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Under Pressure But Still Standing

Discussion in 'Forex Daily News & Outlook' started by mercaforex, Oct 21, 2009.

  1. mercaforex

    mercaforex New Member

    Jul 1, 2009
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    By Mercaforex

    Although the USD found itself getting pressured by the EUR on Tuesday it did finish the day within known ranges against all the major currencies. Wall Street was deluged by earnings reports yesterday and finished the day mostly flat. Corporate reports continue today and will keep coming all week. The U.S. did release Building Permits and Housing Starts data and both publications turned in negative numbers. Also the PPI statistics managed to show deflation instead of any inflation. Thus the question that begs is why is everything seemingly so optimistic in the equity markets and for other asset classes? The U.S. will release its Crude Oil Inventories figures today and though this report will not move the markets, what it will do is to probably highlight that consumption (demand) remains low. Tomorrow the Unemployment Claims will be released and the number is expected to be slightly worse than last week’s.
    The USD has borne the brunt of increasing risk sentiment not only within the U.S stock markets but internationally too. However, where is this risk appetite coming from? Are economic prospects so bright that growth is a certainty? Upon looking over corporate earnings the one critical item that should be noticed is that many companies are making slim profits based on cutting back expenses, not on revenues produced. The price of Oil is another example of price action based more on speculation than fundamentals. Supplies of crude oil remain at record levels, demand has not increased significantly, and Oil does not show many signs of being in short supply anytime soon. While we have heard many claim that the status of the USD as an international reserve currency are in danger, it should be remembered that most of the leading global economies still have a reliance on the greenback. The USD has certainly been under pressure and this may continue to be the case as long as risk appetite abounds, but the greenback still has opportunity for traders who question what we have seen take place on bourses the past few months.

    The EUR stayed around its highs against the USD on Tuesday as range trading came into play. The German PPI numbers were published yesterday and produced a minus -0.5% outcome, which was below the ‘unchanged’ figure that was forecasted. There is no major economic data on schedule today and tomorrow will only see Europe’s Current Account statistics. The EUR has continued to be propelled to highs against the USD but it has accomplished this under a torrent of lackluster economic reports from the continent. Though the word deflation remains taboo for politicians and finance ministers, the German PPI numbers yesterday showed that inflation should not be the primary concern. Europe has many questions which still plague its financial system and the complicated negotiation process that companies such as Opel have been forced to undertake should serve as an example. The capability for Europe to achieve real growth and avoid stagnation should be a concern. The EUR has done well against the USD but its success is probably not predicated upon its own fundamental strength.

    The Sterling held its ground on Tuesday and appears poised to see volatility. The Public Sector Net Borrowing data was released yesterday and provided a slightly negative number of 14.8 billion compared to the estimate of 15.2 billion. Making news also were the comments by the Bank of England Governor Mervyn King who spoke about a wide variety of subjects on the eve on the MPC Meeting Minutes scheduled for today. Mervyn King spoke about the need to limit the size of big banks and mentioned that new regulations would not answer all questions about risk or insure that another financial crisis could be avoided. With the advent of the MPC Meeting Minutes today investors will be looking for further hints about quantitative easing and the Bank of England’s overall outlook. Tomorrow the Retail Sales numbers will be published by the U.K. and the combination of these reports are likely to provide the Sterling with plenty of ammunition for traders.

    The JPY continued to flounder within a fairly consolidated range against the USD as investors seemingly try to decide their next moves. Gold also found itself within the same basic patterns yesterday. Both the JPY and Gold are trading near their highs and consolidation at these levels must be monitored. Risk sentiment, speculation, and fair value should all be examined by traders looking to enter these waters.

    Oh Mighty Dollar, Won’t You Please Show Us The Way?

    An interesting trading day yesterday as nothing significant happened! 11 points were traded between the high and low and yet, there is not much change to my feelings about this market. Reluctantly I must say that there is greater support at this level after not being able to break below Monday’s low. This consolidation could be necessary to truly push higher and hold. Many traders are speculating that this market is very frothy, and is being held up by good intentions and high hopes, us technical “weenies” will have to wait for a sign that suggests a true reversal before we can begin to pile in on the short side. As of now, we continue to trade higher. Support 1081.16, 1075.3 1060.9, 1020.3 Resistance 1100.2, 1132.2, 1153.8

    What can I say about Gold that hasn’t been said before? It’s a strong market, yes, and we have finally slowed down after breaking through record highs 5 out of the last 11 trading days, but there is still much potential. Consolidation is a healthy way to build support levels, before continuing higher. As we play around the range, we are keeping a close eye on the American equity market and the greenback. Each has the potential to create a strong move (in either direction) in the Gold Market. While we attempted to push higher yesterday mixed trading led to a lower close but nothing to signal a powerful attempt at taking this market down. Support 1059.5, 1042.5, 1024, 1019.65, 1009.65 Resistance 1061.35, 1070.6.

    Yesterday’s technical analysis of the pound was correct in that when we hit the trend line we were not able to have a daily close above it. However, fundamentals came into play when the BOE Governor Mervyn King “hinted” that higher interest rates are on the horizon for the British people. Of course, this is would be considered a catalyst by many…including myself! So upon hearing such news all one can do is get out of all short positions for the “just in case” scenario, which played out as expected. The moment the words higher\rising and interest rates were spoken together the sterling had to react the way it did. The beauty and frustration of technical analysis, is that in hindsight one can claim that the technicals saw this coming with the bounce off support and the commanding push higher. At this point we should easily test resistance of 1.6743. Support 1.6467, 1.6444, 1.6324, 1.6239, 1.6119 Resistance 1.6591, 1.6662, 1.6743, 1.7042

    The Euro seems to be setting up to burst higher. Hitting the trend line a few times already, forming buying tails and even making new highs yesterday are considered by me to be a solid show of strength from this currency. I would also like to point out that the trend line is relatively close to being at a 45 degree angle, which is considered to be a very stable and strong angle for a trend to develop. I am looking to get in anywhere near the trend line with a relatively tight stop. Keep a cautious eye on the US dollar, and Gold, as both are important considerations for trading this currency. Support 1.4923, 1.4844, 1.4761, 1.4673, 1.4649, 1.4449 Resistance 1.4965, 1.4993, 1.5083, 1.5144, 1.5284

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