Month: July 2010

By eToro – The Euro continued to rally despite a worse than expected trade balance.  With the US continuing to show signs of slow growth, the Euro should break the 1.3000 level.

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Forex Market Analysis provided by eToro

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USDCAD trades in a narrow range between 1.0498 and 1.0581. The price action in the range is more likely consolidation of uptrend from 1.0276. One more rise towards 1.0676 key resistance is still possible later today, and pullback would more likely be seen before breaking above this level. Key support is now at 1.0498, a breakdown below this level will indicate that a cycle top has been formed on 4-hour chart and the rise from 1.0276 is complete, then another fall towards 1.0000 could be seen.

Daily Forex Analysis

By GCI Forex Research

Fundamental Outlook at 1400 GMT (EDT + 0400)

€

The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2990 level and was supported around the $1.2870 level.  The common currency stopped just short of testing the US$ 1.3000 figure during the European session and North American dealers knocked the pair lower.  Federal Reserve Chaiman Bernanke testifies this week following the Fed’s downward revisions to economic growth and inflation forecasts and its upward revision to its unemployment projections.  The common currency tracked U.S. equities higher today as traders responded to some positive U.S. earnings data and shook off a report British Petroleum’s well cap solution in the Gulf of Mexico may be leaking.  Data released in the U.S. today saw the July NAHB housing market index decline to +14 from the revised prior reading of +16.  Data to be released tomorrow include June housing starts and June building permits.  In eurozone news, there was a report today that Germany’s Hypo Real Estate Holding AG failed its bank stress test.  Results from up to 91 European bank stress tests will be released on Friday and may impact the euro’s direction.  There is talk that the International Monetary Fund will seek to increase the amount of funds it can lend to US$ 1 trillion from the current level of US$ 750 billion.  Data released in the eurozone today saw the EMU-16 May current account balance widen to –€$ 5.8 billion from the revised print of -€5.6 billion.  Also, EMU-16 May construction output was off 1.0% m/m and 6.3% y/y.  Euro offers are cited around the US$ 1.2830 level.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥87.20 level and was capped around the ¥86.50 level.  An anonymous Bank of Japan source suggested the central bank may intervene around the ¥85 level if the pair depreciates to that area and continues to trade there.  Japanese monetary authorities have not officially intervened for years but they will clearly not want the pair to risk a move below the ¥80 figure.  Japanese financial markets were closed overnight and will reopen overnight.  Data to be released in Japan overnight include the May leading index, May coincident index, and June convenience store sales.  The Cabinet Office will release its monthly economic report on Wednesday.  The Nikkei 225 stock index on Friday lost 2.86% to close at ¥9,408.36.  U.S. dollar bids are cited around the ¥86.29 level.   The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥113.05 level and was supported around the ¥111.40 level.  The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥133.40 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥83.10 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.7787 in the over-the-counter market, up from CNY 6.7747.  Former People’s Bank of China adviser Yu Yongding reported China should reduce the amount of U.S. Dollar holdings in its portfolio.  China’s foreign exchange reserves totaled US$ 2.454 trillion in the second quarter and in May, China reduced its U.S. Treasury holdings to US$ 867.7 billion.  PBoC is expected to maintain a relatively loose monetary policy.

£

The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5235 level and was capped around the US$ 1.5350 level.  Many data will be released in the U.K. tomorrow including June public finances, the June M4 money supply, June CBI total orders, and June CBI business optimism.  Bank of England Monetary Policy Committee member Sentance reported a “gradual” increase in interest rates would be “helpful for the economic recovery.”  Cable bids are cited around the US$ 1.5140 level.  The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8505 level and was supported around the £0.8425 level.

CHF

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0535 level and was supported around the CHF 1.0445 level.  Data to be released in Switzerland tomorrow include the June trade balance followed by June money supply data on Wednesday.  Most dealers believe SNB has been forced to intervene less on account of all of the euro-denominated assets on its balance sheet but some note the SNB will likely continue to intervene at opportune levels.  U.S. dollar offers are cited around the CHF 1.0980 level.  The euro appreciated vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.3650 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.6010 level.

Forex Daily Market Commentary provided by GCI Financial Ltd.

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By Elliott Wave International

Almost everybody who follows financial markets has heard about climbing the “wall of worry”: the time when prices head up bullishly, but no one quite believes in the rally, so there’s more worry about a fall than a rise.

