Feb 16, 2010

Forex Crunch As Fear Fades, Commodity Currencies Rightfully Gain

Forex Crunch As Fear Fades, Commodity Currencies Rightfully Gain

As Fear Fades, Commodity Currencies Rightfully Gain

Posted: 16 Feb 2010 04:45 AM PST


The Greek crisis is unwinding slowly – too slow for the Euro. But far away from Europe, a sigh of relief is heard: The Australian, New Zealand and Canadian dollar are advancing nicely.

Eventually there will be a solution to the long Greek crisis. It can be with German help, IMF funds or some other kind of solution. And maybe it will take many months for a resolution to come. Or perhaps Greece will be kicked out of the Euro.

What’s more certain is that the global effect of Greece returns to it’s proportions – a European problem. In recent weeks, the Greek troubles triggered fear that other countries will also come under debt pressure. When the credit crunch refuses to die, fear takes over. Fear send traders to so called “safe haven currencies” such as the dollar and the yen, and sends them away from high yielding currencies that are considered risky.

These currencies are backed by strong and stable economies and as the dust from Greece settles, they become attractive again. You may call it risk appetite or healthy common sense – they’re going up:

AUD/USD

The Australian dollar was beaten in recent weeks, suffering from risk aversion and also from the decision not to raise the interest rates. Well, Australia is still the only country in the G20 to raise the rates that stand at 3.75%, quite high indeed.

After a fourth round of excellent employment figures, it’s time for the Aussie to rise – at 0.8960, it’s at the highest point in two and a half weeks, finally recovering. It needs to confirm these levels before proceeding towards the next hurdle 0.9090.

USD/CAD

Canada doesn’t enjoy a high interest rate, but it can also boast a stable economy. Americans can envy the job market of their neighbor up north. Together with higher oil prices, the Canadian dollar has enough reasons to rise.

At 1.0456, USD/CAD is at a three week low. The next target is 1.04, a line that served as a clear support and resistance line during recent months. The test for the loonie will come with the release of inflation figures. Only rising inflation can accelerate the schedule of rate hikes and push USD/CAD towards parity.

NZD/USD

Similar to its Australian neighbor, New Zealand has a high interest rate of 2.5%. Apart from risk aversion, the kiwi suffered from a jump in the unemployment rate and fell below the round number of 0.70.

With the fadeout of risk aversion, NZD/USD rose and managed to break above 0.70, the highest level in two weeks. This break still needs to be fully confirmed. The next target is 0.71.

Conclusion

As the world slowly recovers and fear fades out, these currencies will benefit from their strong fundamentals.

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Forex Hacking Winners

Posted: 16 Feb 2010 04:00 AM PST


Forex Hacking launches right now. 60 Forex Crunch readers showed interest in the new book with 60 comments! Thank you for your interest. It’s time to announce the 5 winners. Yes, the author has agreed to hand out 5 copies, more than 4 that were originally offered.

I’ve used random.org for drawing the winners. Here they are:

  1. Amir
  2. Baso Firman
  3. Wayne
  4. Luke
  5. Great Guy

Congratulations to the winners. You’ll receive a notification by email.

For the rest of you that haven’t won, you can still purchase the book. I found it to be a valuable tool. You can get it here.

Discolusre: I’m affiliated with the author.

GBP/USD – Trend lines on a Collision Course

Posted: 15 Feb 2010 04:17 PM PST


The Pound is trading in a narrow range, and it’s getting narrower. The trend lines are about to collide – meaning that an explosion is underway. There are a few upcoming events that will determine the direction of explosion.

GBP/USD is bound by two trend lines that aren’t parallel. Using the hourly chart, I’ve drawn a downtrend that caps the Pound from above. It begin in the middle of last week from a peak at 1.5764. The other line is an uptrend beginning just a few hours later, from a bottom at 1.5560.

This 200 pips range became narrower: the peaks became lower and the bottoms higher. These peaks and bottoms lay out the trend lines. The trend lines meet somewhere in the early hours of Thursday, but the explosion will probably come earlier.

