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US Sequester Right Ahead
The BoJ finally nominated its new Governor. As widely expected, Haruhiko Kuroda will take the BoJís leadership, with Kikuo Iwata and Hiroshi Nakaso as Deputy Governors. The Japanese equities rallied while Yen showed little reaction.
In Italy, a coalition is to be formed on the back of the increasing pressures. EUR continues its consolidation ahead of the sequester deadline approaching dangerously fast in US. So far, no agreement has been reached to avoid the budget cuts, worth more than a trillion dollars over ten years.
Kuroda at BoJís Leadership
The Japanese PM Abe formally nominated Haruhiko Kuroda as BoJís Governor, with Kikuo Iwata and Hiroshi Nakaso as Deputy Governors. The currency markets gave little reaction to news. USDJPY traded at 92.67 (day-high), yet failed to extend its weakness further. JPY remained bid in Asia on the back of the investors and importers demand for the month-end. We keep our bearish view on Yen, as we expect Abe to do whatever it takes to fight deflation.
Technically, USDJPY is currently trading on the mid-Bollinger band, and the RSI is 52%. We believe that USDJPY has more room to the upside, and place our next target at 21-day MA at 93.05.
Sequester Right Ahead of US
The US is expected to run into the sequestration taking effect tomorrow, as no agreement has been reached between the President Obama and the Republicans so far. More than a trillion dollar budget cuts over ten years will obviously damage the US economic recovery in the long-run. Obviously the sequester will not impact the economy as soon as tomorrow, yet the risk appetite should get hit immediately. The economic data may show today that the GDP has grown by a tiny 0.5% in the fourth quarter versus 0.1% decrease in Q3.
The US 10-year government bond yields rose to 1.91 yesterday as Bernanke reaffirmed Fedís policy, but the upcoming sequester is now in focus, pulling the government bond yields back down.
Euro Down its 50-day MA
In Italy, Bersani-Berlusconi coalition is to be formed as the pressures increase. German FinMin Schaeuble stated that the Italian votes raised the risk of contagion; faster Italy forms a stable government, faster the uncertainty will vanish. The currency markets seem to come to the end of EUR recovery, which has finally remained limited.
The morning saw a weak Euro sell-off before the Euro-Zone CPI numbers announcement. The January CPI figures came in line with the market expectations, except the core CPI which decreased to 1.3% from the previous 1.5% reading. EURUSD fell to 1.31, breaking the intra-day support at 1.3140 area. EURUSD crossed down its 50-day MA (1.3128), while the trend and momentum indicators favor the downside. We remain bearish in Euro, ahead of the US sequester expected to pull the risk appetite further down.
2013-02-28T13:30:00 CAD Jan Industrial Production Price m/m, exp. 0.3%, last 0.0%
2013-02-28T13:30:00 CAD Jan Raw Materials Price Index m/m, exp. 1.3%, last -2.0%
2013-02-28T13:30:00 USD 4Q GDP q/q (annualized), exp. 0.5%, last -0.1%
2013-02-28T13:30:00 USD 4Q Personal Consumption, exp. 2.3%, last 2.2%
2013-02-28T13:30:00 USD 4Q GDP Price Index, exp. 0.6%, last 0.6%
2013-02-28T13:30:00 USD 4Q Core PCE q/q, exp. 0.9%, last 0.9%
2013-02-28T13:30:00 USD Initial Jobless Claims, exp. 360K, last 362K
2013-02-28T13:30:00 USD Continuing Claims, exp. 3,143K, last 3,148K
2013-02-28T14:45:00 USD Feb Chicago Purchasing Manager, exp. 54.0, last 55.6
EURUSD has rallied to 1.3161 as Draghi / Bernanke reaffirmed policy support which helped Italian yields pared down gains. Despite the healthy recovery rally, with MACD comfortably under zero line we remain bearish. Below resistance we would be looking to reload shorts for a test of critical support at 1.3000 (also daily cloud base). Break of support would be a bearish signal and indicate an extension of weakness to 1.2878. The next support is located at 1.3000 (4th Jan low), 1.2931 (11th Dec low), 1.2878 (7th Nov reaction high). The first level of resistance remains at 1.3250 (65d MA), 1.3460 (14th Feb high), 1.3578 (7th Feb high), 1.3690 / 1.3710 (27th Sept high) then 1.3868 (9th Dec high).
GBPUSD has rallied to 1.5187 and remains bid. Currently indictors are slightly overstretched which could extended the rally, however any buying will likely be short lived. Despite the two day rally we remain bearish as indictors are negative and no demand areas have been challenged (benign range 1.5065 to 1.5226). Unlike the Fed, expectation for the BoE is more QE which should equal further erosion in GBP. The support levels from here are thin below with 1.5065 (25th Feb low), then 1.4950 (8th July 10í low). Watch for next resistance to come into play at 1.5527 (22nd Feb high), 1.5689 (13th Feb high), 1.5850 (8th Feb high), 1.5891 (200d MA & 21st Jan high), 1.6007 (18th Jan high), 1.5921 (200d MA), 1.6180 (10th Jan high), 1.6340 (2nd Jan high) and 1.6454 (29th Aug í11 top).
USDJPY hit a rebound high of 92.67 today, but since that point we have drifted back down to low 92.17 levels. With the new dovish BoJ nominees and lower risk in Europe we suspect that bullishness in JPY (bearish indicators) will continue to dissipate. Resistance at 93.00 will provide the first real challenge to USDJPY bulls. On the downside, support is eyed at 90.00 (18th Jan top), 89.35 (11th Jan high), 88.10 (23rd Jan low), 87.60 (16th Jan low), 86.64 (27th Dec high), 85.54 (5th April high), 84.23 (15th March high) 81.50/69 (15th Nov. high & 28th Nov. low), 81.00 (16th April pivot), 79.06 (9th Nov low), then 78.75 (8th Oct high). Above us, minor resistance remains 93.00 (21d MA), 93.80 (13th Feb high), 94.98 (6th May high) 95.00 (psychological level), 96.00 (11th June), then 97.75 (7th Aug high).
USDCHF has failed to break critical resistance at 0.9336, making this try the 5th squandered attempt is as many days, which does not bode well for the bulls. However, MACD has now settled above the zero line indicating the bullish trend could further resume near-term. We expect a period of consolidation before the next leg higher. Should the pair break above resistance around 0.9336, the path for further extension to 0.9385. The next levels of resistance are located 0.9336 (weekly highs), 0.9385 (18th Jan high), 0.9457 (21st Sept high), 0.9515 (13th Nov high & uptrend top), 0.9610 / 20 (26th Aug high), 0.9810 (10th Aug high & uptrend channel), 0.9900 (2nd Aug high), and 1.0000 (psychological resistance). The first levels of support remains at 0.9200 (21d MA), 0.9085 (20th Dec low) , 0.9041 (1st May low) then 0.8928 (Feb 12í low).