Best Thread FXCM/DailyFX Signals and Strategies

[Jason Rogers]

Euro Breakdown May Be Followed by Week of Consolidation

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- The ECB said it would maintain swap operations with the SNB
- German ZEW index indicates investors are more pessimistic on economic outlook, confident in current conditions
- Increase in Euro-zone industrial orders suggests export demand continues to grow

ow that EURUSD has broken below its 200 SMA – a key technical level for the pair – bearish potential has become even greater, especially when you consider the return of risk aversion. Indeed, in coming weeks, the pair is likely to respond sharply to not only European and US economic indicators, but also any news relating to the financial sector.
Looking to euro-specific data, a number of confidence indicators will be released through the week. There is potential for very mixed results following the past week’s German ZEW report, which showed that investors are feeling more confident in current economic conditions, but are becoming increasingly pessimistic about the outlook as the financial markets show signs of pulling back. On Monday, German’s GfK consumer confidence report is projected to slump to 3.1 from 3.3, which would not bode well for Q1 domestic demand. On Tuesday, the IFO measures of business confidence – business climate, current assessment, and expectations – are all projected to either improve or go unchanged. On Thursday, Euro-zone economic confidence is anticipated to rise to an 18-month high of 92.3 from 91.3.

Additionally, German and Euro-zone measures of inflation are anticipated to show that annual CPI rates rose, but on a monthly basis, they could actually show declines. Finally, the German unemployment change is expected to rise in January for the first time since June, this time by 15,000. Like US non-farm payrolls, this number can be very difficult to predict and thus, tends to have a big “surprise” impact on euro trade, albeit for a short period. Overall though, signs of reemerging job losses would hurt prospects for a continuation of the Euro-zone’s recovery. – TB

 

[Jason Rogers]

Oil Downtrend May Resume on Fading Risk Appetite, Chinese Tightening

Written by Ilya Spivak

Oil prices continue to consolidate above support at $74.41. A bounce will see initial resistance at the top of a falling channel established from January’s swing high (now at $76.18), while a push lower will target $72.66. January’s US Consumer Confidence data headlines the economic calendar, with expectations calling for a third consecutive improvement in sentiment. This could help to engineer a bit of a correction, although a strengthening short-term correlation with equity performance (now at 73%) could prove to derail the bulls considering European exchanges have slid lower in early trading and US equity index futures are pointing to a 0.5% lower open on Wall Street. Overnight news that China’s central bank will require China Citic Bank Corp and the Industrial and Commercial Bank of China to raise their reserve ratios by an additional 0.5% starting today also promises to weigh on crude rates, encouraging risk aversion as well as promising slowing demand from the world’s second-largest oil consumer. Fourth quarter results from Baker Hughes Inc may prove to be a wild card.

 

[Jason Rogers]

EUR/USD Ideal Scalping Target Ahead of Major Event Risk

The EUR/USD is testing support at 1.4000/50 where we see former congestion. The 8/17 low at 1.4047 is holding firm which may lead the pair to trade sideways through the event risk. Short-term traders also have a declining trend line over the past two days that has provided a target level. A break of either could lead to an extended breakout and traders should position themselves to take advantage of such a move.

Today’s price action may quiet ahead of the upcoming FOMC policy meeting at 19:15 GMT which may lead to several attractive opportunities for scalpers. The EUR/USD is always an ideal pair in this type of environment due to its high volume and low spreads. Additionally, identifiable support and resistance levels add to the euro/dollar’s attractiveness as it will provide entry and exit levels.

 

[Jason Rogers]

Eur/nzd

We are starting to see some of the currency pairs we have been following start to move in the direction of the daily trend.

This EUR/NZD 4-hour chart shows how Fibonacci retracement levels can be an effective tool for trend traders. The market spiked up above the 61.8% level but then quickly reversed and is now trading back below the 38.2% level. This is obviously bearish for this pair and we should look for more selling pressure. Some aggressive traders may already be in their sell position on this pair and I would think that many have their protective stop above the high of that candle that quickly spike up through the 61.8% level.

