Forex - Markets remain weary of recent surge in optimism, Greenback and indices up sharply

Forex News and Events:

Earnings season pushes on, timid profit taking as markets remain weary of recent surge in optimism, Greenback and indices up sharply. The dollar traded higher against all majors yesterday as Wells Fargo announced numbers far better than expected. Stock markets in Europe, U.S and now Asia all ended their sessions higher – the NASDAQ managing a 3.89% rise as it seems the global economies’ deadlock is starting to thaw. After Alcoa posted dismal numbers a glimmer of hope came from the last place anyone was expecting – financials. Wells Fargo reported a profit which largely beat estimates sending the dollar and stock market indices on a thundering rally – the S&P 500 Banks index on its biggest single day gain on record. While risk appetite is now a serious theme to currency price action it is important to realize that the recent improvement in sentiment marks a turn in sentiment, labeling this as the bottom would be over-zealous. One major change in how the currencies priced yesterday is that we saw a significant decline in the ‘risk-averse indicating’ inverse dollar price action against the Yen. The dollar rose against the Yen and all other currencies – this is a firm indicator of renewed levels of risk-taking and optimism in the U.S economy. That said, unemployment is highest since 1983, house prices are still falling by record amounts and persistent questions remain about which banks will still be in business next year.

The EURUSD traded a tight 1.3093 – 1.3170 range after the euphoria of move that took it from 1.3280 to 1.3130 (in an hour) subsided. As this was happening the USDJPY steadily gained, firmly breaking the crucial 100.00 level and extending towards 10.74 before retracing. If earnings and data continue to defy the pessimists’ dollar bulls should continue – is it too early to call the carry trade? In other news the U.S Government has urged the 19 banks currently undergoing the “stress-test” to be tight-lipped on the results in a bid to keep volatility and ‘red herring’ rallies to a minimum. Stocks in Japan were set to post a strong close at the end of their session, but swift profit taking on the financials sent indices tumbling – confirming reports that policy makers see economic conditions deteriorating for the time being. While one would expect markets to be quiet heading into Easter holiday the recent wave of ‘better’ news has got investors on the starting blocks and raring to go, do think they’ll let a religious holiday to stop them putting faith in the markets.

Today's Key Issues (time in GMT):

18:00 USD Budget balance, $ bn Mar -157.0 exp, -48.2 ('08) prior

The Risk Today:

EurUsd upper trend line of declining triangle tested for the second time in a week yesterday. Dollar continues to strengthen on return of risk taking. Pair is in consolidation period ahead of the Easter weekend, however we see strong support at 1.3093 (this morning’s low) which would then allow us to test 1.2988 (March 18th low). On the upside allow for some leeway on your stops as pre-weekend longs in an illiquid market could see spikes – initial resistance at 1.3171.

GbpUsd Cable has settled into a broad 1.4583 – 1.4778 range as the dollar’s advance against sterling is somewhat mitigated. Initial resistance stands at 1.4683 but real test (triple top and upper limit of current range) comes at 1.4778. On the downside expect crucial levels are 1.4620 (recent low) and more importantly a strong floor at 1.4583. Dollar strength is predominant as we re-test support levels.

UsdJpy Risk appetite gains as dollar advances against the Yen in unison with it’s rise against other currencies. Initial support at 100.21 as pair settles into a 99.32 – 100.89 range. First resistance seen around the 100.42 mark (recent peak). Expect low volumes as we head into easter weekend.

UsdChf Strong dollar bias has pair trading sharply higher – initial support at 1.1556 with strong floor at 1.1430. Resistance seen at 1.1631 (Recent top which corresponds with 61.80% retracement on the 1.1922 – 1.1161 move).

Resistance and Support: