Yesterday the GDP and PCE QoQ disappointed the market, but no real reaction was seen. We expect the Core PCE MoM to be the key focus point today along with the ISM Manufacturing afterwards.

MAJOR HEADLINES – PREVIOUS SESSION

USD

The bearish dollar theme looks set to continue. The horrible US housing data has put recession back into focus in the news, supported by former Fed Chairman Greenspan's comment that "a US recession was probable not a possibility". With US 10 years heading significant higher and the likelihood of more rate hike from the Fed disappears, so does the risk-willingness of being in carry trades. USDJPY is 3 figures from its recent highs and we look for a close below 117.40 which would give scope for a test of 114.00 short term. Today is another heavy US data day with focus on PCE Core from January which is expected at 0.2%. We think it is very likely to see a reading of 0.1% which should add to the present pick up in volatility. We look for a break of 1.3240 and then 1.3260 resistance on the data scenario which would open up for further upside acceleration for test of the 2007 highs at 1.3370.

GBP

The pound showed mixed data today with lack of any real movement, where investors were likely hesitant as they did not want to be caught the wrong way ahead of US data. But yesterday daily candlestick bar in GBPUSD showed an extreme shadow with a strong close which usually means upside is to come in the short term. Short term we look to buy the break of 1.9675 post US data today which would open up for 1.9750. A close above here is needed to real accelerated upside towards 2.00.

From Yesterday:

Yesterday afternoon and in early night, the JPY-crosses weakened considerably as traders unwinded their positions sending USDJPY to as low as 117.50 and the EURJPY in 155.74. This was the biggest strongest JPY-move in USDJPY since July 2005, but is it over for now? The data coming out of Japan overnight capped the downside and the pairs are currently trading around 118.50 in USDJPY and 156.40 in EURJPY. Watch for brake-out levels in the FX Order Book below.

For the US economy today and tomrrow important figures will be released, which definately will create a stir in the market. Massiva data such as the GDP Annualized (expected at 2.3%) and Core PCE QoQ (exp at 2.1%) will be released at 13:30GMT along with the Personal Consumption (exp. at 2.1%). Later we have the Purchasing Managers Index from Chicago, expected at 50.0 and finally some data from the US housing market such as the New Home Sales (exp. at 1080K or a monthly drop of 3.6%). We are still watching the EURUSD around 1.3200, but are aware that an upside surprise in the figures would weaken the EURUSD. Fixed Income has dropped today indicating that a surprise is expected.

FX Order Book

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

( 1.3225 - 12:52 GMT, Mar 01, 2007 )

Support:

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

Resistance:

  1. 1.3170 - fibo support.
  2. 1.3370 - Prior highs.

British Pound/US Dollar

( 1.9634 - 12:52 GMT, Mar 01, 2007 )

Support:

  1. 1.9425-35 low from Dec. 06 and start of the uptrend in Jan. 07.
  2. 1.9260 daily base support within the current range.
  3. 1.9190 Nov. 06 breakout level.

Resistance:

  1. 1.9750 upper end of the range from mid-Jan. 07.
  2. 1.9916 highs from 07.
  3. 2.0100 highs from Aug. 92.

US Dollar/Japanese Yen

( 117.62 - 12:52 GMT, Mar 01, 2007 )

Support:

  1. 118.00 wave lows from Jan. 07.
  2. 113.35 weekly base support.

Resistance:

  1. 122.20 highs from Jan. 07.
  2. 122.40 61% reracement (from 135.18-101.68).
  3. 125.72 highs from Dec. 2002.