 

[Jason Rogers]

Euro forecast remains bearish vs. Us dollar

EURUSD – Sharp Euro/US Dollar declines have been met with crowd buying, giving contrarian signal to stay short the currency pair. In fact, traders flipped to net-long the Euro/US Dollar as it traded below 1.4450 and gave clear signal to go short. The ratio of long to short positions in the EURUSD stands at 1.57 as nearly 61% of traders are long. Yesterday, the ratio was at 1.66 as 62% of open positions were long. In detail, long positions are 2.9% higher than yesterday and 6.3% weaker since last week. Short positions are 8.4% higher than yesterday and 4.5% weaker since last week. Open interest is 4.9% stronger than yesterday and 1.1% above its monthly average. The SSI is a contrarian indicator and signals more EURUSD losses.

 

[Jason Rogers]

Pound Losses Slowed As Risk Appetite Rises, BoE Could Set New Course

The upcoming BoE rate decision has brought U.K. interest rates back into focus as the central bank has been the laggard in signaling an end to its quantitative easing efforts. The MPC has exhausted the 200 billion pounds that have been approved for its asset purchase program which has markets expecting that at Thursday’s policy meeting Governor King will announce a pause or an end to their efforts. Interest rate expectations have had little influence on GBP/USD price action with a 12% correlation as the central bank is expected to remain on hold throughout the majority of 2010. Risk trends continue to be the main driver of the pair’s volatility despite its recent divergence, as it still explains 37% of overall direction.

BoE Interest Rate Expectations

Overnight Index Swaps are pricing in 60.7 bps of tightening over the next twelve months which is significantly lower than the 97.6 at the beginning of the year. Thursday’s rate decision could change that if the central bank officially brings an end to its QE efforts which would be the first step toward tightening. However, if policy makers only pause their efforts and continue to express concerns over credit conditions, yield expectations could continue to decline. To discuss this and trading ideas join the

 

[Jason Rogers]

Will Currency Markets ‘Smile’ on the US Dollar?

The US Dollar is likely to rise against most major currencies in 2010 according to a "smiling" model of the greenback’s performance at the beginning, middle and conclusion of major recessions in the United States.

The ‘Dollar Smile’ Hypothesis

Intuitively, one would suppose that the US Dollar should decline if the United States falls into a deep recession as the Federal Reserve cuts interest rates to stimulate economic growth, making the greenback unattractive relative to other currencies. However, a theory originally advanced by Stephen Jen, then an economist with Morgan Stanley, suggests something quite different. His logic goes as follows:

Phase 1: When the United States – the world’s largest economy and consumer market – falls into a deep recession, investors fearful that the downturn will spread globally sell off their holdings of risky assets (stocks, commodities) and move capital into the relative safety of cash and government bonds. The economic and geopolitical primacy of the United States along with the unmatched sophistication and liquidity its capital markets means that the cash and bonds of choice in this scenario are the Dollar and US Treasuries. This means that the greenback should rise if the US begins to experience a deep-enough recession to warrant fears of worldwide contagion.
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Phase 2: As the pace of decline in economic activity invariably begins to slow, the markets become hopeful that the worst is over and capital begins to shift out of Dollar-denominated safe haven assets and back toward higher-risk and higher-return investments, sending US unit lower from its peak amid the crisis.​

Phase 3: Finally, as economic recovery in the United States begins to gain momentum, investors start to speculate that the Federal Reserve will need to raise interest rates (which were surely lowered amid recession) to rein in building inflationary pressure, sending the US Dollar higher once again.
Broadly speaking, history seems to bear out Mr Jen’s hypothesis. As illustrated in the chart below, data going back to 1970 shows that the US Dollar Index (an average of the greenback’s value against six of its top counterparts) is higher when US Gross Domestic Product growth rates are either sharply above or below the average of other G7 nations; it is lower when the difference in growth rates declines, revealing a “convex” relationship or a “smile”:​

Broadly speaking, history seems to bear out Mr Jen’s hypothesis. As illustrated in the chart below, data going back to 1970 shows that the US Dollar Index (an average of the greenback’s value against six of its top counterparts) is higher when US Gross Domestic Product growth rates are either sharply above or below the average of other G7 nations; it is lower when the difference in growth rates declines, revealing a “convex” relationship or a “smile”:

‘Dollar Smile’ Points to USD Gains in 2010

The “dollar smile” framework seem to fit rather neatly into what we have seen in recent years after the global credit crunch and subsequent recession descended on the world economy. In 2008, the onset of the crisis brought a sharp move lower in the spectrum of risky assets mirrored by a surge in the Dollar even as the US economy broadly floundered.

If this seemed like the last gasp of life across financial markets, then 2009 was a collective sigh of relief. As central banks dropped interest rates to record lows and governments frantically doled out some $2 trillion dollars in stimulus, the sheer panic that seized investors after the collapse of investment banking giant Lehman Brothers began to recede: sharp declines in leading economic indicators began to slow, credit markets showed cautious signs of life, and a glimmer of hope began take root across the world’s exchanges. Having stared down a near-collapse of the global financial system, investors began piling back into risky assets, sending the Dollar tumbling in the process.

Looking ahead to 2010, it seems we are beginning to enter the right side of the “smile”. We find ourselves with a US economy that has put in two consecutive quarters of positive economic growth – the latest at the snappy annualized pace of 5.7% - as well as with a Federal Reserve that has been actively trimming the asset-buying portion of the monetary stimulus that was put in place amid the crisis with the promise of ending all unconventional easing measures by March. From there, the path of US interest rates leads invariably higher, leaving the door open for speculation about eventual monetary tightening to drive the US Dollar upward against most major currencies.

 

[Jason Rogers]

Swiss Unemployment Highest Since 1998, Retail Sales Advance 4.7%

Overview
Switzerland’s unemployment rate in January rose to 4.5% from 4.4% the month prior, with economists’ expectations of 4.6%, marking its highest level since March 1998, while the seasonally adjusted rate slipped to 4.1% from 4.2% the previous month, the State secretariat for Economic Affairs in Berne announced today. Meanwhile, retail sales pushed 4.7% higher in December after diving a revised 0.1% in November on the back of holiday shopping.

Breakdown
The breakdown of the report illustrated the largest unemployment gains were amongst males, with the reading advancing to 102,673 in January from 100,077 in December.

Market Reaction
There was little reaction to the data following the release, however, looking at the daily chart, the pair recently slipped above the 200-day SMA – a level which has held as a resistance since May 2009, and now looks to expose upside towards 1.1000 in the medium term. Entry in the short term may not be appropriate as the pair is now trading at overbought levels, and is due for a bounce back this week, however, entry for a long position at Monday’s high maybe more suitable.

Forecast
Going forward, Investor’s will keep their eye on Thursday’s Consumer Price Index report as a better-than-expected reading would limit the need for further CHF selling by the central bank, which has been a policy since last year in order to help combat deflation, and is the reason why the SNB tends to take action to weaken its currency when it accelerates against the euro rather than fixing its currency. Indeed, economists predict a 0.8% annualized gain and a monthly loss of 0.4%. Meanwhile, traders are forecasting in a zero probability that the Swiss National Bank will raise rates at its next decision meeting on March 11th according to the Credit Suisse overnight rate swaps, as policy makers aim to encourage a sustainable recovery.

 

[Jason Rogers]

EUR/USD: Trading the U.S. Advanced Retail Sales Report

What’s Expected

Time of release: 2/11/2010 13:30 GMT, 08:30 EST

Primary Pair Impact : EURUSD

Expected: 0.3%

Previous: -0.3%

How To Trade This Event Risk

Retail spending in the U.S. is expected to improve in January, with economists forecasting a 0.3% rise following the unexpected contraction during the holiday season, and the data is likely to encourage an improved outlook for the world’s largest economy as it emerges from the worst recession since the Great Depression. The advanced 4Q GDP report encouraged an enhanced outlook for the region as the growth rate increased at an annual pace of 5.7% to top forecasts for a 4.7% expansion, and conditions are likely to improve going forward as the expansion in monetary and fiscal policy continues to feed through the real economy. The Conference Board’s consumer sentiment index jumped to 55.9 from a revised 53.6 in the previous month to mark the highest reading since September 2008, with the U. of Michigan Confidence survey advancing to a two-year high of 74.4 during the same period, while chain-store sales increased at an annual pace of 3.0% in January after rising a revised 2.6% in the previous month. However, a separate report by the Labor Department showed non-farm payrolls slumped 20K during the first month of 2010 after contracting a revised 150K in the previous month, and fading demands for employment paired with tightening credit conditions may lead households to keep a lid on spending as policy makers expect to see a “moderate” recovery this year.

