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Wall Street Shows A Distaste For Data

Discussion in 'Forex Daily News & Outlook' started by mercaforex, Feb 9, 2010.

  1. mercaforex

    mercaforex New Member

    Jul 1, 2009
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    The USD lost a bit of ground to the EUR on Monday on a day of no major economic data. Wall Street turned in another lackluster performance as the major indexes in the U.S. declined. The lack of statistics however did not stop the chorus of disenchantment from investors who are questioning the statistics they are being provided with. The Official Unemployment Rate which showed an improvement on Friday came under a glaring spotlight as analysts showed that the accounting methods used to derive the number has been changed. Basically what has been shown is that the government has changed the method it is using to calculate population statistics when it correlates its jobless figures. This fact has raised the ire of some investors and led to loud grumblings. Today will be another quiet day of releases and investors will still have to judge the broad market place based on quarterly earnings and lingering sentiment.

    Wednesday will see a surge of data and news. Trade Balance figures will be published tomorrow and Ben Bernanke will testify before Congress on the monetary policy of the Federal Reserve. The hearings will center around the affect that the Fed has on the overall economy, and if changes that are enacted such as the unwinding of TARP and other programs that have provided liquidity in an effort to help, will now hinder the recovery. The testimony will largely be driven by a Democratic party majority which leads Congress, thus the questions may seem quite soft for most of the session, but this doesn’t mean that Republicans and other critics will not get an opportunity to show skepticism. After making quite remarkable gains last week against the EUR the USD did run into some resistance yesterday, but traders will have to monitor all developing news and short term trends today to make sure they stay in front of the curve.

    The EUR found some stability on Monday after withstanding serious pressure last week. The broad Sentix Investor Confidence reading was released from Europe and it was more than a bit negative as it came in with an outcome of minus -8.2, which was significantly worse than the anticipated decline of minus -2.3. Today German Trade Balance and Final CPI numbers will be released. However the main news for the EUR will continue to be the story that is circulating around the Sovereign debt problems within Greece. ECB President Trichet has apparently cut short a visit to Australia in which he was attending a symposium. Trichet has been asked to participate in a European Council meeting in Brussels which will no doubt focus on the dark clouds swirling around the E.U. and the way in which it is handling (or mishandling) the crisis. Tomorrow a host of Industrial Production figures will be released but the focus for investors will be how government officials manage the ‘news and rumors’ that are hovering over the EUR.

    The Sterling proved to be the weakest of the major currencies on Monday as it was hit by poor data. The BRC Retails Sales Monitor showed a drop of minus -0.7%. The decline was rather significant however its results are being debated. The U.K. economy in no uncertain terms continues to show weakness but the outcome from the retail numbers were slightly explained away because bad weather and a tax change that took effect in January. Trade Balance data will be brought forth today and tomorrow the BoE will present its Inflation Letter and BoE Governor Mervyn King will hold a press conference in which he speaks about the U.K. economy. The Sterling continues to find itself under pressure and traders will have to monitor the GBP closely for any short term opportunities.

    The JPY and USD continued to trade in a consolidated mode due to the large amount of risk adverse trading that has come into the international marketplace. Asian bourses like their major counterparts have proven lackluster and gains have been tough to come by. Gold is languishing in a tight range also and is around 1070.00 USD per ounce. Gold is certainly under the shadow of a stronger greenback and the speculative elements surrounding the precious metal may find a new round of pressure.

    Technical Analysis

    The British Pound and the U.S Dollar's relationship differs from most of the other major currency pairs. While some currencies experienced a slow but steady growth for much of the last 11 months, others were exposed to greater than average levels of volatility. However, the GBP has been range bound since June of 2009 up until last Friday, February 5th. When traders refer to a pair as “trading the range” it generally means that there are levels of Support and Resistance (S&R) that the pair has maintained for an exaggerated period of time. Furthermore, the graph of a range-bound pair will give the appearance of price action moving sideways instead of up or down. In the daily GBP/USD graph below the red arrow represents “trending” while the yellow boxed area represents “ranging”.

    Notice that there are 2 points that exist outside of the yellow boxed area, a breach. The first breach of the range occurred back in early August of 2009 while the second breach happened on February 5th, 2010. Traders who rely solely on S&R will trade the breakouts hoping that the price action that follows will generate significant PNL.

    If you traded the break out in early August hopefully you generated a decent profit. However, if you held that position too long you would have unfortunately found yourself back in the yellow box, as the pair went range bound again. So how do you prevent that from happening? In the graph below we have zoomed in on the current breach of GBP support. Take note of the Moving Averages (MA). During the first breach the order was the 50, 100, and 200 and each were rising but at a minimal incline. When Prices are moving up you expect the order to be 50, 100, and 200. However when prices are declining you expect your MA's to be in the following order; 200, 100, and 50. Right now our MA's are set to cross whereby we will have the 200, 100, and 50 in that order and crossing at the same time as the Pound breaks through its range. The combination of these events enables us to maintain our short GBP bias.

    By Mercaforex

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