• Home ::
• Technical ::
• Market View ::
• Forex Daily Analysis

• Send
• Print
• Add To
• Rss

Forex Daily Analysis

dbb10cce-dd05-49e4-9bcb-23fe2baee37b

0

0

JPY surges higher on the back of this weekend's G7 Finance Ministers meeting

Tue, Feb 6 2007, 08:38 GMT
by Lee More

ForexYard

Economic News  
 
USD
 
The ISM Non Manufacturing index, which measures the activity level of purchasing managers in the service sector, rose to 59.0 in January on expectations of 56.8, well above the 50 economic contraction/expansion level. Last week, the Manufacturing PMI came at 49.3, below the 50 boom/bust level. The strong service sector ISM indicated that although some moderation, or perhaps even contraction, is taking place in the manufacturing sector, we are in no way near the "hard-landing" scenario so many economists were concerned of. The rise in the headline figure, which was also supported by a rise in seven out of the report's nine sub-indices, failed to generate significant price action in USD crosses despite its significance, mostly due to the more significant data on the tap this week. The EURUSD traded in a 50 pip range between 1.2915 and 1.2965 while the GBPUSD fell 65 pips, mostly due to the disappointing UK services PMI.

The week ahead is pretty thin on US economic releases, and price action will mostly originate from foreign events, and today is no different. Nevertheless, although no data is scheduled for release today, 3 Fed officials are scheduled to speak on separate occasions- Fed's Moskow at the Chicago Planning Summit, Fed Chairman Bernanke in Omaha, and the Fed's Yellen in LA. Also, Treasury Secretary Paulson is intended to testify on the budget at the Senate Finance Committee. Utterances arriving from the 4 figures have the potential to shake the markets quite a bit. However, we see low probability for the USD to weaken significantly against its major counterparts ahead of the most important events of the week- the interest rates decisions in both Euro Zone and UK, and the G7 finance ministers meeting in the upcoming weekend.

 
EUR
 
The EUR continued with it sideways trading against the USD on Monday while weakening considerably against most other counterparts. This has occurred despite the better than expected service sector Purchasing Managers Indices released both in Germany and in the Euro Zone. German PMI rose to 58.3 in January on expectations of 57.0 while EZ PMI rose to 57.9 on expectations of 56.9, well above the 50 boom/bust level. EUR weakness can be mainly attributed to its massive sell-off against the JPY, where carry trade liquidation and position squaring is still the theme ahead of this G7 meeting in Essen, Germany, and ahead of this Thursday's interest rate decision by the European Central Bank. The European Central Bank is widely expected to leave its benchmark rates unchanged until its March Monetary Policy Committee meeting, but markets await this Thursday's news conference held by the ECB governor Trichet to judge how much further the central bank will continue its monetary tightening cycle.

Three major economic releases are on the tap today: At 10:00GMT Euro Zone Retail Sales data which is expected to rise 1.1% MoM and 2.3% YoY. An hour later, German Factory Orders are expected to rise 0.5% MoM, less than the 1.5% increase the previous month. At the same hour in the UK, British Retail Consortium Retail Sales are expected to increase by 2.0%. Stronger readings might provide a reason for a light rebound in both EUR and GBP values, as they would allow the Central Banks to continue with their monetary tightening cycle with a lesser risk of strangling economic growth. 

 
JPY

 
The JPY is definitely the best performer of the day, stronger 280 pips against the GBP, 150 pips vs. the EUR and nearly 100 pips vs. the USD. Traders continue to cover their short JPY positions ahead of this weekend G7 Fin-Min meeting in Germany, where speculations suggest several European nations will raise the weak JPY as a discussion topic and try to put pressure on Japan to better support its currency. Although we doubt such a message will come out of this meeting it is not unreasonable to take extra caution before the weekend. For those of you who recall, the last time the G7 Finance Ministers meeting released an announcement concerning a certain nation's foreign exchange policy was last April, when the issue was not the JPY but the value of the Chinese Yuan. During the month that followed, due to Japan's economic affiliation with China, the USDJPY dropped 900 pips, from 118 to 109. It is therefore quite reasonable to assume that JPY strength will continue being the theme during the next several days when a JPY short position is considered to be "unwanted good". 

 
Technical News  
  
 
EUR/USD

 
The 100 day moving average support at 1.2900 still stands solid since Friday's downtrend. Daily and hourly studies give mixed signals, confirming the 1.29/1.30 range trading notion. It appears that the support of 1.29 will hold once again today, and no significant breaks will occur. 

 
GBP/USD

 
The pair was floating on quiet water overnight and is now consolidating at 1.9590. Hourly studies are mildly bearish, as dailies give mixed signals with a small bearish bias. Stochastic indicators show that the 4 hour downtrend might still have steam in it. 

 
USD/JPY

 
The daily studies are very bearish, as the move continues from 122.00 to 120.30. Hourlies are a bit oversold, which might cause a correction to 120.70, before the move regains further momentum to continue into the 119.50 area. 

 
USD/CHF

 
Low volatility and mixed indicators suggest a continuation of the range trading that has characterized the last 3 weeks, key resistance level is holding firm at 1.2550 and a strong support is just above 1.2400 while looking for a bearish reversal towards the lower barrier. 

 
The Wild Card  
  
 
EUR/AUD 

 
The pair depreciated from 1.6740 after yesterday's session, as forex traders are expecting another break downwards trying to test the next support level at 1.6580. Volatility is still high and unless a surprising figure will come out at the AUD rate decision later today the current bearish trend will prevail.
 

Published on  Tue, Feb 6 2007, 08:42 GMT