The Federal Open Market Committee held the benchmark interest rate at the record-low of 0.25% in January and reiterated that borrowing costs will stay low for an “extended period” of time as the central bank aims to balance the risks for growth and inflation. The Fed stated economic conditions continued to improve and noted that the deterioration in the labor market appears to be “abating,” but expects to see a “moderate” recovery for a time as private spending “remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit.” Moreover, the central bank saw business spending “picking up” even as they remained “reluctant” to expand their labor force, and expects “a gradual return to higher levels of resource utilization” as the policy makers continue to support the economy. However, MPC member Thomas Hoenig dissented and said that keeping the interest rate at the record-low for an “extend period” period of time was “no longer warranted,” and the central bank may turn increasingly hawkish over the coming months as the recovery continues to gather momentum.

Expectations for a rise in retail spending favors a bullish outlook for the greenback as private consumption remains one of the leading drivers of growth, and price action following the release could set the stage for a long dollar trade as investors anticipate the Fed to normalize policy this year. Therefore, is sales increased 0.3% or greater from the previous month, we will need to see a red, five-minute candle following the release to confirm a sell entry on two-lots of EUR/USD. Once these conditions are met, we will place the initial stop at the nearby swing high or a reasonable distance taking volatility into account, and this risk will establish our first target. Our second objective will be based on discretion, and we will move the stop on the second lot to cost once the first trade reaches its target in order to preserve our profits.

In contrast, the ongoing deterioration in the labor market paired with tightening credit standards may lead households to scale back on consumption, and a drop in sales could weigh on the exchange rate as the central bank holds a cautious outlook for the economy. As a result, if spending contracts 0.2% or greater, we will favor a bearish outlook for the greenback and will utilize the same setup for a long euro-dollar trade as the long position mentioned above, just in reverse.

 

[Jason Rogers]

Eur/aud

The EUR/AUD, our favorite trending market, has not disappointed with new lows being printed almost on a daily basis.

This is really a great example of why trend trading is so popular in the FX markets. This pair hasn't been this low since 2001 which is as good as it gets for confirmation of a strong downtrend. I would continue to look for selling opportunities as long as the pair remains below the 1.5949 sell side high of February 4th.

 

[Jason Rogers]

Australian Dollar Testing Fibonacci Resistance

Written by Jamie Saettele

The AUDUSD has rallied nearly 500 pips from its low just last week to test the 61.8% retracement of the decline from 9334. Resistance is reinforced by former congestion that extends to 9100.

After hours and hours of contemplation, I’ve come to the conclusion that the AUDUSD decline from 9334 sports an extended 5th wave. This would explain the extent of the advance from 8574, which has reached the area of the former 4th wave (common topping area) and the 61.8% retracement of the decline. Resistance extends to 9133 and I expect a top to form.

 

[Jason Rogers]

Federal Reserve Will at Some Point Need Tighten Monetary Conditions, Bernanke said

This Wednesday, Ben Bernanke, the Federal Reserve chairman, gave his semiannual Monetary Policy Report to the U.S. House of Representatives in Washington, D.C. The US dollar had a mixed reaction to the news since this was an uneventful speech, mostly focused on regulatory reform and increasing transparency. Still, the Federal Reserve Chairman sounded a bit more hawkish than usual when he reaffirmed that “although the federal funds rate is likely to remain exceptionally low for an extended period, as the expansion matures, the Federal Reserve will at some point need to begin to tighten monetary conditions to prevent the development of inflationary pressures”. Bernanke also said the Federal Reserve has been gradually slowing the pace of agency mortgage-backed securities purchases in order to promote a smooth transition in markets, anticipating that these transactions will be completed by the end of March.

