plus the unemployment rates dropping to 4.4% from 4.6%.

However, although the market moved about 40 pips, this was not strong enough to take the EUR/USD below 1.3330, mostly because of the Easter Holidays and the lack of volume in the markets. Holiday Monday was a very slow day for all currency pairs, with the big move coming overnight when EUR/USD printed 1.3445 before consolidating back to 1.34.

This week we see euro bulls being in control with one thing on their minds: to revisit the all time highs of 1.3666; a level that was last reached at the end of 2004. We had the FOMC minutes yesterday which although hawkish, it was not enough to stop the dollar from falling against most of the other currencies. With EUR/JPY at all time highs 160.85 and curry traders back, the only thing that can save the day for the greenback are today’s rate decisions and the accompanying statement from Trichet.

With the ECB’s rate decision just around the corner, market players and analysts expect the rates to be left unchanged. However, will this be the Trichet statement that everyone is waiting for in order to determine the future for the European Central Bank rates? There is a lot of speculation that Trichet might not be as hawkish as expected due to the higher levels of EUR/USD, just below 1.35-levels, which can hurt exports as the euro is too expensive.

We believe that once again ECB will make it hard for us to know what their future plans are and therefore they might try to buy time by being vague and unclear about monetary policy. We are at a point where whatever Trichet says there will be a high level of volatility in the markets. If he is dovish, euro will sell off and therefore distance itself from 1.35, but if he is hawkish then 1.35 will be broken and a revisit to 1.36 could be inevitable.

Coming to the end of this week, a slow one data wise, look for more volatility on Friday with the US Trade Balance being the main event alongside the PPI. If we see more bad data out of US, the greenback really might continue its fall and the FED might decide to change its hawkish stance; at least for now.

So, enjoy the rest of the trading week and remember that many currency pairs like AUD/USD, EUR/CHF, EUR/USD, EUR/JPY are at critical levels, therefore watching them closely is imperative if you are looking for a good level to trade. Also this weekend we have the G7 meeting which we will be monitored closely for any mention of yen weakness and euro strength, plus any more insight in the dispute between China and the slowing of the US economy.

Will Payroll Data Save The Dollar From Further Losses?

2007-04-02T06:56:00.001-07:00

What a week this has been, with some important indicators coming out of US and on top of that, some geopolitical news commanding a lot of attention. When the week started we saw a lot of dollar weakness due to worse than expected Housing Data, a trend that continued with lower Durable Goods numbers and the EUR/USD hovering around 1.3350.

The other big event of the week was Bernanke’s testimony in front of the Joint Economic Committee, an event closely watched by the market for any indication that the economy is slowing and a rate cut will follow sooner than later. However, although Bernanke was aware of problems in the Housing Market mainly due to sub prime mortgage problems, he once again surprised markets by saying that the Fed is more concern about inflation risks to the upside rather than anything else.

With the traders being caught unawares by his hawkishness, the dollar was bid all across the board, with the EUR/USD breaking 1.33 and moving towards new weekly lows of 1.3285. This figure found tremendous support and it could not break it to the downside.

As the week was ending, more good news came out of the US with the GDP surprising most by printing a better number, and then Chicago Purchasing Manager printing a much better than expected headline number too. This was mainly due to new orders coming in.

Once the market broke down the number and analysed every bit of it, it was obvious that in addition to ‘prices paid’, the Employment numbers were lower too. In fact, overall, the number was more trouble than originally thought. So once again traders could not commit to buy the dollar and therefore any potential move was muted.

The weeks big action came not from data though, but from the US Department of Commerce’s statement which announced imposed trade sanctions on China’s paper imports; a move that was clearly seen as a tougher approach on China by the market.

After this announcement, the dollar sold across the board, with traders worrying that more tariffs could be imposed, and therefore more instability, could occur between US and China on the matter of the revaluation of their currency. This shows that the US cannot wait any longer for China to act on their currency and they are taking some action.

News was welcomed with a big move in all currency pairs with EUR/USD climbing up 100 pips in just a few minutes, towards 1.34, which due to profit taking and the last day of the month, it closed at 1.3350 for the week.

With the Easter Holidays just around the corner we might see a lot of trading volume this week, as Non Farm Payroll Data come out this Friday. Dollar bulls are waiting for this news with great anticipation, as they are hoping the number will be strong enough to boost the dollar and give it its long awaited chance to break higher.

However, this week we also have other economic data from the US such as the ISM Manufacturing, a very important indicator for signs of further slowing in the Manufacturing Sector, and ISM Non-Manufacturing data later on. Both of these indicators are currently above the psychological level of 50, so if we see any numbers lower than that we could see the dollar weaken all across the board.

Most important though, is the NFP, and with analysts forecasting a slightly better number this week, we need to see how the Employment Sector is performing. Any surprises on the downside will again give more excuses for traders to sell the greenback and take EUR/USD a step closer to 1.35.

Also this week watch out for RBA rate decision which although expected to remain unchanged, there is a lot of speculation at the moment that the Bank of Australia will raise its rates due to a string of better economic data in the recent months. Don’t forget that AUD/USD is at 10 year highs at 0.8160 and therefore a hike could trigger the pair to make tracks towards 0.85.

As well as RBA rate decision, we have the BOEs rate decision on Thursday, which again is expected to remain unchanged. However there is a lot of speculation that the Bank will hike again, with many believing that this will happen on May, with others speculating that it may happen sooner than that.

So, as you can see there are enough events to keep us interested for the week and many opportunities for trading action in most currency pairs. The main things to watch for are the EUR/USD approaching psychological level of 1.35, GBP/USD trying to have another go at psychological level of 2.00, and AUD/USD threatening to move even higher. These pairs could give us good selling opportunities as they all seemingly have one common goal: the top.

Enjoy your week, and have a lovely Easter Holiday.

Gloomy Outlook For The Dollar

2007-03-26T10:05:00.000-07:00

With the EUR/USD printing new yearly highs of 1.3410 before consolidating back to the 1.33 level, another gloomy week for the dollar bulls ended. Despite this, it was certainly a week full of trading action, with events like the FOMC rate decision and a variety of Housing related data being released.

As we mentioned last week, the main thing that was weighing on the dollar these days was the sub prime problems, which was making investors think twice before buying it. As the sentiment became quickly dollar negative, any bad news out of the US was welcomed with a hard sell off in dollar related pairs. The first piece of news was relatively dollar bearish, with the NAHB Housing Market Index printing lower figure than expected, and the market set the tone for dollar sales which continued through the week.

As expected, the Fed decided to leave rates unchanged once again, leaving the market staring in its crystal ball as it tried to predict their future plans. We believe that the Fed’s statement was not as bad as market perceived it as although it was on the bearish side, the phrase ‘additional firming may be needed’ was nowhere to be seen. As normal though, the Fed was vague and the market struggled to interpret their actions and predict further moves.

