Forex Trading Strategies

GBP Rallying On Rate Speculation

Mon, Apr 2 2007, 14:13 GMT
by Johan Ditz Lemche

Saxo Bank


Will the BoE suprise the market and hike rates on Thursday? GBP was all over the place ahead if the important US ISM Manufacturing data at 14:00 GMT. Also the AUD was strong after solid data overnight

MAJOR HEADLINES – PREVIOUS SESSION

GBP

The British pound strengthened on rate speculation that the Bank of England will raise rates on the meeting on Thursday to dampen inflation in the UK economy. Based on the current figures and given the fact that we saw a surprise rate hike in January, the BoE could might as well do it again. The U.K. currency may also be supported by a Bank of England report today that showed Britons borrowed the most against the value of their homes in almost three years during the fourth quarter, a sign surging property prices are fueling consumer spending in the Europe's second-largest economy.

Mortgage equity withdrawal, which is borrowing secured against property to finance purchases such as vacations and cars, increased to 14.6 billion pounds. That's the highest since the first quarter of 2004. At 14:00 CET the data point of the day is released as we have the US ISM Manufacturing and ISM Prices Paid, expected a little lower than prior. We are bullish on the GBPUSD and see a general buy-on-dips scenario and add to the position at the break of 1.9755, targeting 1.99.

chart

From Friday:

JPY

The latest data out of Japan leaves us with the feeling that BoJ has every right not to start normalizing rates at the pace many market participants are expecting through 2007. But they have made it very clear in their official Japanese statements that inflation was need to stabilize above zero before becoming more hawkish. Also Fujii has been almost laughed at because of his comment that "JPY rates should reflect fundamentals", which it does with these historical low rates. So this should give most carry traders with some relief, but we still don't think that BOJ normalizing rates is the greatest fear to unwinding of carry trades. We still the risk will come from deteriorating growth in US and a housing market that continues to drop, would leave the market with more fears of an US recession and should be the main catalyst for USDJPY unwinding and should be the first sign of things to come. Technically USDJPY remain range bound between 116.40 support and 118.50 resistance. We will look to trade either break.

FX Order Book

chart

Note: the support/resistance levels used in the matrix's of this document are levels derived from yesterday high, low and close. Reference in the text to other support/resistance levels will occur.

Euro/US Dollar

( 1.3345 - 05:45 GMT, Mar 30, 2007 )

Support:

  1. 1.3050 fibo support.
  2. 1.2870 lows from January 07.
  3. 1.2765 wave support and start of the Nov. 06 uptrend.

Resistance:

  1. 1.3400 psycological level.
  2. 1.3480 old top from March 2005.
  3. 1.3667 all time highs.

British Pound/US Dollar

( 1.9630 - 05:45 GMT, Mar 30, 2007 )

Support:

  1. 1.9260 base support in Jan. 07.
  2. 1.9180 old top from mid Nov. 06.
  3. 1.9075 brake out level from Nov. 06.

Resistance:

  1. 1.9735 wave high from early Feb. 07.
  2. 1.9755 top of the distribution zone from early Dec. 06.
  3. 1.9916 highs from 20074.

US Dollar/Japanese Yen

( 117.66 - 05:45 GMT, Mar 30, 2007 )

Support:

  1. 116.93 current low from recent relief rally.
  2. 115.15 - current wave low.
  3. 114.53 start of the May 06 rally.

Resistance:

  1. 118.50 high from recent relief rally.
  2. 119.50-55 61% retracment (from 122.19-115.16) along with daily 55 day MA.

Published on  Mon, Apr 2 2007, 14:15 GMT

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Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by Saxo Bank that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis do not occur as anticipated.

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