EUR/USD (Intraday, CST)

 

[Jason Rogers]

Swiss Franc Expected to Lose Further

USDCHF – The ratio of long to short positions in the USDCHF stands at 1.36 as nearly 58% of traders are long. Yesterday, the ratio was at 2.23 as 69% of open positions were long. In detail, long positions are 12.4% lower than yesterday and 2.3% weaker since last week. Short positions are 43.9% higher than yesterday and 30.0% weaker since last week. Open interest is 5.0% stronger than yesterday and 36.4% below its monthly average. The SSI is a contrarian indicator and signals more USDCHF losses.

 

[Jason Rogers]

A Developing Wedge Makes AUD/USD A Scalping Target

The AUD/USD has traded in a 300 pip range over the past few weeks as risk trends continue to ebb and flow. The credit troubles in Greece continue to be a source of volatility but concerns haven’t reached the level where a broad based flight to safety has been generated. The pair has been prone to spikes in price action which makes it a risky target for true scalpers. However, there are several technical levels that are converging that provide target level to enter and exit positions.

The 20-Day SMA has held as support at 0.8871 with the 100-Day SMA at 90.71 offering potential resistance. The solid S/R level provides a comfortable range for high frequency traders to operate within. The current developing wedge has led to increased concentration for the pair creating an ideal scalping environment. However, such formations often give way to large breakouts which would significantly increase the potential risks.

 

[Jason Rogers]

US Dollar at a Crossroads: Further Gains or Finally a Pullback?

Written by DailyFX analyst David Rodriguez

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The US Dollar finished almost exactly unchanged against the Euro for the second time in as many weeks, slipping into Friday’s close despite sharp early-week advances. The Greenback nonetheless managed to match its 9-month highs and left its overall recovery intact. Yet the upcoming week promises far more volatility on a good deal of top-tier economic event risk—culminating in the always-market-moving US Nonfarm Payrolls report.

In recent months we have argued that the US Dollar was likely to recover against the Euro and other key counterparts on extremely one-sided bearish positioning and sentiment. Yet the tables have clearly turned in the Dollar’s favor; CFTC Commitment of Traders data shows Non-Commercials at a record net-long the US currency against the Euro. Such one-sided extremes may make it difficult for the Greenback to post substantial gains before a correction, but quite literally anything can happen in what promises to be an exciting week of forex trade.

The first of many tests for the US Dollar will come on Monday’s US Personal Income and Spending data as well as the later-morning ISM Manufacturing survey; large disappointments in either could potentially set the tone for the rest of the week’s trade. Recently-dismal Conference Board Consumer Confidence numbers paint a dreary picture for the future of domestic consumption, but spending and income numbers are forecast to show reasonable gains through the first month of 2010. Consensus expectations likewise point to reasonable strength in ISM Manufacturing data. Suffice it to say, however, lofty expectations beget disappointments and we could see considerable volatility surrounding said event risk.

Markets will subsequently look to Wednesday’s key ADP Employment Change survey data as well as the market-moving ISM Services report. The former is expected to show that private companies shed 10,000 jobs from Payrolls through the month of February—the best such result since January of 2008. Steadily smaller job losses in the ADP report and official Nonfarm Payrolls data leave hope that we may continue to see improvements, but any sizeable declines could easily derail expectations for future recovery. The ISM Services Employment Index will likewise shed light on the state of the jobs market and help foreshadow what we may expect for Friday’s NFP numbers. Said index remains below the expansion/contraction 50.0 mark at 44.0, and it will be critical to see whether conditions improved for the all-important US Services sector.