Tricky Tuesday

Tuesday features the release of British consumer prices. This monthly publication is special this time – Inflation will probably miss the government’s target of 1-3% – this will enforce Mervyn King to explain the reasons and lay out measure.

Thinking about a rate hike in the UK? Not so fast. King is convinced that this was a one time event. If the expectations are met, and inflation reaches an annual level of 3.6%, what will King say in his letter? Nobody knows. This uncertainty will lead to choppy trading and to an explosion.

If expectations aren’t met, it’s already enough for a surprise. King will be pleased that his analysis was correct. The Pound won’t smile.

Busy Wednesday

On Wednesday, Britain sees many employment figures, with the Claimant Count Change as the most significant figure. Will the number of unemployed Brits falls again, for the third time in a row? A renewed rise will hurt the Pound. Another drop is expected, so no big moves here.

But there’s another release at the same time – MPC Meeting Minutes. In their recent meeting, there was no rate hike and no allocation of new cash to the Quantitative Easing program – also known as Pound spilling program.

Good for the Pound? Wait. Also here, King has an impact. In a public appearance, King didn’t rule out pumping more cash, thus weakening the Pound. Did he say something about it in the recent meeting? Did another member raise this possibility? The members usually don’t vote unanimously.

Add the meeting minutes uncertainty to the employment figures, and you have a recipe for choppy trading. If GBP/USD will remain in a narrow range during Tuesday, it will most likely chose a direction on Wednesday.

The next resistance line above 1.5764 is 1.5833. Looking down, 1.5350 supplies significant support far down.

Let the games begin!

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Forex Daily Outlook – February 16th 2010

Posted: 15 Feb 2010 02:00 PM PST


After a rather easy day, the calendar is busy again: British inflation numbers, German ZEW Economic Sentiment and American TIC Long-Term Purchases are the highlights. Let’s start:

In Australia, we’ll get to see why the RBA didn’t raise the rates as expected. The Monetary Policy Meeting Minutes might also reveal future policy.

Also in Australia, NAB Business Confidence is expected to remain stable at around 8 points and RBA Assistant Governor Guy Debelle will make a public appearance, and might add to the meeting minutes. For more on the Aussie, read the AUD/USD forecast.

In Britain, inflation is expected to exceed the government’s target of 1-3% and to provide a test for BOE Governor Mervyn King that dismissed the rising inflation. CPI is predicted to rise in an annualized rate of 3.6%, much more than last month’s 2.9% rise.

Core CPI is also predicted to rise to 3.2% after 2.8% last month, and RPI, which was negative for many months, is predicted to leap from 2.4% to 3.8%.

If these expectations are met, King is obliged to issue an open letter that will detail the reasons for this situation and the measures that will be taken to address it.

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

In Europe, ZEW Economic Sentiment will shake the Euro. This important survey always has a strong impact. In recent months, it fell down. This trend is predicted to continue. The German ZEW Economic Sentiment is predicted to drop from 47.2 to 42.6 points, and the all-European figure is predicted to go from 46.4 to 42.6 points.

The Euro continues to struggle, especially due to the Greek debt problems. For more, read the EUR/USD forecast. For an interesting technical analysis, read Casey Stubbs’ latest analysis.

In Canada, an eventful week begins with the release of Manufacturing Sales, which are predicted  to rise by 2.1%. USD/CAD tumbled down last week. Check out the Canadian dollar forecast for more.

American Empire State Manufacturing Index is expected to rise from 15.9 to 17 points, showing more improvement for the US economy. TIC Long-Term Purchases usually shake the market – after leaping to 126 billion last month, they’re expected to cool down to 50 billion. This represents the cash flow into the US – confidence in the economy.

Later in the US, Federal Reserve Bank of Kansas President Thomas Hoenig will make a public appearance. Hoeing is a known “hawk”, so talks about raising the rats probably won’t surprise the listeners.

Near the end of the day, Japan’s Tertiary Industry Activity will be released, and it’s expected to drop by 0.2%. The good GDP result failed to lift the yen yesterday.

That’s it for today. Happy forex trading!

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