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Weekly Fx Strategy

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ECB Helps Euro, BoJ Hurts Yen

Thu, Feb 8 2007, 16:57 GMT
by Ashraf Laidi

CMC Markets

Dollar pares gains after a brief recovery on a combination of retreating oil prices, dovish comments from the Bank of Japan and the Bank of England ’s decision to leave rates unchanged. The yen dropped for the second straiight day after BoJ policy board member Hidehiko Haru said there is no rush to raise interest rates, rejecting criticism from European officials that rates were too low and exasperating carry trades. The comments follow Wednesday’s remarks from Japan ’s finance minister Omi who said the yen will not be a topic of discussion at the G7 meeting, starting this Friday in Essen , Germany .  Omi’s remarks helped the yen peak at 119.94, 155.24 and 235.33 against the dollar, euro and sterling respectively.

Light, sweet crude for March delivery drops by more than $1.00 to $57.67 a barrel, helping the dollar regain stability. The weekly chart below shows oil’s 18% recovery of the past 3 weeks to have amassed a bullish divergence in the moving average convergence divergence indicator (MACD), suggesting further upside in the medium term targeting 62.30-62.50 territory, which is the 38% retracement of the major decline from the all time high recorded in July to the 18-month lows reached last month. Major resistance remains at the 7-month trend line of 64.70. Prolonged cold weather, persistent war of words between the US and Iran and kidnappings of oil workers in Nigeria have helped support energy prices across the board. With the weather authorities continuing to forecast sub-normal temperatures across the Northeast of the US until at least February 19, the uptrend is expected to remain intact.

US weekly rose 3K to 311K last week, pushing the 4-week moving average to 308.25K from 305K.The series are expected to have stabilized at the current level following holiday-related distortions

Aside from further dissecting the impact of the upcoming G7 meeting, markets next week will gear up to a busy schedule of indicators and events. Wednesday and Thursday will include Fed Chairman Bernanke’s testimony to Congress as well as the Fed’s semi annual report on monetary policy. On the data side, markets await reports on US trade, retail sales, TICS, industrial production, Philly Fed and housing market index.

USDJPY pattern remains bearish

Trichet’s “strong vigilance” supports euro

Cable damaged by Bank of England ’s doves

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Published on  Thu, Feb 8 2007, 16:59 GMT