Sometimes this can be frustrating and Wednesday saw traders sell off the dollar by almost 100 points after the statement and stocks rallied for the first time in days. This indicated that market is trying hard to see clearly, but when uncertainty creeps in the dollar is immediately sold. These moves don’t last long though, and sure enough, the Euro rejected the 1.34 level very fast. The EUR/USD fell to the 1.33 level, but Friday’s better than expected Housing data led it to break 1.33 and close the week at 1.3285.

But is the market now ready to buy the dollar and forget the so-called slowing of the economy? Perhaps Friday’s better-than-expected Existing Home Sales figures will be enough for the market to forget the Housing problems that weigh in the economy? Closely observe this week’s Housing data to assess any impact this news may have had.

Today saw the New Home Sales print a very disappointing seven-year-low figure, taking the EUR/USD up to 1.3345. This bad news was welcomed with a great sell-off in all dollar related pairs, causing great concern among market traders that a crisis in the economy may not be too far away.

Later in the week we have Consumer Confidence and Durable Orders to look forward too, plus the Chicago Purchasing Manager which we think will determine the dollar’s direction; perhaps even forcing the EUR/USD to new yearly highs of 1.35 if the news is bad. Furthermore, we have some news from the Eurozone and Germany’s IFO, which will need to be watched in order to see how the European economy performs.

Bernanke will be testifying in front of the Joint Economic Committee, which will be interesting, especially if he downplays the problems in the Housing Sector or if he admit to any problems. Expect second thoughts concerning rate hikes if he does. Most analysts believe that the next move by the Fed will be a rate cut, however as their policy always is so hard to read, we might end up being none the wiser.

One thing is for sure, all these bad indicators are making the market very nervous about the state of the economy and while there is not much data coming out this week, expect this feeling to continue, and the EUR/USD to stay in a tight range, until an event triggers an upward rather than downward move.

Will This Week Help Dollar Recover?

2007-03-20T03:46:00.000-07:00

Another week has ended where we saw a complete dollar sell off all across the board, especially against the Euro. Traders seemed to loose their faith in the US currency as they quickly put aside better than expected inflation data. Since the start of this week there has been a bearish dollar sentiment which seems to getting stronger by the day.

Last week saw worse than expected retail sales figures coming out for the month of February, which was welcomed by the dollar, leading to further selling all across the board. With EUR/USD trading above 1.32 there was scope for more dollar losses, but data coming out later on in the week didn’t affect the greenbacks performance.

Furthermore, we had the PPI out slightly better than expected, however the market didn’t seem to care and kept selling the dollar anyway. The same thing happened with TICS data which was better than expected and since the last months figure was very poor, the dollar related pairs got a bit of boost.

Nevertheless, traders still were not convinced of any progress in the economy and were not prepared to buy the dollar. Many speculate that due to slowing of the economy, the Fed will be ready to act accordingly and maybe even think of easing the rates sooner rather than later, as most economic fundamentals out of US are disappointing.

Last week we saw the Euro breaking important psychological levels, with EUR/USD reaching new year highs at 1.3345. As we finished the week with the CPI data, the numbers were really mixed as although there was a slight increase in the headline number, the core figure was neutral. This didn’t give too much breathing space for the dollar, which gained about 30 pips but stayed above 1.33 and closed for the week at 1.3315.

Another thing that weighs on the dollar is the problems in the sub-prime mortgage market after news of the New Century company being in trouble and ready for bankruptcy. After the news hit the wires that the lenders were struggling to meet bankers’ demands and the company was suspended from trading at the NYSE, we saw a dramatic sell off in the Stocks as investor’s worries for the slowing of the economy worsened. That alone gave more excuses for traders to sell the dollar as speculations about a bleak future in the economy started to occur.

What will be the future of the dollar this week? With a not so busy economic calendar this week we have a few important things to watch, with Housing data being the main star of the week. As there is so much uncertainty and nervousness regarding the future of the Housing Market, investors will be watching closely and analyzing every single piece of news coming out.

Firstly we have the NAHB Housing Market Index following by Housing Starts and Buliding Permits, plus the Existing Home Sales. Also we have the FOMC meeting this week with the Feds rate decision fully expected to be left unchanged. Although the market doesn’t expect any surprises from the Fed, all analysts will be looking for any hints of easing their monetary policy in the near future. That will certainly influence the recent fall of the dollar, with EUR/USD maybe breaking the important level of 1.34.

However any surprises on the upside for any news this week might give the dollar a boost and put euro strength on hold for now. We believe that traders will try their best to push the EUR/USD pair towards new highs if the sentiment remains dollar negative this week.

So, get ready for some serious trading action as we head towards the first set of important news and let’s hope that this choppy action in the capital markets will calm down this week with Stocks starting to correct.

Dollars Direction Decided This Week

2007-03-06T06:25:00.000-08:00

Last week was an eventful week for the currencies and the Global Equity Markets, however it got off to a relatively quiet start when we saw the Euro being bought against the dollar, mostly due to geopolitical worries, with the pair reaching 1.3260; a monthly high. However, come Tuesday all that had changed as the beginning of the end for curry trades started.

With a sudden drop in the Chinese Stock Market and the US and European’s following, we saw significant strength in all yen related pairs with the USD/JPY reaching multi-month lows and GBP/JPY completing a move of more than 1000 pips. What began as a sell-off after the drop in Stocks, continued as curry unwinds all through the week.

As the week unfolded the market displayed nervous action, as players wondered when this move will come to its end. With considerable data coming out of the US, we saw mixed numbers in the form of better than expected Consumer Confidence and worse than expected Durable Orders. In response to these and the Housing data, the market became confused and lacked direction.

The same thing happened with Chicago Purchasing Manager which came out much worse than expected and then ISM manufacturing which made a surprise jump in February. All those conflicting data left traders indifferent and therefore EUR/USD was moving only according to how the yen pairs performed.

The main question now is what happens this week? With Monday seeing more choppy action, the EUR/USD finally broke 1.31 and moved just below 1.3080. There was a modest volume in all major pairs as after the opening of the market we saw big moves all across the board driven again by the yen. The main event yesterday was the ISM non-manufacturing which came worse than expected, however that was not enough to sell the dollar so we saw EUR/USD stable at just below 1.31.

The sentiment yesterday was pro-dollar and we could see a continuance this week if the data supports it. Don’t forget we have the non-farm payrolls this Friday, which is very important for the economic outlook, plus the ECB rate decision which is fully expected to be a raise of 25pbs to 3.75%. The market will be watching Trichet’s speech right after for signs of future moves in the European Monetary Policy.

Most analysts predict that the ECB might pause on that level, so expect a dovish Trichet and a lot of volatility from bulls and bears all across the board. Another rate decision is that of BOE the same day. The Bank of England is widely expected to leave rates unchanged, mostly due to the recent poor inflation data, leaving market players looking closely at their decisions.