What’s the opposite condition in the market?

Bob Prechter named it the “slope of hope,” meaning that as prices head down, no one wants to believe the market really has turned bearish, so there’s more hope for a rise than fear of a fall.

Want to Know How to Prosper in a Deflationary Depression?If you haven’t yet given Robert Prechter’s deflation argument your full attention, you should know now that yesterday was the best time to do so. Download Prechter’s 60-Page Guide to Understanding Deflation here.

The market has been rising recently, following a bearish decline from late April through the end of June, which makes now the perfect time to learn more about the slope of hope.

* * * * *

Excerpted from The Elliott Wave Theorist by Robert Prechter, published June 18, 2010

According to polls, economists are virtually unanimous in the view that the “Great Recession” is over and a recovery is in progress, even though “full employment will take time,” etc. Yet mortgage writing has just plunged to a new low for the cycle (see Figure 1), and housing starts and permits just had their biggest percentage monthly drop since January 1991, which was at the end of a Primary-degree recession. But the latest “recession” supposedly ended a year ago. How can housing activity make new lows this far into a recovery? The answer is in the subtitle to Conquer the Crash, which includes the word depression. The subtleties in economic performance continue to suggest that it “was” not a “recession.” It is a depression, moving forward, in punctuated fashion, slowly but inexorably.

Despite this outlook, keep in mind what The Elliott Wave Theorist said last month: “Even though the market is about to begin its greatest decline ever, the era of hope is not quite finished.” For as long as another year and a half, there will be rallies, fixes, hopes and reasons to believe in recovery. Our name for this phase of a bear market is the Slope of Hope. This portion of the decline lasts until the center of the wave, where investors stop estimating upside potential and start being concerned with downside potential. Economists in the aggregate will probably not recognize that a depression is in force until 2012 or perhaps beyond. That’s the year the 7.5-year cycle is due to roll over (see April 2010 issue). Stock prices should be much lower by then, but optimism will still dominate, and it will show up in the form of big rallies and repeated calls of a bottom.

Want to Know How to Prosper in a Deflationary Depression?If you haven’t yet given Robert Prechter’s deflation argument your full attention, you should know now that yesterday was the best time to do so. Download Prechter’s 60-Page Guide to Understanding Deflation here.

By Fast Brokers – The USD/JPY is giving back some intraday gains as the currency pair tries to regain its footing following last week’s hefty pullback.  Investors rushed towards the yen in reaction to a wave of negative U.S. data.  The yen has flexed its muscles as a safe haven once again as the USD/JPY sinks towards 2009 lows.  Meanwhile, investors are awaiting more budget plans from Japan’s government regarding how to reign in the nation’s huge budget deficit.  Meanwhile, if the USD/JPY continues to decline then it wouldn’t be surprising to see the BoJ step in with some form of verbal intervention to prevent the yen from rising too fast, particularly if the currency pair tests 2009 lows.  Speaking of which, the BoJ will be releasing its monetary policy meeting minutes tomorrow and it will be interesting to see how the central bank addresses recent strength in the yen.  Investors will also be digesting U.S. building permits data and more signals of a slowdown in U.S. housing could weigh on the USD/JPY.

Technically speaking, the USD/JPY has technical supports in the form of intraday and 11/30/09 lows.  Additionally, the psychological 85 level could serve as a solid cushion should it be tested.  As for the topside, the USD/JPY faces technical barriers in the form of intraday highs.
Present Price: 86.70
Resistances: 86.82, 86.98, 87.11, 87.23, 87.36, 87.49
Supports:   86.58, 86.46, 86.26, 86.12, 86.01, 85.87
Psychological:  85, 90, November 2009 lows

By Fast Brokers – The Cable is trying to balance above our key medium-term downtrend line originating from November ’09 highs and connecting through January highs as the currency pair extends its decline from Friday.  Investor sentiment is still rattled from last week’s disconcerting U.S. data and the risk trade is struggling across the board.  The UK was quiet on the data wire again today, meaning the Cable is just following correlative forces for the time being.  However, the UK will light up the data wire tomorrow with the release of prelim mortgage approvals, public sector borrowing, and industrial order expectations.  Additionally, investors will digest housing data from the U.S. and the RBA’s meeting minutes.  If the UK’s data prints positive this could help bolster the Cable and help the currency pair hold above our medium-term downtrend line.  Meanwhile, investors are brushing aside negative news from Ireland and Hungary.  Moody’s downgraded Ireland’s debt by a notch and Hungary walked away from negotiations with the IMF and EU concerning the remainder of its emergency funds.  Even though investors have shrugged at the news, we suggest keeping an eye on the situation in Hungary since EU banks have sizable exposure to Eastern European economies.  If the situation deteriorates investor uncertainty could rise and rattle the Euro, a negative for the risk trade as a whole.

