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Wednesday, 16 Feb 2011
GBP Strength Looks to Continue
A news heavy trading day saw sharp rallies in the pound while the Aussie dollar traded lower.
USD - Dollar Shrugs Off Poor Retail Sales
Traders overlooked disappointing January retail sales numbers as the dollar was mixed versus the major currencies. Retail sales for the previous month failed to meet economists' expectations, positing a 0.3% increase on expectations of a 0.5% jump. December's sales numbers were revised lower to 0.5% from 0.6%, underscoring the negative tone of the report.
Other US economic data showed investors continued to increase their purchases of long term US securities as the TICS capital flow report released results showing 69.5B USD in purchases. Expectations were for purchases to total 91.3B.
When discussing the President's Federal budget plan, Treasury Secretary Timothy Geithner said the budget problems cannot be ignored and are not a result stemming from the financial crisis. A return to financial prudence will be needed and US deficits are too high at this time.
At the end of the trading day, the dollar was mixed with gains coming versus the euro and the Aussie dollar. The EUR/USD finished at 1.3485 after opening the day at 1.3507. The dollar was up sharply versus the yen as the USD/JPY closed near its high of 83.80 from its opening day price of 83.40. The AUD/USD fell below parity to 0.9980 from 1.0041.
Today traders will be focusing on the release of key US economic data as well as the release of the Fed Meeting Minutes. At 13:30, monthly building permits will be released and also month over month PPI. Inflationary pressures are nonexistent in the US and traders will focus on the housing data and any changes in the Fed's economic expectations.
The EUR/USD is currently trading in a bearish channel after turning lower following its failure at 1.3860. Further declines are expected with a possible target at 1.3250, the 61.8% retracement of the January to February move. Support is found at the bottom channel line at 1.3390. Resistance comes in at 1.3570 followed by last week's high at 1.3740.
EUR - Pound Rises on Interest Rate Expectations
The pound traded higher following the fifth consecutive letter from BOE Governor Mervyn King to the Chancellor of the Exchequer on why inflation is higher than expected. King's comments highlighted the uncertainty surrounding future British inflation levels that have been primarily driven by rising commodity prices and an increase in UK VAT. The letter also highlighted the view of higher inflation above targets forecasted by the BOE.
In light of the letter, traders bid the pound higher on expectations of an interest rate increase by the BOE in the near term.
The GBP/JPY added 1.3% in value and closed higher at 135.46 from 133.51 while GBP/USD rallied to a closing price of 1.6140 after opening the day at 1.6044.
Traders will once again be focusing on comments by BOE Governor King in the morning.
The move higher by the Cable was enough to breach above the declining wedge pattern that has held the GBP/USD in check since failing to breach the 1.6280. Judging from the consolidation pattern, an estimate following the breach should target this previous resistance level.
JPY - Dollar Continues to Book Gains Versus the Yen
In yesterday's trading the greenback strengthened against the yen to a level not seen over the past two months. As traders shrugged off poor performing US retail sales numbers, they continued to buy dollars and sell yen as expectations for an improving US economy takes shape.
At the close of yesterday's New York trading session, the USD/JPY was trading near its session high of 83.80 from its opening day price of 83.40.
Continued gains have been booked in the USD/JPY following a breakout of the triangle consolidation pattern. The pair's appreciation stymied at the 200-day moving average which comes in at 83.90. A breach above this level should then target the December high of 84.50, followed by the September high at 85.90. Support for the pair is found at this week's low of 83.10 followed by the descending leg of the triangle which comes in today at 82.60.
Crude Oil - Spot Crude Oil Continues to Fall
Prices for spot crude oil booked another day in the red as traders expect rising crude oil inventories in the US may off-set the recent destabilization in the Middle East. Following an $8 rally at the beginning of the Egyptian protests, spot crude oil has given back those gains and then some.
At the end of the day, spot crude oil was trading lower at $84.30 after opening the day at $85.15.
Since peaking at $93, spot crude touched a two and a half month low earlier in the day. Driving prices lower is stabilization on the Egyptian front as well as limited tensions in large oil producing nations such as Saudi Arabia. Also easing the price pressures are traders' expectations for larger than expected US crude oil inventory numbers.
Today at 15:30, the US weekly crude oil inventory report will be released. Market expectations are for a 1.8M barrel increase. Last week the report showed a rise of 1.9M barrels.
Yesterday's low of $83.30 and $80.25 should serve as support levels with resistance found at $89.40 and $93.00.
A close below the 1.3480 level should target the 61.8% Fib retracement at 1.3250. This level lines up nicely with the mid-January pivot of 1.3240. Resistance comes in at 1.3570 followed by last week's high at 1.3740, though any gains in the pair should be capped by the falling trend line off of this year's high.
Yesterday's breakout higher was enough to breach above the declining wedge pattern that has held the GBP/USD in check since failing to breach the 1.6280. Judging from the consolidation pattern, an estimate following the breach should target this previous resistance level.
The pair's appreciation stymied at the 200-day moving average which comes in at 83.90. A breach above this level should then target the December high of 84.50, followed by the September high at 85.90. Support for the pair is found at this week's low of 83.10 followed by the descending leg of the triangle which comes in today at 82.60.
With textbook precision, the USD/CHF has turned lower after retracing 61.8% of its December downtrend. An initial target for the pair looks to be the 38.2% retracement level at 0.9590 followed by the mid February low of 0.9520. Resistance for the pair comes in at 0.9720 and 0.9775.
The Wild Card
The pair has shown a propensity to be sold off when it approaches its 200-day moving average. On two prior occasions (both in November of 2010) the pair fell following unsuccessful attempts to trade above this long term moving average. The recent two day decline looks to have verified the exhaustion of the bulls, making a short setup entry opportunity for forex traders. Support is found at 1.2930, followed by 1.2770, and 1.2720.
|16:00||USD||IBD/TIPP Economic Optimism||42.0||-||-|
|19:00||EUR||ECB President Draghi Speaks||-||-||-|
|23:30||USD||FOMC Member Williams Speaks||-||-||-|
|00:30||AUD||AIG Construction Index||53.8||-||-|
|01:01||GBP||BRC Shop Price Index||y/y||-1.4%||-||-|
|02:00||AUD||HIA New Home Sales||m/m||-1.8%||-||-|
|02:01||JPY||Monetary Policy Statement||-||-||-|
|08:00||EUR||German Industrial Production||m/m||0.7%||-||-|
|08:01||JPY||BoJ Press Conference||-||-||-|
|08:45||EUR||French Trade Balance||-3.3B||-||-|
|09:00||CHF||Foreign Currency Reserves||540B||-||-|
|10:30||GBP||Manufacturing Production m/m||m/m||-0.8%||-||-|
|10:31||EUR||German 10-y Bond Auction||0.69|1.2||-||-|