With uncertainty in the Stock Market all around the world, traders are looking at the US, Tokyo as well as European Stock Markets for any hints on future moves in the currencies, especially the yen related pairs. After the yen’s strength, we expect a correction and perhaps some traders will be tempted to go back to the curry trades and continue the upward move in all the yen crosses. However, be wary of March as this month most traders will be squaring up their positions as the Japanese Fiscal year comes to an end.

So, we believe that this week is going to be a catalyst for the dollars future, as EUR/USD is at a level where either will continue to correct the recent highs of 1.3260, and therefore will try to break 1.29 or will continue its strength towards 1.33. All dollar needs is a dovish Trichet and a better than expected outcome in the payroll data and it could finally come back to life.

Negative Dollar Sentiment All Across the Board

2007-02-27T04:06:00.000-08:00

If we had to describe last week, we would certainly not use the words boring or uneventful! Although not a lot was going on in the data department for any of the currencies, and therefore not a lot of volatility was expected, we all witnessed an impressive sell-off of all dollar-related pairs, giving the okay for EUR/USD to finally reach 1.32. If you are looking for a reason why this occurred, look no further than geopolitical risks and concerns over the Iran nuclear dispute and the rise in oil and gold prices due to the risks.

As the week started the most awaited data were the CPI numbers for the month of January, coming out of US and the FOMC minutes, which saw the dollar getting a small lift due to slightly higher Core number printed. However, the dollar bulls didn’t get the chance to celebrate further as the euro rebounded back after it was clear that the Fed won’t raise rates just yet but will wait for further data.

As Friday came it became clear that traders were reluctant to buy the dollar, even after a slightly worse than expected IFO number came out of Germany. The reason seemed to be geopolitical as Iran still refused to halt its nuclear program, making concerns grow further. When the oil broke the $60 level and continued higher, this weighed on the dollar all across the board and due to the lack of economic data on Friday, traders bought the euro and found an excuse to let it reach 1.3190 before consolidating back to 1.3165 where it closed for the week.

In other currencies, the yen was attracting attention as the market waited for the BOJ rate decision, which many speculated would remain unchanged. Although the Bank of Japan finally raised its rates by 25bp to 0.50%, we saw a brief yen strength that was followed by a total collapse of the currency all across the board as Fukui told the market not to expect any more hikes soon. The news was welcomed with a big sell-off in all yen-related pairs with EUR/JPY reaching new lifetime highs of 159.55.

The new week sees much data expected from the US and Europe, including Durable Orders, GDP, Chicago Purchasing Manager, Home Sales, ISM Manufacturing, Consumer Confidence and Bernanke’s speech which again may give more indications about current Fed rate expectations. Watch closely all housing data for any surprises to the upside, as most forecasts predict negative numbers. This could really hurt the greenback as it would point to the Fed thinking twice about hiking again any time soon.

Another thing to watch will be the GDP number, which again is forecasted to come out worse than the previous. The dollar could find this week very difficult as it has so many indicators to surpass in order to regain its lost strength. Any surprises on the upside could give the dollar a boost, but that again might be limited as the market is focusing on other events such as the Iran situation and other factors which affect the price of the oil.

With the market gearing up to receive all the news, our view is that unless we see good numbers out of the US, the dollar seems to be in trouble what with the 1.32 psychological level only just around the corner. Watch out for any geopolitical news this week and keep in mind that many big players are ready to buy the euro in dips and therefore we might see EUR/USD visiting the early year highs of 1.3360 sooner rather than later. And let’s not forget the European data coming out with CPI figures being the main event as traders will look into these figures for a confirmation that the March hike from ECB is a done deal and other could follow in the near future.

So, a busy week has already started with Monday being a slow trading day what with no major releases coming out, however brace yourselves for a lot of volatility in all major pairs as US data is coming and possibly due to the anti dollar sentiment in the market at the moment we could see choppy action all across the board with dollar

All Data Points to Further Dollar Losses

2007-02-20T01:58:00.001-08:00

So, another bad week ends for the greenback and thanks to plenty of worse than expected economic indicators coming out of US, there was little for dollar bulls to smile about. As the week started, the EUR/USD was hovering around a 1.30 level, still within its range of 1.2865-1.3060. Another important event for the dollar was Mr. Bernanke’s speech in front of House and Senate, which was long awaited by traders for some hints as to what the future plans of the Fed will be regarding rates.

As lately we have had better than expected news from Housing and Payrolls, there was speculation around the desks that Bernanke would be hawkish and signal hikes rather than cuts in the interest rates. However, the first negative data, which was in the form of the Trade Balance, was much wider than expected, printing 61.2 instead of 59.9 forecasted.

Together with a dovish Bernanke, EUR/USD finally broke its range and skyrocketed upwards towards 1.31. The speech didn’t deliver that many things the market didn’t already know, however as there was anticipation for hawkish comments, the lack of it caught the market by surprise and decided to sell the dollar, making new monthly highs for the EUR/USD.

As the week went on, more bad data came out of US with Retail Sales coming lower than expected, but worst of all was the TICS data which showed a poor number of 15B instead of 70B. As it was now clear that this number cannot cover the Trade Balance of 61.2B, the dollar was sold off all across the board. This was assisted by the negative sentiment after Bernanke’s speech and the PPI numbers coming out as expected.

As the new week starts the question is will the dollar continue to drop further? As the two main events are the CPI data coming out of the US and the FOMC minutes, the market will be looking closely for signs of slowing in the economy and further moves by the Fed. Another important piece of news this week is the rate decision from the BOJ, which is especially important for those with yen curry trades. The feelings are mixed thanks to mixed signals coming from the Bank combined with mixed data.

A better GDP from Japan last week, boosted analyst’s expectation with many now speculating a rate hike rather an unchanged result. There is an existing risk in all yen related pairs of unwind in curry trades, as investors will be looking to liquidate their positions ahead of the announcement. However if the BOJ leaves rates unchanged then we shall be looking for further sell off in the yen.

With US markets closed on Monday and not a lot of data till Wednesday we are expecting the volatility to remain low and pairs to be range trading. What will be the catalyst for further trading action will be the CPI numbers, as more speculation arises that they will be lower than expected, which will be another hint of the Fed easing rates in the near future, rather than hiking again. We expect the FOMC minutes to give us more idea of future moves, however we won’t be surprised if it turns out as a non-event with traders being none the wiser.

The other thing to watch is GBP/USD which really sold off due to worse than expected inflation numbers and further negative rhetoric from BOE officials. What will be interesting to watch are the BOE minutes which will give us more idea as how the voting was and what impact it had on their decision.

So, enjoy the quiet start, but brace yourselves for some trading action in the latter part of the week, with much important data coming out for all economies. Keep a special watch on how the dollar related pairs will react and if EUR/USD keeps its upward trend toward 1.33.

Will Bernanke Boost Dollar this Week?

