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.

Forex Trading Update - BoJ Follows the FED, ECB, ETC

Coming Up Today

• UK MPC Minutes
• US Building Permits & Existing Homes Sales

Earlier this morning the big story was that the Bank of Japan has joined the party as it announced at its Monetary Policy Meeting that it would increase its asset buying and loan program, by 10 trillion yen ($127billion) to 80 trillion yen. The move ends months of inaction from the BoJ which had been aggressive with applying economic stimulus earlier in the year before slowing down. The move is partially seen as a defensive play by the BoJ as forex traders expected that a potential run into the yen was possible after the US Fed activated its QE3 plans.

FOMC Meeting, QE3, Gold & the USDJPY

If you are looking for a proxy on expectations of from forex traders on what the Fed will at its upcoming FOMC Meeting, you don’t need to look much farther than the USDJPY.  After gathering momentum and hitting 79.00 last week, the pair has been in a nosedive since last Friday’s Non Farm Payrolls release.  The drop was a result of statements from last month’s FOMC Minutes that the Fed was ready to act if the US economy didn’t improve.  These words were then backed up by Fed Chairman Ben Bernanke at Jackson Hole.  As such, going into the Non Farm Payroll report, the overwhelming belief was that a poor figure would tip the scales in favor of Fed actions.  Therefore, with the NFP missing expectations, forex traders have been shorting the dollar in favor of the yen.

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.

Market Update: GBPUSD Seeing Support

Today’s News

• UK Claimant Change “Better Than Expected”
• UK MPC Minutes “No Changes”
• US CPI – Coming up at 8:30 EST

UK Claimant Change figures were better than expected this morning. Also, the Bank of England’s MPC Minutes revealed no changes from last month as all 9 members were in favor of leaving interest rates at 0.5%. On the news, the GBPUSD traded back towards the 1.5700 figure, holding currently just below. Coming up today, Forex traders will be awaiting US CPI figures. With the USDJPY finally gathering momentum as it nears 79.00 we could see additional momentum in the Forex pair after today’s CPI numbers. Also, a low reading could knock prices of Gold lower after they fell below 1600 again today.

Market Update: US Banks Told To Fend For Themselves

Coming Up Today

• UK PPI Input/Output
• Canadian Unemployment Rate
• US Import Prices

US regulators told five leading banks, which included BofA and Goldman Sachs to start preparing plans to prevent them from collapsing. The regulators are basically letting the banks know that they will have to fend for themselves and not to expect government help in the event of them experiencing financial problems. While the regulators weren’t specifically indicating that they believed a collapse was around the corner, the fact that they are out warning the US’s biggest banks has triggered a risk selling environment this morning. Charts to Watch

Market Update: Non Farm Payrolls Loom

Coming Up Today

• UK Services PMI
• US Non Farm Payrolls
• US ISM Non -Manufacturing PMI

After Wednesday’s lack of a changes at the Fed’s FOMC Meeting, Forex traders are gearing up towards today’s Non Farm Payrolls report. The numbers come after ECB Chairman Mario Draghi shook up the Forex trading world yesterday by backtracking on his statement that the ECB “would do whatever it takes to preserve the Euro.” Draghi stated yesterday that the ECB would be proactive with its bond purchases. However he added that the German Bundesbank isn’t a big supporter of the initiative. The EURUSD plunged on the news falling to a low of 1.2130 compared to earlier highs of 1.2375. The drop caused massive confusion among trades who were initially buying the Euro on initial wire reports of the ECB extending its bond purchases. The initial spike was short lived as moments later Draghi clarified the ECB’s role.

Looking ahead, Forex traders continue to be watching Italian and Spanish yields which moved higher following the ECB’s meeting. Changes in yields are a barometer for trader’s sentiment towards the entire EU and have affected prices of the Euro. Also, the dollar will be in focus as a better than expected Non Farm Payrolls figure could extinguish any expectations that the Fed will act at its next meeting.

Forex Trading Update: Will the EURUSD's Gains Hold

Coming Up Together

• Advanced GDP
• University of Michigan Consumer Sentiment

After Wednesday’s worse than expected UK GDP sent the GBPUSD lower, Forex traders will be looking towards the US’s Advanced GDP figures today. Currently, the Fed seems content on holding off from applying its third round of quantitative easing even as employment levels continue to be weak. As such, it will be interesting to see what happens if the GDP figures are worse than expected, if it will even have an effect. On the other hand, a better than expected figure could “seal the deal” that quantitative easing is on hold for 2012. Such an event would be expected to be negative to Gold prices while boosting the USDJPY higher.

USDCAD & USDJPY Two Breakout Candidates

This morning we have two potential breakout trades taking form.  The USDJPY is once again below 79.00 and has fallen back towards yesterday’s lows. In a similar vein, the USDCAD has been trendling lower but has been unable to break below 1.0190.  Both of these pairs could see a downside breakout if their support levels are broken.

USDJPY: The pair jumped higher to open the week following the Greek election triggered risk rally.  However, with fear returning to the EU, the pair has been unable to above the 79.00 figure.  Last week, we saw the USDJPY also find support above 79.00 before finally breaking below that level and hitting a low of 78.60.  As such, if the current short term support at 78.82 fails to hold, it could trigger a downside breakout to last week’s lows.  Beyond that level, momentum could take it to the low 78.00’s.

