Currencies All Poised to Settle In As Holiday Finally Upon Us

FOREX SPECIAL :-

If you haven’t already, it’s time to go enjoy the family and friends, because absolutely nothing even close to significant should happen from here into the close on Friday, and if anything does happen, you probably won’t want to be involved. To go over developments in recent trade, the Yen has made a bit of a comeback over the past 24 hours, although with the market still holding above 82.00, it is hard to say that we have really gone anywhere at all, with the broader multi-day consolidation still intact. Meanwhile the Swiss Franc has finally relented a bit, after Usd/Chf failed to take out the 0.9460 record lows from October. There has been no confirmation of any central bank activity, but the resulting price action has set up bullish outside days in Usd/Chf and Gbp/Chf (off of record lows), and a bullish reversal day in Eur/Chf (also off of record lows).

Despite recent efforts from the European Central Bank to restore confidence in the Eurozone, with some of these beleaguered local economies’ bond yields remaining elevated, the market is still not showing too much confidence. Additionally, the move by the Fed to extend Dollar supply to Europe is also a good sign that liquidity risk has not softened. As such, we continue to risks for additional Euro weakness over the coming days, with a retest and break below the recent lows by 1.2970 very realistic. The Euro has however been somewhat supported in recent trade following S&P’s move to affirm France’s AAA rating with a stable outlook.

The Australian Dollar has given up some of its relative strength over the past day, but on the whole, remains very well bid. However, we continue to hold the opinion that this is a currency which has outdone itself and should be due for a major across the board pullback over the coming year. Our favorite trade for 2011 is Long EUR/AUD, with the cross trading by multi-year lows, technically violently oversold and screaming for a major trend reversal.

Back to the topic of the Yen, according to a recent Reuters report, Japan is expected to raise its FX intervention fund limit by an additional 5Trln to 150Trl Yen total into the next fiscal year which begins in April. While the move by no means confirms that additional action will be taken, it certainly sends some form of a message to market participants that they should be careful of buying Yen going forward.

If we take a look at the Eur/Usd monthly chart, it looks as though the market will close out the year right around levels that were seen at the start of 2009. A very significant bearish outside month in November of 2010 now likely signals a longer-term lower top by 1.4285, with a break back below the 2010 low at 1.1880 to confirm the lower top and open some fresh downside. As such, we still see plenty of downside risk for the Euro over the coming months with a move back below 1.2000 seen as a very realistic possibility. Ultimately, a break back above 1.4285 will now be required to negate the longer-term bearish structure.

There is nothing on the economic calendar for Friday and we would expect to see all currencies consolidate by their respective closing levels on Thursday. Just an additional heads up that The Australian and New Zealand markets are closed on Monday and Tuesday for Christmas break. We wish each and every one of you a very special, happy, meaningful, and healthy holiday, and very much look forward to the year ahead. Thank you all so much for your continued support.

TECHS

EUR/USD:The market has mostly been locked in a choppy consolidation over the past several days, but a lower top looks to have carved out by 1.3500, with a break back below 1.2970 over the coming sessions to confirm and open the next major downside extension towards the 1.2585 platform base from August 2010. As such, any intraday rallies towards the 1.3300 area should be used as formidable sell opportunities.

USD/JPY:Despite the latest pullbacks below 83.00, the market still remains confined to a broader consolidation, and while the price holds above the bottom of the Ichimoku cloud, the overall outlook remains constructive with dips towards 82.00 to be used as compelling buy opportunities. A break and close back above 84.50 will however be required to end what is perceived to be a bullish consolidation and accelerate gains. A close below 82.00 on the other hand, would compromise outlook and give reason for pause.

GBP/USD:The market remains under pressure and now seems poised for a retest of the platform base from early September at 1.5295. Daily studies are however looking a little stretched so we would not rule out the possibility for a bit of a bounce over the coming sessions towards the 1.5700 area from where a fresh lower top will be sought out ahead of an eventual drop to challenge and break 1.5295. In the interim, we remain sidelined and await a clearer signal.

USD/CHF: Setbacks have most recently stalled out just shy of the record lows by 0.9460 from October, and with daily studies looking a little stretched, we would expect to see any additional declines very well supported in favor of a major bullish reversal. Cyclical studies continue to warn of a major trend shift at current levels, and a bullish outside day on Thursday after failing to establish fresh record lows, could very well act as the initial catalyst for said reversal. Look for a break back above 0.9735 to confirm and accelerate gains. A break and close back below 0.9460 delays.