2007-02-12T05:13:00.000-08:00

Another week ends with the EUR/USD still within their recent ranges, mostly due to the fact that not many economic releases came out. The only event that grabbed the markets attention was the ECB rate decision and the accompanying statement by President Trichet.

Traders were preparing all week for the G7 meeting of the Finance Ministers in Germany for more clues regarding the recent weakness of the Japanese currency. With EUR/JPY nearing all time highs and USD/JPY close to 122, many curry traders closed a few positions ahead of the meeting, ensuring they were prepared for any mention of worry regarding the low yen.

The other important event was the Bank of England’s rate decision, which although was widely expected to be unchanged, a few traders were betting that BOE will once more surprise the markets and raise their rates as soon as later this month. However, it turned out that the bank left the rates unchanged and the pound was immediately sold off as traders acknowledged that by that decision, the bank knew that it would be too risky to raise rates again.

When ECB time came and we learned that the rates were left unchanged, Trichet’s anticipated speech surprised the market with much hawkish rhetoric. Less surprising was the inclusion of his catchphrase “strong Vigilance”, this time used in response to a policy question. He continued to say that more tightening was needed and also that the Eurozone economy is getting stronger.

His answer to a question regarding recent yen weakness against the European currency was pretty dismissive, as he didn’t think that there was a reason why the bank should worry about the pair. All these comments gave the Euro a temporary boost, sending EUR/USD to weekly highs of 1.3045. Come Friday however, the Euro had given back all its gains, closing the week around 1.30.

So, what was the G7 about? Well for those who thought that the recent yen weakness wouldn’t get mentioned got what they wanted, as the lack of mention drove the EUR/JPY pair to new lifetime highs; near 159 at the opening of the market. There was mention of China and the need for more flexibility and although a few officials stated that curry trades should be eliminated before they got out of hand, there was no direct mention of yen at all, indicating no intention of verbal intervention from any side.

This week we have more economic releases coming out of the US, including Retail Sales, Trade Balance, TICS and PPI. One of the main things that the market will watch is Bernanke’s speech on Monetary Policy. His speech is very important for any more hints regarding the Feds actions in the near term. Many are speculating that the Bank will signal further hikes are to come, but even a rate cut at some point wouldn’t be totally out of the question.

However, for now we need to see a hawkish Bernanke for further dollar gains across the board and if that happens then we might finally break out from recent ranges and see more volatility all across the board. Be aware that there is still a chance that due to a very hawkish Trichet, any doubts or dovish comments from Bernanke may be what the euro needs for a chance to revisit its yearly highs.

So, with many economic releases due this week, it will be interesting to watch how market reacts to the news in comparison with the Fed speech and oil prices closer to 60 per barrel.

Dollar Sets the Tone for More Strenght

2007-02-05T05:14:00.000-08:00

What started as a quiet week with relatively tight ranges for all major currency pairs, continued with dollar weakness all across the board and ended with a good old dollar rally on Friday after the release of the Non-Farm Payroll data.

More specifically, as the week started, the lack of any important releases gave an excuse for tight trading within the 30-50 pips range and the only thought on the traders mind was the FOMC meeting on Wednesday. A better than expected GDP number out of US gave a small dollar boost, but that was short lived, as a far worse number came out of the Chicago PMI and the dollar continued sliding until the release of the FOMC rate decision.

Another announcement from the Fed came and nothing earth shattering happened as rates were left unchanged and the accompanying statement was more dovish than hawkish, and didn’t really indicate the future moves of Bernanke and his company. The market players continued to put pressure on the dollar as more economic releases came and with the ISM manufacturing number below the psychological level of 50, the Euro pushed towards 1.3050, which is near the top of the 200-pip range, from 1.2860-1.3060.

Friday came with the Non-Farm payrolls data as its main event and the Euro hovered at a 1.30-1.3020 level before the release of the number. A number worse than expected came at 111K from 150K expected, which gave the Euro some strength, however, as the market looked past the headline number, there was a much higher revision of the previous month which saved the day for further weakness in the dollar related pairs.

What was really the big mover on Friday though was a rumor from sources who claimed the ECB would pause the hiking of rates for the near future, after it hikes once more in March where the rate would become 3.75%. That alone was enough to reverse the move at 1.3067, after the payroll data dropped 100 pips to 1.2960.

Anyway, a new week starts here and not much is going on in the US economic calendar. The only things plying for our attention are the ECB rate decision with Trichet’s speech right after, plus the Bank of England’s monetary policy meeting. Expect market players to be watching Mr Trichet closely for any hints of pausing in the future.

If his speech indicates that the Bank will not to hike in the future, this will certainly be negative for Euro and we might see weakness all across the board. Don’t forget that Treasury Paulson is also speaking in front of the House and the Senate and his speech may force movement in all dollar related pairs. The question is will the EUR/USD manage to unlock itself from the recent range and make a break in either direction, or will it continue its restrained 200-pip range for another week?

As the G7 approaches, the market will be wary of any comments that determine the subjects of conversation in the meeting and especially if the yen’s recent weakness will feature. If so, we shall see further unwind in all yen curry trades.

Furthermore, it seems that market is looking for the next excuse to buy or sell the dollar and so far the news and monetary decisions haven’t quite managed to provide that. It will be interesting to watch the oil prices again as they rise towards 60, and any geopolitical events that might unfold and affect the currencies. So, be prepared for the unexpected and as we always say anything goes in the Foreign Exchange Market!

Dollar's Future Determined this Week!

2007-01-29T04:48:00.000-08:00

Another week has passed and still no breakouts on EUR/USD, with the pair still within its 200 pips range from 1.2850 to 1.3050. There were many factors this week that gave the majors more volatility, such as the minutes of the Bank of England, which, to everyone’s surprise, was less hawkish than expected with 4 of the 9 members being against a rate hike.

As market players were almost certain there would be more hikes in the coming months, this news made them aware of the possibility that rates may go unchanged in the next meeting. Even with a very quiet calendar out of US, the main news of Housing data and Durable Orders still gave a surprisingly positive result, giving dollar bulls more reason to buy the dollar all across the board.

As the week went by, there were rumors all across the news wires from European officials that in the next G7 meeting, scheduled to be held in a couple of weeks, there would be a discussion on the recent yen weakness. That statement alone was enough to move the yen higher all across the board with EUR/JPY moving 350 pips, indicating that the market is in ‘wait and see’ mode and will be watching closely all the events leading up to the G7.

Back to this week and we have a busy calendar laying in wait for us, with particular emphasis on the FOMC meeting and its rate decision, which is widely expected to be unchanged. The other thing to look at will be its accompanying statement and if there are any changes to the structure, making it more hawkish than before.

We believe that following the positive news that the US economy gave us in the last month, the Fed will be happy to keep rates unchanged and not talk about a rate cut for the months to come. However, they may suggest that there is still inflationary danger.

