Daily Analysis - Dollar on the up-side!

[B]Economic News [/B]


USD trading was mixed against other majors on Monday. As we explained yesterday in our daily analysis, traders dealing with the USD will need to focus on two things this week; inflation and housing. Last week, the Federal Reserve remained steadfastly hawkish about the American economy meaning: the CPI number, which is expected for release later today, will be particularly important to traders looking for confirmation on why the Fed refuses to put growth ahead of inflation. Producer prices (PPI) surprised to the downside on Friday, but the impact of record gasoline prices should be most strongly felt in consumer and not producer prices.

With the absence of key data, many currency pairs traded in tight technical ranges. Crude oil rose slightly by $0.09 a barrel to US$62.46 as we head into driving season in the US, a season that is met with 20-35% more gas consumption in America.

Looking ahead, key data is set for release out of the states today with CPI sure to generate plenty of interest where the previous figure was 0.6% and the forecasted figure is 0.5%. With recent comments made by Fed officials that the immediate outlook on inflationary pressures are unlikely to moderate, investors will be in eager anticipation to see if data may support such statements. Economists are confident that the Core CPI figure m/m will be released at 0.2% for the month of April (Previous: 0.1%).

In other news, NY Fed Manufacturing survey will also be made public with expectations of the index to be released at 9.0 (Previous: 3.8). The last figure today in the US will be the TIC flows (Mar) which always poses as an important data release with economists awaiting a figure of $75bln stronger than the previous $58.1bln. This data, if inline with expectations, could cause the dollar to continue it recent up-move.

[B]EUR [/B]

Even though the EUR has extended its Friday gains thanks to slightly stronger than expected industrial production numbers, the rally was modest at best. As such, the EUR remains mired around 1.3545 against the USD as traders await key growth reports from Germany and Euro-zone.

The market is trading in a tight range due to the expectations of high volatility at or before the economic releases expected in the USA and that calls for cautiousness ahead of, at least, the U.S. CPI data.

In spite of the range trading which was observed yesterday , today’s batch of US and Euro-zone economic data should take the EUR/USD out of its range, when European data should lead to some early activity, but the marquee events today are in the US, so any surprises there could negate the strength or weakness in the Euro-zone

[B]JPY [/B]

Asian currencies breathed a sigh of relief yesterday following a rally in offshore equity markets over the weekend. This result doused the widely held fear of a return to risk aversion. USD/JPY weakened towards 120.30 during the local session despite the release of an all time record Japanese current account surplus. The JPY eased on Monday against the USD. The domestic sub-index fell 0.1%, yearly, an improvement from -0.4% in the prior month. Focus remains on the Japanese markets with a heavy slate of data including a BoJ rate announcement. Looking ahead, data in the shape of Machine Orders may generate movement on the USDJPY where the previous figure released at -5.2% and the forecast is 1.3%. (RELEASED: Actual: -4.5 %).

Speculators are continuing to hold onto their yen funded stock trades. The relationship between the Dow and carry trades is so strong that traders have completely ignored the stronger Japanese data released overnight. The current account surplus hit a record high while the CGPI inflation index jumped from 2.0% to 2.2% year on year. This suggests that we could see a stronger GDP number and hawkish comments from BoJ Governor Fukui after the monetary policy meeting scheduled later this week and this has strong implications for the short and long term view of the JPY.

[B]Technical News [/B]


On the 4 H chart RSI and Slow Stochastic are in neutral territory however an inverse head and shoulders pattern is forming and it seems that an upcoming breakout won’t surprises anyone. If this breakout will take place we are expecting this pair to consolidate at 1.3587. Preferable strategy would be going long if the resistance level 1.3557 is breached.


On the 2 H chart we can observe a falling wedge which has yet to be established, however if it does, we can expect an upcoming breakout of the resistance level which is located at 1.9836 (Fibonacci). In this case going long will be the preferable move.


The pair is at the upper end of its range and look for USD in this pair to dictate the near term. Although eh MACD may be suggesting a reversal, it may be early to sell the pair just yet. Look for range trading to continue and as such, the long term upper bound of 120.50 may play as the strongest resistance.


Although hourly indicators are fairly neutral, short term hourly trend seem be showing price action prevalent in the days leading to a downtrend. This may surprise many traders as USD weakness has caused most pairs to run in correlation of one another. We look for a break of 1.2170 as an initial indicator of such a down-move and a further break below 1.2158 may confirm this.

[B]The Wild Card


It looks like after nearly one month of losses, the last 3 days have spelt good news for the NZD. Forex traders should be keen to look for Buy opportunities in this pair, as it seems to have broken correlation with other pairs.