Written by Joel Kruger, Technical Currency Strategist

Read more »

FOREX: Currency Markets May See Knee-Jerk Volatility as Trade Volumes Shrink

FOREX SPECIAL :-

Key Overnight Developments

• Japanese Yen Slumps on Profit-Taking After Yesterday’s Advance
• British Pound Spikes Higher as Trade Volumes Amplify Volatility
• NZ Dollar Gains as Money Supply Sees Smallest Drop in 13 Months

Critical Levels

CCY	SUPPORT	RESISTANCE
EURUSD	1.3071	1.3167
GBPUSD	1.5385	1.5523

Currency markets kept to narrow ranges in the overnight session as trading volumes wound down ahead of the Christmas holiday in most of the world’s top banking centers. The Euro oscillated in a narrow range above the 1.31 figure. The British Pound popped higher late into the session to add 0.3 percent against the greenback in what appeared to be a move similar to yesterday’s spike in the Japanese Yen, owing mostly to the amplifying effects of thin liquidity rather than a specific catalyst.

Asia Session Highlights

CCY	GMT	EVENT	ACT	EXP	PREV
NZD	2:00	New Zealand Money Supply M3 (YoY) (NOV)	-0.2%	-	-1.1%

The New Zealand Dollar narrowly outperformed, adding 0.2 percent on average against the major currencies after the Money Supply shrank at the slowest pace in 13 months in November. The outcome hints inflationary pressure may begin to pick up after the yearly CPI figure hit a six-year low in the third quarter, opening the door for rate hikes in 2011. The Reserve Bank of New Zealand will add 56bps to benchmark borrowing costs over the next 12 months according to traders’ priced-in expectations.

The Japanese Yen moved lower against the spectrum of its top counterparts – with the most profound losses noted against the Kiwi and the Swiss Franc – as the currency retraced some of the equally impressive and difficult-to-explain advance in yesterday’s trade. The currency had gained 0.6 percent on average, marking the largest daily advance in three weeks, on what appeared to be liquidity-driven volatility.

Euro Session: What to Expect

CCY	GMT	EVENT	EXP	PREV	IMPACT
EUR	11:00	French Total Jobseekers Change (NOV)	-	-20.3	Low
EUR	11:00	French Total Jobseekers (NOV)	-	2676.8	Low

The economic calendar is essentially negligible and the top European markets will be closed for the Christmas Eve holiday, pointing to choppy trade amid thin liquidity conditions. Indeed, using the CME EUR/USD futures contract as a proxy – trading volumes have nearly halved since just over a week ago on December 14th. We will stick with our existing exposure, keeping an eye out for knee-jerk volatility.

Read more »

Forex: Major Currencies To Hold Steady, Swiss Franc Weighed By SNB

FOREX SPECIAL :-

Talking Points

• Swiss Franc: SNB To Take ‘Necessary’ Measures
• British Pound: Continues To Search For Support
• Euro: Holds Within Previous Day’s Range
• U.S. Dollar:Mixed Across The Board On Holiday Trade

The foreign exchange market was relatively quite during the European trade, and the major currencies should hold steady going into the end of the week as global investors go offline for the holiday season. The EUR/USD continued to consolidate on Friday, with the exchange rate bouncing along the 200-Day moving average at 1.3089, and the euro-dollar is likely to stay flat throughout the remainder of the day as price action holds within the previous day’s range. However, as Fitch cuts Portugal’s credit rating to A+ from AA-, the single-currency could face additional headwinds over the following week, and fears surrounding the European sovereign debt crisis are likely to bear down on the exchange rate in 2011 as policy makers struggle to restore investor confidence.

In turn, the Swiss Franc may continue to appreciate over the near-term as the low-yielding currency benefits from the flight to safety, but the short-term reversal in the EUR/CHF and the USD/CHF may gather paceas speculation for a currency intervention resurface. The Swiss National Bank pledged to “take the measures necessary to ensure price stability” as the European debt crisis hampers the outlook for growth and inflation, and went onto say that the ongoing turmoil within the financial system could “have a detrimental effect on the Swiss economy” in its quarterly report. As the risk for contagion intensifies, the SNB’s efforts to talk down the recent appreciation in the local currency may fail to bear fruit as market participants speculate Spain and Portugal to share Ireland’s ill fate, and the recent strength underlying the Swiss Franc may gather pace in the following year as market sentiment falters.

The British Pound failed to retrace the decline from earlier this week as the exchange rate fell back from a high of 1.5475 during the European trade, and the GBP/USD may continue to pare the overnight advance as it search for support. In light of the recent developments, we expect the Bank of England to maintain its wait-and-see approach throughout the beginning of 2011 as the economic outlook remains clouded with uncertainties, but the MPC may see scope to start normalizing monetary policy over the coming months as the central bank expects inflation to hold above the 2% target throughout the following year. As a result, we may see British Pound strengthen going into the following year, and members of governing committee may heed to Mr. Andrew Sentance’s call to raise the benchmark interest rate 25bp in order to meet their dual mandate to ensure price stability while fostering full-employment.

U.S. dollar price action remained mixed on Friday, with the USD/JPY falling back from a high of 83.16, while the greenback continued to lose against its Canadian counterpart as the exchange rate slipped to a fresh weekly low of 1.0051. As U.S. traders go offline in observance of the Christmas holiday, the drop in market liquidity could produce choppy price action throughout the currency market, but it seems as though most of majors will continue to hold steady going into the end of the week as they trade within a tight range.

Read more »