The GDP is also out this week, where a higher number will fuel the rumours that the US economy is slowly finding its way, lessening the pessimism we have seen in the past few months. Don’t forget the Chicago Purchasing Manager, ISM prices paid and last but not least the other big event of the week, Non Farm Payrolls. As you see we have plenty of news to keep us going and plenty of opportunities for a lot of volatility in the majors.

The question that arises is whether the market is ready to commit itself one way or another? With oil prices still falling and a few geopolitical risks still intact, market player’s thoughts are mixed and they are clearly waiting for a signal as to what the next move will be. Now, if this signal comes from FOMC then we could see choppy trading action leading the way to further dollar gains all across the board.

Furthermore, we still believe that there will be unwind in all those yen curry trades and with USD/JPY approaching the 125 point mark, there are many risks to the downside. So, listen closely to the words used at the FOMC meeting and enjoy a week full of key economic releases.

Dollar Stalls, But For How Long?

2007-01-22T02:24:00.000-08:00

Another week with not that much to shout about, especially for the dollar bulls, comes to an end. With almost all data coming out better than expected and more specifically, the inflation data with CPI and PPI printing much higher numbers, we saw very little volatility and dollar buyers were reluctant to commit themselves further.

Furthermore, we saw better housing data too and a surprisingly high Michigan Consumer Sentiment, which reached 98% from the 92% expected! All this news should have been enough to break this important psychological level of 1.29 in EUR/USD, however it worked as a signal to buy on dips level for all those waiting for euro buying opportunities. As we said before, 1.29 is certainly an attractive level for euro bulls and with not many dollar buyers about it quickly absorbed all the dollar gains.

The other big event of the week was the BOJ rate decision where it was widely expected rates would rise by .25. However, when the time came for the announcement there was a leak in the news all across the wires that the Bank of Japan was leaving its rates unchanged. That brought losses in yen all across the board with USD/JPY moving more than 100 points, reaching new multi-month highs of 1.2145.

As we go into a quiet week, the only US announcement of any importance seems to be the Durable Orders. It will be interesting to see how the market will play this lack of economic indicators and if we are going to see any breakouts in recent ranges. We think it will be worth watching the release of the minutes from the Bank of England and Bank of Japan for an insight of their decisions, and thus a hint of what the future holds.

Another interesting thing to watch is how the crude oil performs this week, what with it being just above 50$ per barrel at the moment, all the time threatening to break this psychological level. If it drops further, we may see stops get hit and a new multi-year high may come. This will definitely give the dollar a boost and we may finally see a break below 1.29 if more buyers join the party!

So, although a not so busy forthcoming week, we think it will be either a ranging one with not so much to show for, or an opportunity for those who want to break the recent ranges and start a new trend. With the Fed monetary policy meeting approaching at the end of this month and with even less speculation that Bernanke and his company will cut the rates, it will be good to watch how the dollar will perform from now till that time and if it’s good enough to make dollar bulls scope for 1.25 rather that 1.35!

Is Dollar Ready for More Gains? CPI and Housing Will Tell

2007-01-15T07:31:00.000-08:00

Another week full of surprises and further dollar gains has passed, with better US data a dovish Trichet and the BOE’s against-all-odds sudden hike in interest rates being instrumental to the dollars strength.

As we said last week, the EUR/USD managed to slide down to 1.29 and even break this level, marking new months low at 1.2860. All this was thanks to better than expected US data with the Trade Balance repeating last months showing by printing a -58.2B from -58.9.

The biggest event of the week, however, was the 25bp rate hike of BOE that really took everyone by surprise as it took the rate to 5.25%. That quickly moved the GBP/USD higher by 150 points, as no analyst or market player expected this move from the Central Bankers.

With more inflation data coming out of England next week, and more speculation and rumours spreading down the wires of more rate hikes to come, we could finally see the very important 2.0 level becoming reality in the pair. As the market was preparing for the next rate announcement, this time from ECB, we saw losses across the board for the European currency as the bank not only left the rates unchanged, but Trichet’s speech was all but hawkish.

When the speech got underway and it was clear to the market that the V word was nowhere in sight, we saw a sell off in the euro all across the board. Friday came with more US data, the main news release being retail sales, there was some kind of exhaustion on the dollars strength, which although the result was better than expected, we saw a sell off in the greenback all across the board.

As we start a new week with a busy calendar coming out of the US and Europe, it will be interesting to see what’s the next step for the dollar bulls. With key data like PPI and CPI, as well as Housing data approaching, traders will be analyzing every number for more clues as to what the next move of the Fed will be. And don’t forget the inflation data coming out of both the Eurozone and England; so we shall see what the future will bring in terms of more rate hikes to come.

It’s worth mentioning that with oil reaching new lows since 2005, under 52$ per barrel, the dollar gets a lift out of cheaper oil and it certainly helps maintain its gain against other currencies.

So, as the week unfolds, the question that arises is will the EUR/USD rebound from recent lows and try for another go for 1.30 to 1.32? Or will we see further sell off in the euro with dollar, printing new highs all across the board? Another thing to watch is USD/JPY as it approaches important levels of 1.21 and also beware of the BOJ rate decision this week, which if they decide to hike we shall see a boost in all yen related pairs and maybe some unwind in the curry trades.

Enjoy another week, watch the all the important releases coming out and be ready to act when needed!

New Year Starts With Dollar Strength!

2007-01-08T02:33:00.000-08:00

First of all, Happy New Year to everyone, especially to those dollar bulls who witnessed a great start to the New Year with the greenback regaining strength after two months of selling off.

So, 2006 has gone and we start 2007 with the dear old greenback managing to stage a comeback and break important levels, such as 1.3050 and then 1.30, to finally print a one month low for the EURO/USD of 1.2778. With market players back from their holidays complete with turkey-fuelled appetites for more trading action, considerable volatility was witnessed all across the board.

Traders were waiting for several US releases; ISM Manufacturing, ISM Non Manufacturing, Factory Orders and FOMC minutes, as all these could be seen as the starter on the economic data menu, with Non Farm Payrolls on Friday being the main course and main driver for the big dollar rally against its major counterparts.

Although the results of all this US data were mixed and FOMC minutes relatively dovish, the dollar managed to survive a fall against the euro and remained near 1.31 until the release of US Non Farm Payrolls. Many analysts predicted a low number on payroll data and a negative sentiment began to take hold. This was thanks to the negative ADP report, as the two often correlate. Market players didn’t want to commit either.

However, when data was released and the market saw +167,000 plus a higher revision from the previous month instead, dollar bulls gained control again and drove the EURO/USD pair towards 1.30, a very important psychological level.

Another big mover this week has been the Yen which managed to gain from technical trading, together with some comments of Japanese officials regarding future rate hikes which they see happening as soon as February. As EURO/JPY approached new lifetime highs at 158, we finally saw some unwind, as we predicted a few weeks ago, with the pair dropping almost 400 points.

