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Forex − Volatility in Risk Appetite Continues to Drive FX Markets

Tue, Apr 7 2009, 10:30 GMT
by Peter Rosentreich

ACM - Advanced Currency Markets  |  View company's profile

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Forex News and Events:

Risk appetite, as gauged by the equity markets, continues to bounce around with no real direction. While stocks and other risk assets rallied further last week on a positive reaction to the G20 communiqué (despite of NFP), we believe investor confidence remains fragile around corporate earnings and uncertainty regarding encouraging economic data. Yesterday, Wall Street session closed well above the session lows and Asian regional indexes were slightly positive for most of the session, before closing weaker. However equities have now taken on a weaker tone. Currencies have been moving lock-and- step with these shifts (near perfect correlation with S&P) and we are hesitant to chase short term rallies in risk. The greenback performance in recent trading sessions confirms that the currency remains the safe haven of choice for traders. Near term, equities will be the usual source of pressure on risk appetite and should economic data point lower than the newly-elevated expectations, risk assets and currencies should see another move down. As the markets optimism erodes we are seeing selling pressure on the EUR, which is now testing the 1.3252 intraday support against the USD. The AUD fell sharply on the news that the RBA unexpectedly cut rates, trading down to 0.7045 against the USD. Recent strength in the CHF against the EUR has prompted traders to contemplate at what level the SNB is hiding? The Swiss national bank has been clear that they wouldn’t stand for significant CHF strength and would directly intervene in the currency markets in order to avoid deflation.. We place this level at 1.5000. In Japan the BOJ held rates at 0.10% as was universally expected. However they expanded the list of eligible collateral for refinancing operations. While the wording in the assessment of the economy was essentially unchanged the statement did acknowledging the split between the direction of the manufacturing/export sector and the domestic economy. The BoJ stated "Economic conditions have deteriorated significantly. The pace of decline in exports and production is expected to moderate as inventory adjustments progress both at home and abroad, but economic conditions are likely to continue deteriorating for the time being due to a further weakening in domestic private demand." In Australia , the RBA surprised the market by cutting its policy rate by 25bp to 3.00%. The RBA's accompanying statement was balanced, which suggests that there will likely be considerable debate over further action. This will make the minutes to the meeting, released in 2 weeks, very important. In addition market will be paying close attention to Thursday's unemployment figures. We believe the Australian economy is stabilizing and expect only one more cut, which should keep the AUD supported.

Today's Key Issues (time in GMT):

08:30 GBP Industrial production, % m/m (y/y) Feb -1.4exp, -2.6 (-11.4) prior
08:30 GBP Manufacturing output, % m/m (y/y) Feb -1.6 (-14.3) exp, -2.9 (-12.8) prior
09:00 EUR Final GDP, % q/q (y/y) 4Q -1.5 (-1.3) exp, -1.5 (-1.3) P prior
14:00 MXN CPI, % m/m Mar 0.47 exp, 0.22 prior
19:00 USD Consumer credit, $ bn Feb -3.0 exp, 1.8 prior
22:00 NZD Quarterly Survey of Business Opinion 1Q -64.0 prior
23:01 GBP Nationwide consumer confidence, index Mar 43 prior

The Risk Today:

EurUsd Dollar weakness brought on by risk appetite couldn’t sustain itself. Initial Support seen at 1.3250 (Key level support that will confirm a renewed short-term bearish trend) with eyes on 1.3170. On the upside initial resistance stands at 1.3399.

GbpUsd Stepping stone formation (trend followed by retracement) continues as the broad dollar weakness continues. Initial resistance stands at 1.4954 as we push new monthly highs, trading at levels last seen on the 9th of Feb – 1.4987 our key test level. A break past this level would unlock potential for Jan 8th high of 1.5383. On the downside, 1.4635 is our initial target (38.20% retracement and March neckline).

UsdJpy The inverse dynamic that the Yen has with the dollar continues to transpire. Natural dollar hedge that the yen allows for has seen the pair push past new 5-month highs. Current moves are largely uncapped with initial resistance at 101.10. Higher we see a soft level at 102.19 (Oct 21 levels), which allows for another loose target of 103.31. On the downside 100.00 remains the initial support (coincides with 23.60% Fibonacci retracement). We can see a momentary retracement as all the bulls consolidate before further gains.

UsdChf Pair found a bottom at 1.1243 yesterday and bounced back as the Swiss franc takes a hit ahead of the Easter holidays. 1.1400 has been tested several times in past hours and is our initial upward target. Higher we see short-term potential for 1.1500. On the downside 23.60% retracement allows is initial support at 1.1368. 1.1344 unlocks potential for further Swissie gains with eyes on previous bottom. ).

Resistance and Support:

Published on  Tue, Apr 7 2009, 10:36 GMT

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