Finally, the US Nonfarm Payrolls report promises a great deal of volatility not only in the US Dollar, but major financial markets are likely to see sharp price moves on any especially surprising results. It seems that financial markets are at somewhat of a crossroads. On the one hand, relatively steady improvements in economic data suggest that the worst is now past. On the other, heady gains in the S&P 500 and other key financial market risk barometers leave ample room for pullbacks. The week ahead should provide ample clarification on several key themes for the S&P 500 as well as the very highly-correlated US Dollar. - DR

 

[Jason Rogers]

Canadian Dollar Forecast to Appreciate Against USD

USDCAD – The ratio of long to short positions in the USDCAD stands at 3.51 as nearly 78% of traders are long. Yesterday, the ratio was at 2.78 as 74% of open positions were long. In detail, long positions are 12.5% higher than yesterday and 101.8% stronger since last week. Short positions are 10.9% lower than yesterday and 15.1% stronger since last week. Open interest is 6.3% stronger than yesterday and 27.2% above its monthly average. The SSI is a contrarian indicator and signals more USDCAD losses.

 

[Jason Rogers]

Weak U.S. Retail Sales Could Overshadow Improving Labor Markets

Written by DailyFX Analyst John Rivera

• RBNZ Rate Decision – March 10, 20:00 GMT
The RBNZ is expected to keep rates on hold at 2.50% and if policy makers re-commit to leaving monetary policy unchanged until the middle of the year we could see a bearish reaction from the “kiwi”. The RBA, New Zealand’s antipode counterpart, raised their target rate for a fourth time last week. Earlier hikes have raised the outlook for RBNZ tightening, but we have seen Overnight index swaps go from pricing in 191 bps of hikes to 140 bps since the beginning of February. Therefore, a dovish statement from New Zealand policy makers may not generate a substantial reaction but does hold the potential to weigh on “kiwi” sentiment.

• Australian Employment Change (FEB) – March 11, 00:30 GMT
Forecasts are for the Australian economy to have added jobs in February, for a sixth straight month. The 15,000 that is expected would be the smallest gain over the period which could be a sign that the central bank’s tightening is beginning to curb growth. Following the RBA rate hike last week there may be limited upside potential for the Aussie following a positive employment report as tightening is a clear sign that the economy is experiencing significant growth. However, a downside surprise or job loss could weigh on the antipode currency as it would dim the outlook for interest rates.

• SNB Rate Decision – March 11, 14:00 GMT
Preceding employment, inflation and retail sales reports may take away from the potential impact of the SNB rate decision. Nevertheless, it will be important to see the comments from policy makers as the Swiss National Bank is suspected to have been intervening in currency markets to limit the Franc’s appreciation. There is virtually no chance that the central bank will raise rates and may look to temper any expectations for future tightening. Deflation remains a concern and with consumer prices expected to remain at 1.0% on an annualized basis, any dip in growth would increase downside risks for inflation. The Swiss Franc has yet to regain its safe-haven status which has seen it maintain a positive correlation with risk appetite, limiting the impact of yield expectations on volatility.

• Canada Net Change In Employment (FEB) – March 12, 12:00 GMT
The Canadian economy saw a string of positive fundamentals end with the unexpected 4.9% decline in building permits which was followed by a miss in the Ivey PMI. A weaker than expected employment report could start to raise concerns that growth is waning as weak U.S. demand catches up with the export driven economy. Emerging markets have been the main consumers of Canadian exports which may not be sustainable as inflation concerns have led to countries like China to take steps to slow activity. However, evidence of sustainable job growth will raise the outlook domestic demand which could help offset weakness from abroad. Downside risks may be greater following the recent rally which makes the release significant, especially if risk appetite has started to fade.

• U.S. Advance Retail Sales (FEB) – March 12, 13:30 GMT
Consumption figures from the world’s largest economy have the potential to be the greatest event risk on the week. Judging by the reaction to a small surprise in the employment figures, an improvement in domestic demand could generate its own bout of risk appetite. However, early forecasts are for a 0.2% decline as severe weather which shutdown large parts of the country. is expected to have weighed on demand. State specific cash for appliances programs could have created some artificial demand. Additionally, cash strapped Americans were filing their tax returns as soon as possible which had several receiving their rebates at the end of the month. A dip in retail sales will fuel speculation that absent government stimulus growth will stagnate which may generate broader risk aversion.​

 

[Jason Rogers]

NZD/USD Range Contingent On Dovish RBNZ

How stable is the NZD/USD Range?