With a new week starting and a less busy calendar from the US, we are concentrating on Trade Balance for the month of November as well as Retail Sales, the ECB rate decision complete with Trichet’s speech and the BOE rate decision. The question now is will the dollar finally manage to break 1.30 and head towards 1.29, or will new Euro buyers emerge trying to have another go at 1.35?

It is very important to state that the better figures we get out of the US the more confident the market feels buying the greenback again, so if we see surprises to the upside in the forthcoming releases we could witness another greenback rally. Furthermore, let’s not forget that traditionally the month of January is supportive for the dollar as most investors are squaring up their last year positions and preparing their New Year targets. So don’t be surprised if we see the new found dollar strength continuing, providing that the economic releases allow this.

Get ready for another trading week then, with more opportunities unfolding. Watch out for Mr Trichet’s speech which may once again indicate that there are more rates to come. Also it will be interesting to watch how the Fed reacts to better releases in Payrolls and ISM. Will they still remain vigilant on inflation or head towards rate cuts for the New Year? Only time and data will tell.

The Dollar Fights Back!

2006-12-18T04:20:00.000-08:00

Another week has passed and the more mixed economic data that came out of the US, the more confused the market became! The start of the week found the dollar bulls gaining more ground against the majors, but once the FOMC meeting came they gave up some of their gains and although the market had priced in unchanged rates. The accompanying statement caught players by surprise as it was far more dovish than expected.

For the most part, the statement was unchanged from the previous one; however the Fed added the word ‘unsustainable’ when talking about the cooling of housing prices. Immediately the market interpreted this comment as preparation for rate hikes within 2007. Another surprise came out of the UK as CPI data was far higher than expected, giving more excuses for pound bids all across the board.

However, the British Pound seemed to loose steam quickly as the market was preparing for more US data such as Retail Sales, the Trade Balance and CPI to give it more direction. As the week unfolded, the EUR/USD was moving within tight ranges, not committing to either side. EURO/JPY also hit new lifetime highs of 155.55 after Japan released further negative numbers.

A better-than-expected US trade balance came out at $-58.9b, crucially below the $-60b mark, that when combined with a better Retail Sales number allowed the EURO/USD to finally break 1.3130, eventually hitting stops and taking the rate to 1.31. However, the dollar bulls were left disappointed once again after the release of worst than expected CPI data.

The headline number and the Core number were left unchanged for the month, which indicates than inflation risks are heading downside rather than upside. With traders unable to digest the news with the TICS data immediately following, the move completely reversed back from 1.3187 to 1.31 as TICS printed an $82b number. Like last Friday, where we saw a post-news release reversal, this week the greenback got stronger all across the board with EURO/USD finally breaking 1.31, hitting stops below that level towards 1.3050- a critical level.

The question now is will we have a continuation of that move? Or will traders find these levels ideal for buying the Euro, trying again for 1.35. With a relatively quiet calendar this week and no key releases coming out of the US, we expect volatility to remain intact. The market will be waiting for the PPI numbers and if they match the CPI data then we might see another sell off in all dollar related pairs. Another thing to watch will be the Housing data which will add some light to the dark economic outlook.

Furthermore, there are few economic releases coming out of the Euro-zone, with German IFO being about the only important one. It will certainly be interesting to see the number this week as the market is used to higher numbers, for the past few weeks. If these numbers come worst than expected we might see further sales in the European Currency and more reasons to think that Euro is indeed not comfortable at high levels.

Many ECB officials complained about the Euro being too expensive, where others tried to downplay the recent move towards 1.35, by saying these levels are not alarming. However, after a few pressed doubts towards the ECB policy, the Euro lost ground as it was a risk to stability.

With Christmas around the corner and most market players getting ready to call it a day, there is a risk of choppy trading in all major pairs and thanks to thin liquidity we might even see extreme trading all across the board. So, stay tuned and remember a new year is approaching and whatever happens, new trading opportunities will arise.

Is it Time for Dollar Strength?

2006-12-11T01:09:00.000-08:00

What a week this week has been! Just when we started to think that the greenback’s strength had wasted away, we had resurgence on Friday with EUR/USD trading within a big range; starting with 1.3275 before NFP and going to 1.3235 straight after, where a flurry of purchasing activity sent the pair towards recent highs of 1.3363.

The Non-Farm Payroll’s number was both good and bad, as although the number of 132K new jobs added for this month was a better headline number, the previous number of 92K was revised down to 79K. Furthermore, the unemployment rate was worse than expected at 4.5 from 4.4 previous.

As data was mixed, traders noticed buying interest from big names (the rumour was that certain ‘central banks’ were the chief suspects behind that move) and the EUR/USD pair moved up within minutes to retest the 1.3362 level, but faded quickly as the pair headed back to 1.3335.

Just when we thought it was safe to think about the weekend, we saw a huge U-turn all across the board with the greenback getting stronger and stronger by the second, eventually completing a 165-point move down, breaking resistances at 1,3220 and hitting a new low for the week of 1.3189.

The reason behind the move was Treasury Secretary Paulson, who once again pressed the need for a ‘strong dollar’, which is in America’s interest. He also said the job reports were ‘good news’ and the growth in the economy was moving in the right direction.

Last week saw a relatively busy calendar, with the Non-Farm Payrolls sharing equal importance with the ISM Non-Manufacturing report and the ECBS rate decision, complete with a speech by Trichet. These events ensured that until Friday the currencies were moving within tight ranges, since traders were waiting to get some direction from the Non-Farm Payrolls.

To the markets surprise, the ISM came better than expected; giving a small boost to the dollar, and in a move widely anticipated by the market, the ECB raised rates once more to 3.50%. President Trichet’s speech was an interesting one as although he started on the hawkish side by saying the monetary policy is still accommodative, which briefly sent the Euro up, the move was short lived as he said that they revised the inflationary expectations down for next year and it would be ‘wrong for the market to assume that rates will be raised again in February’.

As there was no mention of the ECBS favourite stance, that of ‘vigilance’, the market thought twice about buying the European currency and instead remained within expected ranges for the rest of the day. As for the rest of the currencies, once again we had negative numbers coming out of Japan, with CPI coming out worse than expected and comments from BOJ officials that basically said raising rates won’t happen as fast as many think.

As we approach a new week, we are greeted with a very busy economic calendar from the US, the headliners being the CPI and trade balance backed up by the supporting acts of TICS data and retail sales. The market will also focus on the FOMC meeting on Tuesday for more Fed hints as to what their next move will be.

The question for us now is will the dollar strength continue next week and will we see the long-awaited correction for the recent weakness? Will we see 1.30 again soon? To allow an educated guess on what the answer to all these questions will be, we need first to see what the economic releases bring us. If we see better news coming from the US then chances are we will see increased dollar biding and maybe even a change in the already negative sentiment. However the market will need to see very good numbers from Trade Balance and CPI in order to commit to this.