USDCAD: Unlike the NZD & AUD which have been breaking out against the USD, the CAD’s gains have been limited.  Currently, the pair is finding support just below the 1.0200 figure, even as it has been trending lower.  The current trading conditions have created a triangle trading pattern which could ultimately lead to a breakout lower if 1.0200 support fails (see chart).  Its worth watching price of Gold which have been range bound over the last few days, but are currently trading at 1630, their upper range.  If Gold finds momentum, it could lead to demand to in the CAD and trigger a move lower in the USDCAD.

USDJPY & EURUSD Post NFP Analysis

Starting the Forex week, Forex traders should keep their eyes on the Highs/Lows following last Friday’s Non Farm Payrolls report.  The NFP figure was much worse than expected and triggered an across the board exit from the USD.  As such, if we see Forex pairs trading beyond the spikes of Friday, it could trigger further momentum, as will show that the exodus from the USD continues.  On the other hand, if Forex pairs from Friday’s moves it will indicate that risk and fear continue to be embedded in the Forex market, and until some encouraging data or solution emerges from the EU, traders will favor risk selling.

EURUSD 

USDJPY Analysis: Fade Moves Until Friday

 Spain’s banking demise has triggered a week long risk off move in the Forex markets. As would be expected, the Japanese Yen has been gaining overall on its safe haven status. While the moves in Yen crosses such as the EURJPY and GBPJPY may continue to have follow-through downward momentum, the USDJPY could be a bounce candidate. As can be seen in the chart below, the USDJPY is dropping out of its two week long triangle formation. While such moves can often trigger a sustained breakout move in the direction that a Forex pair trades out of the triangle, fundamental news could hamper the technical moves in the USDJPY.

USDJPY Is the Next Move to 79.00?

I keep staring at this USDJPY chart. Demand is there at 79.60, but.... Gold had support at 1630; broken yesterday.  EURUSD at 1.3000, broken Monday. Is the USDJPY the next one to drop? Risk/reward wise probably not the best idea to short now on anticipation of a move lower (this pair can be very stubborn), but the technicals are showing selling pressure becoming more aggressive.  Therefore, could be a downside breakout candidate if it trades below 79.55. 

EURUSD, GBPUSD, USDJPY Analysis

EURUSD: Bounced off its lows yesterday as buyers stepped in bid the EURUSD back above 1.3000.  However, the pair failed to close its gap from yesterday’s close.  This sets ups resistance going forward this week at 1.3065, followed by 1.3085.  With the lack of follow through buying to close the gap, it could trigger profit taking from yesterday’s short term buyers.  Forex traders should keep their eyes on the 1.3000 level to see if it continues to be supported.

Forex Techncial Analysis

EURUSD: Opened the week below 1.3000 on weekend election results in the EU.  Momentum for the rest of the week could be contingent on where we close today; above or below 1.3000.  As the chart below shows, the pair has been in a 4 month trading range between 1.3000 and 1.3500.  Therefore, even with the current Euro weakness, the pair may need to see much more selling pressure to bring the EURUSD out of its range.  

Forex Technical Analysis

EURUSD: Fell apart yesterday but has since found rising support above 1.3100 (see chart).  Looking ahead, its all about “will it or won’t it” be able to cross above its current 1.3170 resistance.  A break above could trigger momentum to the 1.3200 figure. However, after failing to trade above yesterday’s bounce high this morning, the pair is vulnerable to additional selling pressure if its support breaks. Important: Keep an eye out for today’s ECB meeting as it could be a catalyst to a breakout higher or lower.

Forex Today – Three Stories to Watch

GBPUSD Breakout Continues?
USDJPY Below 81.00
AUDUSD Falls on CPI – Poised to Recover?

GBPUSD Breakout Continues?


If you haven’t been watching the GBPUSD, than you may have missed a pretty impressive move higher in the pair.  The GBPUSD was stuck in a trading range between 1.56 and 1.60 for about two months.  However, earlier this month, the pair started to show a buildup of demand at 1.5800.  Since then, the combination of hawkish comments from the Bank of England as well as better than expected UK employment data has helped send the GBPUSD above 1.6000.  More importantly, after trading above its upper 1.6000 resistance, demand in the GBPUSD rose to 1.6000 to support the pair at that level.  Currently, support continues to rise, with any trading yesterday below 1.6100 being brief. As such, this brings us to today’s trading, where a move above last week’s resistance of 1.6150 could trigger a continuation of the GBPSUD’s breakout and put 1.6250 in play.

Bank of Japan Sits, Yen Rises

As expected, the Bank of Japan left interest rates unchanged at 0.1% during today’s Policy Meeting.  More importantly, they also stated that they will refrain from further monetary easing this month, on signs of improvement in Japan’s economy.  The decision to withhold monetary stimulus contrasts to the BoJ’s meeting in February when the central bank was worried about a Japanese recession and deflation.

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

Dollar Continues Rally

Following no monetary policy changes from the FED at yesterday's FOMC Meeting, the Dollar has continued to rally.  Dollar bulls are being encouraged by the central bank's lack of mentioning any hints to an upcoming quantitative easing program.  As a result, the USDJPY has hit an 11 month high and the EURUSD has traded to a one month low.  Also, prices of Gold have fallen as worries of an escalation in US inflation has been removed.