•Levels to Watch:
-Range Top: 0.7050 (Fibo, Pivot, Trend)
-Range Bottom: 0.6850 (Range, Pivot)

•Kiwi support has returned as the high yielder continues to benefit from building optimism. The debt issues in Europe continue to limit risk appetite which supports the continuation of the current NZD/USD range. The one-year anniversary of the 2009 bottom has markets reassessing the sharp appreciation in risky assets.
•Solid support and resistance levels have helped confine NZD/USD price action to a 300 pip range. Support at 0.6818-38.2% Fibo of 0.5489- 0.7636, and resistance at 0.7052- 0.7051-38.2% of 0.7444-0.6811 provides us with target levels.

Suggested Strategy
•Short: Place an entry at 0.7061-2/23 high and above our range top.
•Stop: Set the stop to 0.7153-2/3 high
•Target: The first target is 0.6942-3/8 low and approximately 1.5 times risk, followed by 0.6850

Trading Tip

Today’s bounce from the 200-Day SMA could be a sign that upside potential is increasing, especially considering the level of concern during early trading. Credit rating agency Fitch placed Portugal on a negative watch list which reignited concerns that the credit issues in Greece could develop into a contagion for the region. Risk trends may lose influence as we approach the upcoming RBNZ rate decision. The central bank is expected to remain on hold, but the possibility remains that they may chose to follow the RBA which raised rates for a fourth time since their tightening cycle began. If we hit our entry on the back of volatility generated by an unexpected change in monetary policy, it is prudent to refrain from entering a position until the post release price action moderates. If we see a period of consolidation ahead of the event risk followed by a bearish reaction to a rate hold then our trade would be negated. However, a break below the 200-Day SMA could present an opportunity to get short as a test of the lower band would become likely.

Event Risk for New Zealand and U.S.

New Zealand – The RBNZ rate decision is the most significant event risk during a week of major releases. Policy markers are expected to remain on hold as they have targeted mid-year for a possible rate hike. Governor Bollard is waiting for evidence that the recovery is self sustaining before embarking on a tightening policy. Beforehand, the terms of trade 4Q release will cross the wires and could generate some volatility as an improvement will raise the outlook for growth. Following the policy decision the retail sales report for January may be overlooked as post release comments may determine any new trends. Regardless, the expected 0.5% improvement in consumption should raise the outlook for interest rates which could generate bullish “kiwi” sentiment.


U.S. – The major upcoming event risk for the dollar is the advance retail sales report which is forecasted to show a 0.1% decline as snow blanketed large parts of the country during February. The U.S. economy lost another 36K jobs during the month which is expected to weigh on domestic growth. Initial jobless claims will cross the wires ahead of the consumption figures which deserve attention given the volatility the weekly report has been generating. Traders will be looking for clues as to whether the labor market is improving or continuing to shed jobs. The U.S. trade balance will be released at the same time and evidence that demand from abroad is sustaining will raise expectations for future growth. Surging exports was a major reason for the economy seeing a 5.9% improvement in GDP during the fourth quarter.

 

[Jason Rogers]

Euro Reverses from Parallel Channel Resistance 03-15

The EURUSD rally has reached parallel channel resistance and is rolling over. Parallel channels are common end areas for 4th waves.

 

[Jason Rogers]

US Dollar May Fall Further Against Euro, Australian Dollar

Forex option markets volatility expectations now stand at their lowest levels in nearly two years, pointing to slow currency price moves in the week ahead. We subsequently expect that the US Dollar will remain in a choppy trading range against the Japanese Yen and other key counterparts through upcoming trade.
Forex option markets volatility expectations now stand at their lowest levels in nearly two years, pointing to slow currency price moves in the week ahead. We subsequently expect that the US Dollar will remain in a choppy trading range against the Japanese Yen and other key counterparts through upcoming trade. There is distinct risk that the Dollar could break lower against the Euro and continue falling against the Australian Dollar, but low volatility expectations limit the scope for any major moves. It seems that range trading strategies may prevail until further notice.