Our sentiment is that yes, we could see more dollar strength, especially after the comments of Treasury Paulson regarding a strong dollar, and yes, the dollar bulls might try to steal the spotlight once again. However beware of more Euro buying towards the dips as there is extreme positioning for those Euro bulls, who might try to have another charge towards 1.35.

Only time and data will tell, so keep your eyes and ears open during the coming week, as we might continue to see increased volatility and choppier trading ahead of the Christmas Holidays!

Weekly Focus - Dollar still Under Pressure , 1.35 is near!

2006-12-04T05:57:00.000-08:00

Another week, another hit for the dollar, with EUR/USD ready to knock on door number 1.35! Thanks to many important releases coming out of the US on last week’s relatively busy economic calendar, the greenback continued its recent bad performance with a weekly low of 1.3348.

The catalyst for another rally in the EUR/USD seemed to be the good numbers coming out of the Euro-zone, especially the low unemployment figures from Germany, which decreased significantly, fooling the market into thinking that their economy was getting better despite the rising European currency.

The Euro was also assisted by several comments from ECB officials who stated clearly that they were not at all worried by the rise in the Euro, at least not at these levels; however they may become concerned if it reached 1.40-1.50. This could have been taken as a green light for speculators to push the pair higher.

Continuing the Dollar’s week of woe, several releases coming out of the US were much worse than expected. We had the ISM Manufacturing report and Chicago PMI come in under the key number 50, which was taken as a warning of possible recession in the US later next year.

This news promoted another rally in EUR/USD, with a move of 100 points in just a few moments. Although the ISM officials and some Fed members downplayed these results, market players were nervous and wanted to get rid of their dollar long positions, thanks to the toll of recession bells ringing in their ears.

The question that arises now is what happens this week for the dollar? Is more weakness coming? Well, this coming week sees key reports that could determine its fate, such as ISM services and Non-Farm Payrolls, being released, making it all or nothing for the greenback.

General market expectation is for negative data, which when combined with the overall negative sentiment towards the dollar, means that any surprise on the upside on these numbers will be followed by great buying interest from dollar bulls, perhaps even the long awaited correction we are all expecting. However, if the ISM report comes out under 50 again, then we could see EUR/USD rallying to the upside, plus if the payrolls data matches the disappointment, then we can all say hello to 1.35!

We do believe there is some kind of retracement needed in order for the pair to go even higher, and seeing as Monday has a quiet calendar, we may possibly see some dollar gains and general calm before the storm in the market. As you can see there is enough excitement to keep us going for another week, so stay tuned and get ready to watch the greenback stealing the spotlight once again!

There are some other things to watch out for this week, including the USD/JPY holding just above the currency’s psychological safety net of 115. If that breaks then expect the pair to move much lower thanks to stops being hit and players trying to liquidate more curry trades, with scope for further strength in the Japanese currency.

Is this the Beginning of a New Trend?

2006-11-27T06:01:00.000-08:00

On Thanksgiving Day this year, the dollar bears did indeed give thanks as there was a massive sell-off on the dollar all across the board! Other than this event interrupting all the turkey eating, the week was very quiet, with almost non-existent data coming out of the US.

But the market certainly made up for the lack of economic data, as we saw the biggest move in the major pairs for a long time. Confusion reigned when the EURO/USD broke 1.30 before rocketing up 100 pips in a matter of seconds to reach highs of 1.3107; plus GBP/USD hitting 1.94, the highest level since 2004.

It was the holidaying US and Japanese traders who helped this move and due to thin market conditions, dollar weakness began spreading all across the board. After stop losses were hit, the rate kept going up, eventually breaking resistances and not stopping for a breath until important levels came into focus.

Another reason for the dollar decline is the lower economic forecasts announced by the White House, which made the market a little nervous as this indicates a possible rate cut sometime soon. Comments from Chinese officials about the need of further Yuan flexibility, was welcomed by an already anti-dollar market. The Euro gained assistance this week from the German IFO report which was far better than expected; giving a boost to the European currency.

Another pair to watch was USD/JPY, which although it didn’t move as much as the Euro or GBP, it still fell to 1.15; a level last seen back in September. As we said last week, there was curry trading un-wind as traders liquidated their JPY positions ahead of traditional Yen strength in December.

However, the question is what happens next week when US traders are back at their desks? We have a very busy calendar with key reports coming out of the US, such as Durable Goods, GDP, Consumer Confidence and of course, the housing data. As market players start to bet on potential Fed rate cuts next year and the slowing economy, we might see further weakness for the greenback.

With a new week unfolding and likely further weakness in dollar related pairs, we should prepare for an exciting trading week, especially with EURO threatening to crack 1.35 and GBP heading towards 1.98. On top of this, we have several Fed speeches but most importantly, Ben Bernanke’s speech at the Monetary Conference, where market players should be ready to listen to any further hints in interest rates.

Further Dollar Weakness Ahead?

2006-11-20T01:58:00.000-08:00

This week we saw a major drop in the commodities, with oil hitting a yearly low at 54.86 and USD/CAD breaking resistance at 1.1450 before stopping at 1.1473. Although the calendar was busy and we saw many negative reports come out of the US, the dollar remained bid and managed to regain most of its losses.

Thanks to the PPI and CPI printing lower than expected numbers, the market is speculating on possible rate cuts next year from the Fed, however, what saved the dollar last week was the surprising increase in the NAHB housing market index from 41 to 33, which was much better than expected and gave hope that the housing market is not as bad as it seems. Unfortunately, when the housing starts data was released, it had fallen to a six year low, giving a weaker outlook in the whole US economy.

Meanwhile, the market had been anticipating the G20 meeting, held in Melbourne, Australia, of all Central Bank Governors this weekend for any comments on monetary policies and economic outlook. All eyes were on the Chinese for any further update on Yuan revaluation or reserve diversification, plus, with EURO/JPY approaching lifetime highs everyday, we are waiting for any signs of verbal intervention from not only Japanese finance ministers, but Europe too. Of course, there are always Iranian and North Korean issues to be discussed, so we shall see if any further decisions will be taken in those areas that may, eventually, influence the market players.

The question that arises next is what happens now for the dollar bulls and bears? Next week we have very few economic releases coming out of the US and due to the Thanksgiving holiday on Thursday, we might see low volatility and range trading in all dollar related pairs.

While nothing earth-shattering may happen on the dollar front, it will be interesting to watch the Canadian dollar under-performing once again, which it is likely to do thanks to oil prices remaining low and a busy economic calendar from Canada, especially with the CPI also expected to fall. We could possibly see further breakouts in the 1.10-1.1450 recent range. Traders don’t seem to support the Canadian currency at present and are looking for excuses to sell all across the board, so, we’d better watch out for the dear old loonie and get prepared to see it in action.

As we head towards the end of the year, we might see some unwind in yen curry trades, as there is chatter in the market that hedge funds and big players are getting ready to exit them. If this does occur, we could see some long awaited strength in all the yen related pairs.

