Posted: 19 Jan 2010 03:05 AM PST

Backed by significant economic figures, EUR/GBP continues the free fall, quickly approaching the next line of support. Here’s an update on this cross.

EUR/GBP continues to be a rather predictable currency pair. The support and resistance lines are more clear here than in many other pairs.

Strong British inflation

British inflation is lifting its head. After rising to an annual rate of 1.9% last month, it leaped to 2.9% this time. A rise to 2.6% was predicted. This leap almost reached the government’s inflation target of 1-3%. Also Core CPI surprised by jumping to 2.9% rather than 2.3% that was predicted, and the RPI (Retail Price Index) completed the picture with a rise to 2.4%, exceeding expectations and also leaping from 0.3%. RPI has been negative for many months.

If the CPI was little higher, and Mervyn King would have to send an open letter explaining the reasons for this and laying out the means he thinks of using against it – a rate hike in the near future. BOE Governor Mervyn King will make a public appearance anyway later. The Pound enjoyed this data and continued to rise. GBP/USD already reached 1.6450.

Weak European sentiment

Just 30 minutes after this British release, German ZEW Economic Sentiment disappointed with a big drop – from 50.4 to 47.2, much worse than expected. Also the all-European ZEW Economic Sentiment fell to 46.4 instead of rising to 48.2. This repeats last month’s ZEW disappointment which sent the Euro down.

EUR/USD reacted with a sharp drop from 1.44 to 1.4310 and it hasn’t stopped yet.

EUR/GBP continuing south

EUR/GBP broke the support line last week on other figures, and got new fuel to continue the journey down. It’s now trading at 0.8730, quickly approaching the 0.87 support line. Looking below, 0.8570 is a minor line of resistance, 0.8450 is stronger and 0.84 is huge – it wasn't breached in over a year.

If there’s a correction, 0.8840 now serves as a resistance line. The direction continues to be down.

Further reading:

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1:10 Leverage Limit? Keep Up the Fight

Posted: 18 Jan 2010 01:46 PM PST

The debate over the CFTC 1:10 leverage proposal is hot. While some say it’s all over for the US forex industry, others think that this draconian proposal won’t be realized. I say – keep those letters coming. Here are some interesting thoughts. What do you think?

Michael Greenberg continues to bury the American forex industry. Apart from the 1:10 leverage which he thinks is already decided, Michael took the time to dive into all the 193 pages of regulation and sees more trouble for the American industry.

He sees that the proposed regulation will make it very hard for forex brokers to operate in the US. Here’s a quote:

The Proposal would further require certain entities other than RFEDs and FCMs that intermediate retail forex transactions to register with the Commission as introducing brokers ("IBs"), commodity trading advisors ("CTAs"), commodity pool operators ("CPOs"), or associated persons ("APs") of such entities, as appropriate, and to be subject to the Act and regulations applicable to that registrant category. In addition, the Proposal would require any IB that introduces retail forex transactions to an RFED or FCM to be guaranteed by that RFED or FCM.

I’m not sure I understood it, but it is quite complicated.

On the other hand we have John Forman that doesn’t see this happening. In a post for the Currensee blog, Forman reminds us that the NFA imposed a 1:100 regulation rule just in November, and that the CFTC will collect data before moving on a 1:10 limitation and concludes his post with a calming message:

So everyone can relax. The odds of 10:1 leverage limits are extremely slim. By all means, though, take the opportunity to let the CFTC know what your thoughts are on the subject to make sure those odds remain low.

Also earnforex.com believes there’s hope. In a blog post reporting about the news we can see some optimism:

The good thing that it's still just a proposal and that CFTC is expecting a feedback from the market participants to evaluate the necessity and possibility of such means.

I’ve already mentioned that apart from individuals, also brokers are fighting back. The Foreign Exchange Dealers Coalition (FXDC), a new body that consists of leading American brokers has united in a petition, quoted by Fransesc Riverola. They fight for their industry and put the focus on the real problem in their eyes:

The problem of Forex fraud will get worse absent legitimate dealers offering retail forex. Retail forex fraud is not something that is caused by the actions of retail forex dealers; rather it is caused by unlicensed con-men who masquerade as forex experts promising silly and unjustifiable returns before disappearing with customer funds. That is why the FXDC fully supports the CFTC's rule requiring all introducing brokers be licensed. That rule will solve forex fraud, not 10 to 1 leverage.

Some people see the upside of this rule. Dr. S. Sivaraman at FXStreet sees something good for the economy:

Probably tightening using regulations might be an indirect measure to motivate the people to go in for job and earn their bread rather than speculation.

Ryan O’Keefe dives into other proposed regulations including capital requirements, and urges you to act:

I can't stress the importance of letting your voice be heard. If you do not want your margin requirements to increase, if you prefer flexibility with leverage, I suggest you speak up now or be prepared to trade with 10:1 leverage in the near future. Your only other alternative will be to increase you capital, or go overseas.

And I also say: sending a letter to the CFTC is a small effort. Let’s keep up the fight!

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Forex Daily Outlook – January 19th 2010

Posted: 18 Jan 2010 01:00 PM PST

After a holiday in the US, the market return to full gear with a busy day. We have American TIC Long-Term Purchases, a rate decision in Canada, and major events in Britain and Europe. Let’s see what’s up for this long day.

Prices in Britain have been picking up, and this could strengthen the Pound bulls. CPI has risen to an annual rate of 1.9% last month, and is predicted to jump even higher to 2.6%, still with the government’s target. Core CPI is also expected to edge up to 2.3% and the RPI (Retail Price Index) is expected to reach a level of 2.3% after many negative months.

If the government’s target of 1-3% inflation isn’t met, BoE governor Mervyn King is due to send an open letter to the government, explaining the reasons for this and laying out the measures that are expected to be taken. In case of CPI above 3% he might warn of a rate hike.

Even if the CPI doesn’t pass 3%, Mervyn King will make a public appearance later in the day at Exeter. He might shake GBP/USD. For more, read the British Pound forecast.

In Europe, there’s an important release as well: the German ZEW Economic Sentiment is expected to drop once again, this time to 49.9 points. Also the all-European number is predicted to drop. This important indicator hurt the Euro last month. For more on the Euro, read Casey Stubbs’ weekly update and my EUR/USD forecast.

Moving across the Atlantic, Canada’s Leading Index is expected to shine rise by 1.1%, following the positive trend in recent months. That will be a warm up for the big event.

The Bank of Canada is expected to leave the interest rate unchanged at 0.25%. The big question is about the future: Will Mark Carney hint about an upcoming rate hike? The wording of the BOC Rate Statement is important. Note that if the schedule is earlier than the end of second quarter, the loonie will gain.

For more on USD/CAD, read the Canadian dollar forecast.

In the US, TIC Long-Term Purchases are expected to rise, helping the dollar. This figure, which represents cash flow of foreigners into the US, is expected to rise by almost 50% to 30.3 billion, showing confidence in the US economy. This release will affect all the currencies.

Near the end of the day, we have a CPI release from New Zealand. After a quarterly rise of 1.3%, prices are expected to be flat this time.

In Japan, the Tertiary Industry Activity is predicted to drop by 0.1% after rising last month. This might weaken the Yen – something the government wants.

In Australia, Westpac Consumer Sentiment will give a general glimpse at the economy. This week’s main Aussie mover comes from Chinese figures rather than Australian ones.

For more on the Australian dollar, read the AUD/USD forecast.

That’s it for today. Happy forex trading!

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