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Trading Currency - A Summary

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Forex Market Analysis

Fri, Sep 11 2009, 14:04 GMT
by Anna Coulling

Master The Markets

Fundamental Forex Analysis

The dollar remains under pressure off earlier intraday lows Friday, after a flurry of strong economic numbers from China overnight gave a further lift to risk appetites. The latest Chinese data on industrial production, retail sales and lending were all beyond expectations, developments which helped the Shanghai Composite Index to rally 2.0% and the price of gold to rise back to around the USD 1,000 per ounce mark. For foreign exchange, the news also contributed to fresh multi-month U.S. dollar lows against the euro and the yen, although a pre weekend tendency toward position squaring has limited the dollar's losses and enabled it to recover modestly off its weakest levels of the day.

The yen's gains have come despite some discouraging economic developments in Japan, as the country's second quarter GDP growth was downgraded to 0.6% from 0.9%, a factor that helped to ensure that the Nikkei Index lost 0.7% on the day.

Forex Technical Analysis

The euro vs dollar continues to orbit in a narrow range around the USD1.4600 area with flows described as light, with traders suggesting that many want to participate but are either waiting for the dip or waiting for the break.  Overnight high area at USD1.4628 still said to hold supply after the push higher was rebuffed, stops positioned above. Bids back at USD1.4570 with stops positioned below. Euro last at USD1.4590.

The dollar yen continues to hold near JPY91.00 area as it maintains its rebound level after seeing European hour's lows at JPY90.69 after a swath of stops were flushed on the break of JPY91.00. Rebound got an assist from vigorous dollar buying out of Tokyo, traders say, adding Japanese retail accounts to the earlier talk of semi official buys off the low. Bids expected in the JPY90.75/80 area, further down to JPY90.60 with barrier strike noted at JPY90.50 and JPY90.25, stops positioned below each. Currency market analysts believe that the yen's recent strength is less a product of fundamental developments than of factors like repatriation flows into Japan at the end of the fiscal half year there, as well as due to persistent dollar weakness as a result of the ongoing portfolio asset shift.

Most forex traders now believe the USD is really working hard at bottoming out at the current level on the USD Index - volatility has been high and official interest is actively buying. With sentiment and technical's very oversold, the USD is primed for a strong rally next week, at least to correct the oversold condition. Look for profit taking by the shorts to end the week, and today's US data may be the catalyst, making next week a very interesting one for forex anlaysis and the US dollar in particular - look for some volatile movements in the major forex pairs.

You can keep up to date with all the latest fundamental news on the economic calendar, latest currency news and live currency charts by simply following the links.  I have also included details on an excellent ECN broker.

Published on  Fri, Sep 11 2009, 14:05 GMT