Forex Market Update: Looking For the Next Move

Coming Up Today

• UK Public Sector Net Borrowing
• Canadian CPI
• Fed Member Lockhart Speaks

 Not a whole lot going on today as the markets continue to look for direction after last week's risk rally. Overall. not much has changed since last week's FOMC Meeting. In fact, it can be said that risk sentiment has actually risen with the Bank of Japan joining the party and increasing its own monetary stimulus plans. As such, with riskier currencies in the forex markets seeing weakness this week, we appear to be in a period of profit taking after the previous run-up.

Looking forward, forex traders may want to keep their eyes on EU sovereign debt yields, specifically those of Italy and Spain for an indication of whether the "good times" are set to continue or whether the longer term risk adversity theme is still in play.

Charts to Watch

EURCHF: Nothing new has occurred in the EURCHF but it continues to find support on any of its dips. Whether this is a precursor to another move higher remains to be seen, but it does indicate that buyers (SNB or someone else) are stepping up from their previous 1.2000 level.

GBPUSD: The GBPUSD is showing its resilience by shaking off yesterday’s weakness to trade back towards it week highs this morning. The return to its previous highs contrasts to other forex pairs such as the AUDUSD, EURUSD & NZDUSD that are still well off of their previous best levels of the week. As such, if the pair manages to trade and hold above 1.6275, it could lead to further bullish momentum to start next week.

Market Update: Central Banks in Focus

Coming Up This Week

• German Constitutional Court Ruling
• RBNZ Meeting
• UK Claimant Count Change
• US Fed FOMC Meeting

Following last week’s ECB Meeting and the US’s Non Farm Payrolls figures, forex traders will continue to be focused on central bank actions. In the EU, after Draghi’s plan that called for “unlimited” bond buying was finally made official, the question for traders is whether it will get German backing at Wednesday’s Constitutional Court Ruling. The current feeling is that the German’s are on board with the Bundesbank endorsing the project. Although the consequences of the ECB’s bond buying is higher inflation, at this point the realities are that Germany’s key manufacturing sector is gaining from the existence of the Euro.

Non Farm Payrolls Preview

Coming Up Today

• UK Manufacturing Production
• Canadian Employment Change
• US Non Farm Payrolls

The ECB Meeting came and went yesterday. The big surprise was that Mario Draghi announced that the central bank had cut its GDP forecasts for the EU for 2012 and 2013. All that other bond buying stuff was as expected. In any event, on the news, the EURUSD tanked from about 1.2650 to 1.2560. But, that move was short lived as Forex traders quickly ignored the EU and took their cue from equity traders that were going bananas on the strong ADP Employment change and Initial Claims figures that were released. The news caused the S&P 500 to hit four year highs. As a result, rather than care about the cut in GDP forecasts, Forex traders put their attention on the fact that the ECB was in fact going to expand its bond purchasing program (big surprise!) and positive US news. The change in sentiment triggered an overall risk rally that continues this morning.

 Yesterday’s moves bring us to today’s Non Farm Payrolls. Based on last month’s better than expected data and yesterday’s ADP figure, it’s safe to say that Forex traders are expecting to see another positive result. Two items to watch are the USDJPY and Gold. The USDJPY spiked higher from around 78.40 to a high of 79.00 on the ADP news yesterday. Similariliy, prices of Gold fell as the dollar strengthened against other safe havens. However, until this morning, Gold’s weakness was minimal. As such, prices of Gold could see a sharp rally if the NFP fails to impress and expectations of QE3 entering the market. On the other hand, the USDJPY continues to look like a solid buy on positive US news. Although the Bank of Japan is setting pat itself and isn’t stimulating, it appears like Forex traders are looking for excuses to short the yen.  

Charts to Watch

EURCHF: Back from the dead, the EURCHF has sprung to life over the last few days. Currently the pair traded above 1.2100 this morning and has found support on its way. Traders should keep watching to see if another base forms in the pair to reveal support that was sitting at 1.2000 has climbed higher.

Friday’s Forex Trading Setups: Will the EURUSD Spike Hold?

EURUSD

The EURUSD is higher on an agreement among EU leaders at its Economic Summit to allow repayment obligations of bank bailout funds to be junior to existing sovereign debt.  As such, the EURUSD is currently trading around 1.2600.  However, as seen by previous spikes higher in the EURUSD after EU related headlines that faded quickly, the pair could be vulnerable again today.  As such, before getting too excited about today’s EURUSD strength, Forex traders should watch where the EURUSD ends up today and opens next week.   If the pair falls back into its previous downward channel (see chart) it would reveal that Forex traders remain skeptical towards the pair and would be vulnerable to further weakness next week.  On the other hand, it the EURUSD manages to close the week above 1.2600 and holds onto its current strength, this would be a bullish signal for the pair.  Such a scenario would bode well for continued upside next week.

Swiss Franc in Focus

Forex traders are watching the Swiss franc this morning as Swiss CPI and the Swiss National Bank’s Foreign Currency Reserve data are out.  For those unfamiliar with trading the Swiss franc, the SNB has been aggressively intervening in the Forex markets and have placed a 1.2000 price floor in the EURCHF exchange rate.  The move was geared to protect Swiss exporters that are negatively impacted by a stronger franc. 

5 Forex Storylines For This Week

EURCHF – Is trading dead?
USDJPY – is the rally over?
UK Budget Release
UK and Australia MPC Minutes
US Existing & New Homes Sales

SNB Meeting Puts Swiss Franc in Focus

The Swiss Franc is in Focus this morning as the Swiss National Bank is holding their monthly Interest Rate Meeting with their decisions to be announced at 8:30 GMT. For Forex traders, the main topic is whether the SNB will raise its floor of the EURCHF to 1.25 from 1.20.  Current consensus is that the central bank will refrain from any changes as improvements in the region’s economy have put less pressure on the Swiss export sector.    Currently, the EURCHF is trading at 1.2120 after hitting a high of 1.2140 this morning.  Overall, the pair has been shown strength this week as it has rallied from a week low of 1.2040.