EUR/USD Consolidates above 10/13 Lows

The EUR/USD has undergone encouraging consolidation along what is now our 3^rd tier uptrend line. Present consolidation comes with a sigh of relief considering the extent of the selloff in the EUR/USD thus far this week. Investors are encouraged by the better than expected Core DGO data even though the headline figure printed shallow by two basis points. Since the EU’s economy relies heavily upon manufacturing, the solid Core DGO number signals that export demand from the U.S. may be stable. However, investors are still cautious since equity markets have been behaving unfavorably lately. The S&P futures have drifted below our important 1^st tier uptrend line, and are presently testing the patience of the psychological 1050 level. Any extended weakness in the S&P would likely drag the EUR/USD lower due to their positive correlation. Therefore, investors should keep a close eye on U.S. equities over the next 24-48 hours and monitor their interaction with our technicals in reaction to key economic data. The U.S. will release its Advance GDP tomorrow, and this data will likely be a market mover. A disappointing GDP number would likely send U.S. equities lower and investors towards the Dollar for safety, and vice versa.

In addition to tomorrow’s U.S. Advance GDP number, the EU will release German Unemployment Change data. Analysts are expecting an increase to 17k, likely due to the negatively mixed German PMI data as of late. The ECB has been quite these days, and the central bank is probably waiting to see how the next set of important econ data fares. Furthermore, the ECB should be happy that the EUR/USD has lost roughly 250 basis points from October highs. The pullback in the EUR/USD gives the ECB a little breathing room since the rapid appreciation of the Euro was beginning to squeeze EU exporters. Meanwhile, focus should remain on the U.S. since EU data will be relatively light until Friday’s Unemployment Rate and CPI Flash Estimate releases.

Technically speaking, the sharp movement below the psychological 1.50 level is a discouraging sign for bulls. However, there remain several uptrend lines we can form, meaning the EUR/USD has a few technical cushions to rely upon before investors can safely cry bear. Our new 1^st tier uptrend line should gauge whether the EUR/USD is bound to retreat towards previous October lows and the psychological 1.45 level. As for the topside, the EUR/USD now has multiple uptrend lines bearing down on price and the psychological 1.50 level becomes a technical barrier once again. Overall, although the uptrend remains intact, investors should tread carefully since U.S. equities are facing headwinds.

Present Price: 1.4797

Resistances: 1.4819, 1.4844, 1.4863, 1.4890, 1.4925

Supports: 1.4783, 1.4764, 1.4727, 1.4700, 1.4671, 1.4638

Psychological: 1.50, 1.45

Source: http://www.fx-bar.com

Pound Extend Gains on Retail Sales

Speculations that retail sales would post another month of gains were confirmed providing support for the pound to regain terrain versus the euro and several other currencies, changing the negative outlook for the British currency to a better trajectory.

The pound gained versus most of 16 traded currencies as retail sales in the U.K. touched the highest level in 2 years in October, bringing confidence back towards pound-priced assets, after rather turbulent weeks that shunned away investors from the British currency in foreign-exchange markets.

EUR/GBP traded at 0.9039 as of 21:36 GMT from a previous rate of 0.9118 in the intraday.

If you want to comment on the Great Britain pound’s recent action or have any questions regarding this currency, please, feel free to reply below.

Source: http://www.topforexnews.com

Yen Trading Higher as Stocks Tumble

The Japanese currency ranked among the best performers in currency markets after several days of losses as stocks declined worldwide, attracting traders to the safety provided by yen-priced assets, and favoring also safer bets in financial markets globally.

The South Korean won was one of the biggest losers versus the yen after climbing sharply due to a report showing a significant quarterly growth for the Asian emergent nation, in a movement that can be understood as a correction by traders. One of the biggest winners today, but still losing against the Japanese currency was the Australian dollar, that benefited from side effects of a Chinese official statement suggesting that industrial production is growing massively in the country, which is good for the South Pacific nation since Australia is a major provider of commodities to China. The Swedish krona also lost significantly versus the yen as the country is still suffering from central bank statements last week that affirmed that interest rates will remain low until next year.

Most analysts concord that financial markets are having a moment of correction this week after stocks and higher-yielding currencies touched the highest levels in 2009 last week. Even if this Tuesday is producing rather negative numbers, most of traders are still expecting gains in riskier assets towards the end of the year.