Technically speaking, the Cable has multiple uptrend lines serving as technical cushions along with intraday and 7/7 lows.   Additionally, the highly psychological 1.50 level should serve as a solid technical cushion should it be reached.  As for the topside, the Cable faces technical barriers in the form of intraday highs and 7/15 highs along with the psychological 1.55 level should it be tested.

Present Price: 1.5217
Resistances: 1.5224, 1.5242, 1.5274, 1.5295, 1.5324, 1.5350
Supports: 1.5204, 1.5184, 1.5164, 1.5140, 1.5111, 1.5079
Psychological: 1.55, 1.50

By Fast Brokers – The EUR/USD is consolidating below its highly psychological 1.30 level despite today’s negative news from Ireland and Hungary.  Moody’s lowered Ireland’s debt rating by one notch over worries of financial deterioration within the country’s banking sector.  However, investors have brushed aside the downgrade as overdue and Moody’s also stated that Ireland is making good progress as far as austerity is concerned.  Meanwhile, Hungary ended talks with the IMF and EU regarding the remainder of bailout funds after Hungary refused to continue with austerity measures.  Hungarian bond yields soared in reaction to the news and the Forint tumbled by nearly -3.5% vs. the Euro.  Investors should keep a close eye on the situation in Hungary since EU banks undoubtedly have substantial exposure to Eastern European economies.  On an encouraging note, it is likely that the Hungarian government is just trying to win political points and leaders will likely come to an agreement with the IMF and EU.  Regardless, investors should monitor the situation over the coming days.  Despite the negative news hitting the wires today the EUR/USD has held up well and the EUR/GBP is popping.  The relative strength in the Euro likely stems from anticipation of the release of bank stress test results on Friday.  Investors expect the report will boost confidence in the EU’s financial situation.  However, considering how much the Euro has been boosted ahead of the stress test results it wouldn’t be surprising to see the currency pair sell on the news if investor uncertainty stays at a heightened level throughout the week, particularly if the stress test isn’t as thorough as desired.  The EU will be quiet on the data wire tomorrow, meaning investors will be focusing on the release of the RBA’s meeting minutes along with U.S. building permits data.

Technically speaking, the EUR/USD faces technical barriers in the form of intraday highs and the highly psychological 1.30 level.  As for the downside, the EUR/USD has supports in the form of intraday and 7/15 lows.

Present Price: 1.2928
Resistances: 1.2973, 1.2990, 1.3020, 1.3040, 1.3067, 1.3091
Supports:   1.2940, 1.2914, 1.2886, 1.2856, 1.2836, 1.2799
Psychological: 1.30

Well technically, the daily chart of the CADJPY pair is a bit ugly. As you can see, the pair has just been ranging for the past several months. Presently though, it appears to have found support at the psychological 82.00 level. If this support holds, it can reach its previous high near 86.50, 90.00 or even near 95.00. But if it does not, the 80.00 marker should be able to carry it on its back. A break below 80.00 could be costly as the pair could slide all the way down to 70.00.

Fundamentally though, several economic indicators are pointing to a possible upmove for the pair. Tomorrow (July 20), the Bank of Canada (BOC) is expected to raise its interest rates to 0.75% from 0.50%. Such would make investments in Canada more attractive which would then lead to an increase in the demand for the Loonie, thus, likewise pushing its valuation upwards. A rate hike would also raise the interest differential between the CAD and the JPY. In case you don’t know, the JPY only have an interest rate of 0.10%, netting those who are long on the CADJPY with 0.65%.

Several other economic factors point to a short term rise in the valuation of the Canadian dollar. On Wednesday, Canada’s wholesale sales is projected to print an uptick of 0.3% after declining by the same pace during the previous month. Its retail sales figures, which will be posted the next day, are also predicted to have increased. Core retail sales are seen to have gained by 0.5% after dipping by 1.2% while the headline account is also predicted to have expanded by 0.5% after sliding by 2.0% the other month.