So, once again stay tuned and get ready for more exiting trades to come, plus, if you are in the USA, enjoy your Thanksgiving Day!

Weekly focus : Dollar - To buy or not to buy?

2006-11-13T01:46:00.000-08:00

Another week, another hit for the dollar as the EUR/USD finally breaks 1.2850. Although we had a light calendar with the only real main events being the US trade balance and BOE rate decision, it was actually the US election results and comments from PBoC that gave direction to the major pairs.

The Bank of England raised its benchmark rates to 5% as widely expected and we saw GBP/USD dropping after the announcement. That was a buy-the-rumor, sell-the-fact move, as we watched the pound getting stronger all week ahead of the release, followed by it giving back all its gains after the release.

When the Democrats seized control of both House and Senate in the US mid-terms, we saw a little dollar weakness, but the catalyst for the greenback losses were comments from PBoC’s Zhou in which he stated “China has had a plan to diversify reserves for several years and considering many instruments for diversification”.

Although he didn’t say what currencies they are considering, traders read this news as a clue that China would diversify away from dollar to other currencies such as the yen or Euro. All this gave a boost to EUR/USD, taking the pair to new monthly highs of 1.2899 and to the EUR/JPY, as it also reached new lifetime highs of 151.46.

As the market had expected some intervention after the pair broke resistance of 150.85, the lack of any comment pushed the pair even higher, breaking the next barrier of 151.25. The fact that Zhou was quick to add that the Bank won’t diversify immediately but gradually, didn’t seem to calm the already shaken market. The comments for reserves diversification have been heard from other countries in the last few months.

The question that arises after all this is what now for the dollar? Is everything doom and gloom for the greenback? Are we heading towards new yearly high near 1.2990?
We will certainly have our questions answered next week, as we have a busy calendar and many releases coming out of the US, including key reports of CPI and PPI. If negative numbers come out of these reports, then weakness is likely in the dollar related pairs.

Let’s not forget the FOMC minutes coming out on Wednesday, where we all should be aware of the language used in the Feds latest statement. Don’t miss the Net Foreign Purchases or the Philadelphia Fed report either.

Thanks to the many negative economic releases coming out of the US over the last month, market players are reluctant to bet on any rate hikes in the near future and have started contemplating the possibility of a rate cut later next year.

It is important to state that with a very hawkish ECB and another .25 hike in December, a done deal for most analysts; it will be very hard for the dollar bulls to sustain gains. However, every day is as unpredictable as the next in our beloved market and anything is possible for bulls and bears.

Weekly focus - Whats next for the dollar?

2006-11-06T06:40:00.000-08:00

What a week that was! We had a busy calendar with many indicators coming out of the US and a lot of action in the dollar related pairs, with EUR/USD varying greatly according to the daily data. Almost everyday of this week we had US negative numbers which weighed on the dollar, with EUR/USD reaching 1.2797. Although Trichet was hawkish on Thursday, again using his magic “strong vigilance” phrase, Euro gains were limited thanks to the non-farm payrolls being released on Friday.

The big surprise this week was the Canadian dollar’s weakness after their Finance Minister surprised the markets with his decision on new income trust tax law. We also saw weakness all across the board for Canadian related pairs, with USD/CAD moving higher at 1.1370 ahead of 1.14. Fortunately for the Canadian dollar bulls, the move reversed after higher Canadian employment data and a smaller unemployment figure were released moments before the non-farm payrolls.

This week’s turning point however, was once again the non-farm payrolls release. Due to the higher monthly revision of the number and a smaller unemployment rate, this saved the day for the dollar, as the greenback gained across the board, and the EUR/USD dropped to a weekly low of 1.2680.

Next week we have a less busy calendar, which when combined with the US mid-term election buzz kicking in; we may see more dollar weakness. The market prefers a one party win in the elections, as this equals stability and therefore strong currency. For example if we have a majority republican win then we could see more greenback gains, however if the democrats are victorious there may be more dollar weakness, as this may be deemed dollar negative.

Other than this, the next big event on the calendar is the trade balance release on Thursday, which is expected to narrow from $69.9B down to $65B. As the number of net foreign purchases last month was at a record high of $116B, any number below $68B would be considered good for the dollar and therefore we could see currency a boost.

Markets will also be anticipating the BOE rate decision, which has been priced-in as a rate hike from 4.75 to 5.00, and any surprise on that outcome may mean we will see some Sterling pair’s related action.

Overall, we have a very interesting and potentially volatile week, plus the fact we are still watching all yen related pairs for some direction. Don’t forget that the EUR/JPY recently reached new lifetime highs and has been threatening to revisit those levels again.

So, stay put and be prepared for some trading action as the week unfolds…

Is it time for dollar weakness?

2006-10-31T10:48:00.000-08:00

After a month of dollar strength, we finally saw weakness all across the board with the FOMC’s less hawkish statement marking the beginning of the end for its upward strength. With a neutral statement from FOMC and a very hawkish Trichet on Thursday, we saw the Euro gaining against the dollar which continued for the rest of the week as more disappointing data came out of the US.

The catalyst for the EURO/USD’s important break of 1.27 came after a much smaller number in GDP was announced, where it pushed the Euro to 1.2750. Although the Euro reached new lifetime highs on EURO/JPY after the softer CPI data from Japan, it reversed down to 149.35 after a sell-off in all yen crosses across the board, with the USD/JPY dropping to its months low at 117.35. The last Friday of the month was certainly a volatile day, with much liquidation in yen related pairs.

The question that arises is what happens now for the dollar; is it the beginning of the end for its recent strength? Is the market becoming more convinced that the FED won’t only raise interest rates, but will also cut rates? Only time will tell and with this weeks busy US economic calendar, we might see further USD weakness all across the board, with the Euro re-testing important psychological levels on the upside.

It will be interesting to watch how the market reacts during the release of this weeks US news, and if it will continue to shrug off the good and concentrate on the bad. After weeks of very few economic indicators coming out, this week sees the ISM manufacturing, Chicago PMI, Factory orders and, of course, non-farm payrolls on Friday.

If the sentiment for the dollar continues to be negative next week, we believe that regardless of the non-farm payrolls the dollar will continue to fall deeper. Another event to watch will be the BOJ rate decision and Governor Fukui’s following statement, as this maybe the trigger for either further weakness in the yen or the boost that is eagerly awaited throughout the market.

On Thursday we expect the interest rates to remain unchanged at the ECB meeting, but a relatively hawkish Trichet could signal that hikes are far from over, perhaps with even more to come in 2007. It will be interesting to see how the market reacts, as it will be clear if the rates will be hiked again in December’s meeting. Finally, as if you would, don’t forget the US elections, which may also become a burden on the dollar.

So, stay tuned as there are a lot of goodies this week and you never know, we may finally get to see some breakouts in some of the USD related pairs…