Forex Crunch Aussie Set for Rises

Aussie Set for Rises
Forex Daily Outlook – January 27th 2010
Long Term Forecast for GBP/USD

Posted: 27 Jan 2010 01:25 AM PST

After getting many blows, the Aussie finds comfort in rising inflation which paves the path for another rate hike. This report saved AUD/USD from losing an important support line. After the bounce, the road is north.

Australian quarterly CPI showed a rise of 0.5% in Q4. This exceeded expectations for a 0.4% rise, although being less than last month’s 1% rise. After seeing a negative PPI at the beginning of the week, there were fears that also CPI will disappoint.

This release comes at an important timing – a week before the rate decision. After the previous rate hike, the third in a row, there were doubts about another one. With an interest rate of 3.75%, the one month break from rate decisions could turn into a break from rate hikes.

Now, after this was cleared, Glenn Stevens’ RBA will probably raise the bar to 4%. This article in Bloomberg shows that the chances are now higher for a rate hike. Interest rates are very important for currencies, and these expectations boost the Aussie.

After dropping just below the important support line of 0.8950, to 0.8940, the Aussie enjoyed the CPI release to get back up, climbing to 0.9040. Renewed dollar strength is now pushing it back down to 0.8970, but the support line continues to hold.

When the dollar will release the grip over the markets, I believe we’ll see further rises of the Aussie. It’s currently better positioned than other currencies such as the Euro and the Pound. This depends mostly on relief from the risk aversion trading sentiment that is felt again in the markets.

More technical lines can be seen in the AUD/USD forecast.

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Forex Daily Outlook – January 27th 2010

Posted: 26 Jan 2010 11:10 PM PST

Another busy day is awaiting forex traders, with a rate decision in the US being the highlight. There are important figures today from all over the world. Let’s see what’s up for today.

Apart from the scheduled releases, note that the World Economic Forum talks start today in Davos, Switzerland. Statements from there can move the markets as well.

Australian CPI provides a strong start to the day. It’s predicted to rise by 0.4%, less than 1% that was printed last quarter. After PPI disappointed with a drop, a weaker number sure is possible. Also note the Trimmed Mean CPI, or Core CPI, which is predicted to rise by 0.6%.

This release critical for the rate decision next week. For more on the Aussie, read the AUD/USD forecast.

Following the rate decision in Japan and the downgrade by S&P, the BOJ Monthly Report could give a dark picture of the Japanese economy, despite the easing of deflation. On the other side of the day, Japanese Retail Sales are predicted to rise this time – by 0.3%.

German Prelim CPI will be released from the various German states during the the day. After last month’s 0.8% rise, a drop in prices is predicted this time. For more on the Euro, read the EUR/USD forecast.

In Britain, the day after the weak growth report brings another important figure: CBI Realized Sales. It’s expected to drop from 13 to 11 points, after a few good months. Also in Britain, MPC member Andrew Sentance will be speaking today.

For more on the GBP/USD, read the British Pound forecast.

In the US, Treasury Secretary Geithner will make a public appearance and might shake the markets. American New Home Sales are expected to recover from the blow they got last time, as they dropped to 355K. The number is expected to rise to 372K. This might have a muted impact, as a bigger American event is due later.

The Federal Reserve is expected to leave the interest rate unchanged at a maximum rate of 0.25%. Ben Bernanke is also expected to leave the wording of the FOMC Statement unchanged, with a renewed pledge to leave the rates low “for an extended period of time”.

Last month, it took the markets 6 hours to digest the statement before moving. It sure was confusing.

Also in New Zealand, the central bank makes a rate decision. Alan Bollard’s RBNZ isn’t expected to lift the Official Bank Rate above 2.5%. Prospects for the future might be hinted at the RBNZ Rate Statement. NZD/USD is getting close to 0.70 – a critical line for it.

That’s it for today. Happy forex trading!

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Long Term Forecast for GBP/USD

Posted: 26 Jan 2010 07:30 AM PST

Guest Post by Nick Kanger, Head Currency Analyst at ProAct Traders

Forecasting currency movements longer term can be a dangerous (and potentially embarrassing) undertaking. Get the numbers right and you're a hero and looked upon as a currency trading guru; wrong and you're punished with "What were you thinking" comments, snipes, derisive statements or worse. So, what to do? Keep what info you've amassed to yourself and trade just managed accounts that no one but you and your clients will ever see? Or, put it out there to the rest of the trading world? Hummmm…….

Well, let's see if we can take some sensibly planned, strategic action instead, that limits potential losses should the pair choose to climb higher (yes, we're talking shorting the pair), and attempt to maximize gains should they start to accrue if the pair begins to move south.

Here's what I see..

At the time of this writing, price seems to be topping out for the day near 1.6250. This is a natural "squaring up" process that started last Friday and appears to be terminating currently with some price overshoot room taken into account up to 1.6255. Strong closes above here, and the bulls may get more emboldened to take price a bit higher. If the bears can hold 1.6250 (a big psychological number) and lower, a Daily close below 1.6150 (a mere 100 pips away) would lend strength to the downside. If, and once that level is broken, it now becomes a matter of finally breaking 1.6100 where a single line trend line would be struck, as well as a .618 fib from the 4 hour chart.

The max upside resistance on a price overshoot is right @ 1.6272 where the bears could enter with some real volume. In my humble opinion, this would be an ideal spot to short the pair with a paltry 30 pip stop @ 1.6305. Why paltry (small)? The upside to this is 1:4 initially down to 1.6152. Then, it's a matter of waiting for the market make the decision to head much much lower on a break of support @ 1.5833. Should the latter occur where there has been very strong support on the Weekly chart, then we look for the next strong support to be near 1.5350.

Now again….If a trade was taken @ 1.6272, the risk is a minimal 30 pips. Another strategy, should you make the personal choice to engage a little earlier than that entry price so as not to "miss" a potential larger move to the downside, would be to cost average enter into the trade, taking smaller positions so as not to over leverage @ 13 pips increments up to 1.6272 with all positions average at risk of no more than 1%.

The above-mentioned strategy discussed here is based on simple technical analysis. Talking about the fundamental reasons why the Pound could drop so precipitously is a whole other discussion. So today, we'll leave it at the technical.

Meanwhile, we're in @ 1.6235 on both a short term and longer term hold and will take small positions higher up to 1.6272.

Great trading to you.

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