More on LaidTrades.com …

Good day forex friends! On my post last July 8 (kindly see it here), I questioned whether the EURUSD‘s recent success will be shortlived since it was approaching a significant technical resistance at that time. Back then, it already broke out from a mini inverted head and shoulders formation but still it remained below the longer term downtrend. But based on its present daily chart, you can see that it has just moved past the long term downtrend resistance – finally, a sign of better things to come for the euro bulls! Haay! In any case, the pair could still range or even retrace for awhile given its overbought conditions. If it weakens, the former neckline of the inverted head and shoulders should serve as a support to keep it from falling further. A move to the upside, on the other hand, could send it back up until it encounters some selling pressure at around 1.3250. And as I’ve said, things are looking better now for the euro bulls which means that the euro, at of this moment, has a higher chance of moving north compared to before. Long on weakness anyone?

No major economic events are due in the euro zone up until Thursday (July 22). On that day, the recent manufacturing and service PMIs of France, Germany, and the euro zone itself are all seen to dipped slightly from their last readings. The euro zone’s industrial new orders are also projected to have slipped by 0.1% for the month after logging a gain of 0.6% during the previous period. On Friday (July 23), the German Ifo Business Climate is likewise anticipated to have declined to 101.5 from 101.8. These projections, if they are indeed true, could soften the euro’s climb. Any positive surprise from these, on the flip side, could send the EUR higher.

More on LaidTrades.com …

By CountingPips.com

The latest Commitments of Traders (COT) data out on Friday showed that futures speculators continued to decrease their bets for the U.S. dollar against the euro as of July 13th, according to the COT data released by the Chicago Mercantile Exchange. Non-commercial futures positions, those taken by hedge funds and large speculators, were net short the euro against the U.S. dollar by -27,050 contracts after being net short the euro by -38,909 contracts the week before on July 6th. short positions have now fallen for two straight weeks and are just a month removed from being short by -111,945, showing the change of sentiment for the euro.

The COT report is published every Friday by the Chicago Mercantile Exchange (CME) and shows futures positions as of the previous Tuesday. It can be a useful tool for traders to gauge investor sentiment and to look for potential changes in the direction of a currency or commodity. Each currency contract is a quote for that currency directly against the U.S. dollar, where as a net short amount of contracts means that more speculators are expecting that currency to fall against the dollar and net longs expect that currency to rise versus the dollar.

The British pound sterling was the only other major currency in addition to the euro that was net short in the CME futures market against the dollar as of July 13th while the Australian dollar, New Zealand dollar, Japanese yen, Swiss franc, Canadian dollar and Mexican peso all had a net long amount of contracts against the dollar.

The British pound net shorts decreased to -34,671 from a total of -38,077 that were reported net short on July 6th. The Swiss franc positions turned to net long last week by 14,590 contracts after registering -7,455 net short positions the week before. This was the first time since January 26th that the Swiss franc positions have been net long.

The Japanese yen net long contracts continued to advance higher to 47,359 as of July 13th following 37,926 net long contracts on July 6th. Investors have increased their yen positions for five straight weeks and have reversed their yen positions substantially from being short by 65,612 contracts on May 4th.

The Australian dollar futures positions were net long by 23,480 contracts as of July 13th, rising higher after totaling a net 7,246 long contracts on July 6th. The New Zealand dollar futures positions also rose higher on the long side with 5,452 long contracts this week after a total of 2,577 long contracts as of July 6th.

The Canadian dollar long positions rose to net 22,038 contracts and after 8,094 net longs the week before while the Mexican peso long contracts advanced to 28,135 longs from 22,725 longs the prior week.

COT Data Summary (vs. the US Dollar) as of July 13th, 2010

Australian dollar net longs increase to 23,480 contracts from 7,246
British pound sterling futures contracts were net short by -34,671 from -38,077
Canadian dollar net long contracts rose to 22,038 from 8,094
Euro net short positions declined to -27,050 from -38,909
Japanese yen net longs up to 47,359 from 37,926
New Zealand dollar longs increased to 5,452 from net long of 2,577
Mexican peso long contracts increased to 28,135 from 22,725
Swiss franc net long contracts are at 14,590 from -7,455

Go to the Commitment of Traders CME futures data