EUR/JPY traded at 136.47 as of 14:00 GMT from a previous rate of 138.49 in the intraday. GBP/JPY traded near stability at 150.35.

If you want to comment on the Japanese yen’s recent action or have any questions regarding this currency, please, feel free to reply below.

Source: http://www.topforexnews.com

Australian Dollar Outlook Remains Bullish on Interest Rate Expectations

The Australian dollar rose to a fresh yearly high of 0.9326 against the greenback and the higher-yielding currency may continue to appreciate going into the following month as investors speculate the Reserve Bank of Australia to tighten policy throughout the second-half of the year. Credit Suisse overnight index swaps shows market participants are pricing a 131% chance for a 25bp rate hike in November and expect the central bank to raise borrowing costs by more than 200bp over the next 12-months, and the Aussie may continue to retrace the sell-off from the previous year as policy makers hold and improved outlook for the economy.

The Reserve Bank of Australia Minutes said that the “very expansionary setting of policy was no longer necessary” as the $1T economy skirts the global recession, and went onto say that it may be “imprudent” for the central bank to hold the interest rate at the 49-year low as policy makers maintain their dual mandate to ensure price stability while fostering full-employment. Moreover, the central bank held a hawkish tone and said keeping borrowing costs at “very low levels” could raise the risks for inflation, and said that the “trough in inflation was significantly higher than earlier thought.” Moreover, RBA Assistant Governor Philip Lowe stated that the rebound in economic activity would “gradually lead to a normalization of interest rates,” and said that the country is likely to have “a higher average exchange rate than we’ve had over the past couple of decades.” However, the central bank expects the marked appreciation in the Australian dollar to temper the risks for inflation, and the central bank may adopt a wait-and-see approach over the remainder of the year as the outlook for global growth remains uncertain.

Nevertheless, the economic docket for the following week is likely to spark increased volatility for the Australian dollar and may drag on the exchange rate as market participants anticipate price pressures to weaken further in the second-half of the year. Economists forecast consumer prices to grow at an annual pace of 1.2% in the third quarter after rising 1.5% during the three-months through June, while producer prices are project to fall to an annualized rate of 0.5% from 2.1% in the second-quarter. At the same time, private-sector credit is anticipated to increase 0.2% in September following the 0.1% rise in the previous month, while bank lending is expected to grow at an annualized pace of 2.0% from the previous year. As a result, the slew of mixed data may leave the AUD/USD confined in a narrow range as investors weigh the outlook for future policy but nevertheless, as risk trends continue to dictate price action in the currency market, a rise in risk appetite may lead the high-yielding currency to hold above 0.9300 over the following week. - DS

Source: dailyfx.com

Japanese Yen on Pace for Further Losses Against Euro, US Dollar

The Japanese Yen fell against major forex counterparts for the third week in a row, slipping further on outperformance across key risky asset classes. Yet the 20-day correlation between the US Dollar/Japanese Yen pair and S&P 500 actually turned negative for only the second time in two years—emphasizing ongoing shifts in FX market dynamics. The Yen has long been the go-to currency during times of market stress and, by extension, the first to fall through financial market booms. As the lowest-yielding currency in the industrialized world, investors aggressively borrowed JPY to fund investments in sources of higher income. More recently however, the US Dollar has taken the dubious honor of the cheapest currency to borrow across global financial markets. The surprising shift goes a long way in explaining the USDJPY pair’s inverse correlation to key risky assets, and it will likely remain a major factor for the Japanese Yen through the foreseeable future.

Week in and week out, we have repeated that financial market risk sentiment and the trajectory of the S&P 500 would be the major determinant of USDJPY price action. Of course, the substantive shift in risk correlations would suggest USDJPY moves may depend on other fundamental factors. Against other counterparts, the Yen’s continued losses show little investor interest in buying and holding the low-yielding currency. Given its extraordinarily low yield, holding Japanese Yen is an expensive proposition; the trader must pay higher interest rates to receive paltry JPY yields.

A cursory look at a Yen chart will show you that the currency will tend to lose more often than it gains—except to note that its rallies are far sharper than its declines. That is to say, FX traders avoid buying Yen unless they absolutely have to. And when they are forced to cover JPY short positions, they typically do so in a hurry. Given these JPY trading dynamics, we believe that the Japanese Yen is likely to continue drifting lower against the Euro, British Pound, Australian Dollar, and New Zealand Dollar. The wildcard remains whether we can expect a noteworthy correction in broader financial market risk sentiment.

