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Forex − Dollar continues to strengthen as earnings season kicks off, global stocks suffer

Tue, Jan 13 2009, 12:17 GMT
by Peter Rosentreich

ACM - Advanced Currency Markets

Forex News and Events:

The Q4 2008 earnings season kicked off this week with Alcoa being the first DOW component to report a wider-than-expected loss in its closing bell announcement yesterday. Alcoa’s poor showing yesterday was followed by a broad decline in financial stocks as news the Obama administration may restrict financial firm’s access to government funds. Citigroup fell 18% along with this news as they announced a brokerage merger with Morgan Stanley that could see the light this week. In other developments President Elect Obama urges outgoing President Bush to ask congress for the remaining $350Bn TARP funds. Bernanke to speak on crisis policy reponse at the London School of Economics at 13:00GMT.

Former fed governor Frederic Mishkin wrote in an article in the FT that the U.S should and would benefit from setting an inflation target because it would make it easier to drain liquidity later. Mishkin’s comments have the financial and economic world buzzing as they weigh the fundamentals of such a move. This would make the government’s policy makers more credible in their actions by putting a cap on how long they are willing to let current monetary policy define the U.S economy and exacerbate the already generous budget deficit – this would in essence put a timetable on the U.S’ path to recovery. This and the recent rise in the “non-Fed enhanced” commercial paper market should be supportive of the dollar in the near to medium term as we target 1.2850.

The Euro continues to dwindle in the depths of poor industrial numbers as Germany remains soft in its manufacturing sector, largely brought on by the slump in the Auto-sector. Greece, Ireland and now Spain have all been warned by the S&P that their credit rating is at risk – this only highlights the risk and the declining attractiveness of EUR-denominated assets.

The dollar posted yet again broad gains against most currencies bar the Yen as both safe-haven currencies of the day rise on continued risk aversion. The Yen gained 0.17% against the dollar, while the greenback managed +0.8% against the Euro, +0.5% against the Swiss-Franc and +1.38% against the Sterling. Today’s EURGBP chart shows a 3-month look at a cross that culminated at 0.9809 on the 30 of December (highest ever) and is now well into its counter-trend. Initial Elliot wave analysis would suggest that the counter trend could well be over and is ripe for the picking. However further pressure on the pair could be true if European industrial worries and further deep recession fears persist – Sterling being concerted could put it at an advantage.

Today's Key Issues (time in GMT):

13:00 USD Fed Chairman Bernanke speaks at the London School of Economics.
13:30 CAD International Merchandise Trade 3.2Bn vs 3.8Bn
13:30 USD US Trade Balance -$52Bn vs -$57.2Bn
22:00 USD ABC Consumer confidence

The Risk Today:

EurUsd Eurusd slowly trended lower yesterday and this morning as the Dollar continues to defy bad numbers and broke previous 1.3290 support to trade as low as 1.3222 this morning. Initial resistance stands at 1.3350 (23.60% retracement of the post NFP move that took us from 1.3750 to 1.3300 in a little more than 2 trading days). Potential dollar weakness as Obama steps into office could see a return to 1.4410 where last December 18 culmination failed, but short term we should look at 1.3500 being the top of our current channel. On the downside, previous 1.3400 has given way to 1.3265, then 1.3000 if current trend continues.

GbpUsd Market reversed most of Cable gains from mid-December down to 1.4360 before rising again to 1.5375. Cable continues to extend losses from yesterday, sharp decline testing early Jan lows. On the downside, strong support holds at 1.4563 – Jan levels. Further support holds 1.4376 31st December low. Sentiment remains mixed to negative but renewed strength may open the way to 1.5348(Jan 9th high) on the long term 1.6006 (50% retracement of 1.7650 – 1.4363 decline).

UsdJpy UsdJpy broke out the 4-month downtrend upper trendline and hit 94.64 high on Tuesday of last week. Initial resistance holds 94.59 (6th Jan high). On the upside, strong resistance holds 100 pivot point, but only a recovery over 103 upper trendline and 105 pivot point will put focus again on 108 and 110.67 15th August high. Near term support can be seen at 88.46 as current trend is in line with mid December retracement – 87.14 December 17th low.

UsdChf Market traded as high as 1.1242 yesterday as the dollar extends gains and recovers Jan 8th low of 1.0865. Uptrend may open the way through 1.1244 yesterdays high – that we tested again this morning and also coincides with 50% retracement from 1.2085 – 1.0405 move. Renewed weakness may break down 1.0735 and return toward 1.0500 and 1.0375. Such a move may look for 1.0013 15th July low in front of 0.9637 17th March low.

Resistance and Support:

Published on  Tue, Jan 13 2009, 12:23 GMT