Impressive performance and fresh highs across key barometers leaves markets at prime risk of pullback. Yet too many traders have gone bust in trying to time a market top. Until we see plausible signs of market turnaround, we have little reason to believe that the Japanese Yen may recover against higher-yielders. The admittedly unpredictable dynamics between the US Dollar and Japanese Yen make the USDJPY an especially challenging pair to trade. If nothing else, however, its recently bullish momentum is likely to keep it aloft through the coming week of trade. - DR

Source: dailyfx.com

US Dollar Will Have to Weigh 3Q GDP for Fundamental and Risk Impact

What little strength the dollar seems to find during the trading week seems to ultimately be swept away by the financial markets’ primary fundamental driver – sentiment. Whether or not the dollar makes for the ideal funding currency to the recuperating carry trade, it has already been put into that niche; and the rationale of the situation will not be reevaluated until either the trend stalls or there is a prominent change in the dollar’s fundamental makeup. There is the sense that this currency has resigned to a seeming permanence in its role as the FX whipping boy and the steady decline to fresh 14-month lows day after day. However, while the rise in risk appetite has maintained its bearing, it has a lost much of its fervor. This could signal the first stage of a reversal in yield appetite (and the subsequent recovery in the US dollar); and it could open the door for the big ticket 3Q GDP release to finally loosen sentiment’s hold over price action.

So far, we have absorbed two notable, third quarter growth readings from major economies; the results couldn’t have shown any greater contrast. Representing the strong face of the emerging market, China reported its economy grew 8.9 percent year-over-year through the third quarter. On the other end of the spectrum, the United Kingdom surprised the market by reporting a 0.4 percent contraction through the three month period ending with September and extending the economy’s worst recession on record. Will the US draw greater similarities to its British or Chinese counterpart? Economists’ expectations are impressive. A projected 3.2 percent annualized pace of growth through the quarter would shed the stigma of recession and bolster hope for a solid recovery on what would be the most significant pace of growth in two years. Gauging whether these projections are reasonable and determining whether the world’s largest economy is on a true pace of expansion, we need to breakdown the major sectors. Government spending plugged the whole but consumer spending, capital investment and a housing recovery are essential for material growth. Housing sales have certainly recovered and construction activity is stabilizing. Earnings through the second and third quarters suggest businesses will pick up production and start spending once gain. Yet, accounting for approximately three quarters of economic output, consumer spending is the backbone of the economy. Confidence seems to have already turned the corner; but consumption and planned purchases are both shaky.

Adding another complication to the high level release, we need to determine whether the dollar will produce a straightforward response to the data or the currency will default to its safe haven role. This is a complicated question; and it depends as much as what is happening with the capital markets heading into the release as the actual data itself. If there is a consistent rise to new heights in optimism, the sentiment aspect will likely win out. Alternatively, if risk appetite happens to commence a meaningful retracement beforehand, the relief for the greenback should allow for an intuitive response.

Keeping everything in perspective though; it is important to realize that the dollar does not have the characteristics of a long-term funding currency. Depressed market rates and benchmark yields are temporary; and there is little reason to doubt policy officials will not be able to work down deficits. Should the US return to growth with this 3Q reading, roles will start to reverse as fundamental realism dawns. On the other hand, a disappointment like that born of the UK’s status report could strengthen the unwanted correlation in the short-term.

Sourec: dailyfx.com

Brazil Real Rebounds on Optimism

The Brazilian real posted sharp gains today after several negative sessions on speculations that the country’s economic strength will induce central bankers to raise interest rates in the country, attracting more foreign investors.

The real lost significantly this week after the Brazilian government approved a new law taxing foreign investment on stocks, as an attempt to shun international investors that were causing the real to rally significantly, affecting Brazilian exporters. Today, the real pared much of its previous losses on optimism that the Brazilian economy will rank among the top performers among emergent markets in 2010.

USD/BRL closed this Wednesday at 1.7310 from an opening rate of 1.7535.

If you want to comment on the Brazilian real’s recent action or have any questions regarding this currency, please, feel free to reply below.

Source: topforexnews.com/