The dollar gained broadly yesterday and today as ISM manufacturing data rose to 35.6 in January from 32.9 � beating expectations for a continued decline to 32.5. Many economists believe the decline in the world economy is no longer in it�s most rapid stage. The Japanese government announced this morning it would set about buying financial stocks through April 2010 in a bid to boost the capital of financial institutions. The RBA announced its own addition to its stimulus package � with a plan to spend A$41.5Bn ($26.5Bn) in cash grants to low/middle income families and infrastructure, A$12.7Bn and A$28.8Bn respectively.
News and Events:
The dollar gained broadly yesterday and today as ISM manufacturing data rose to 35.6 in January from 32.9 � beating expectations for a continued decline to 32.5. Many economists believe the decline in the world economy is no longer in it�s most rapid stage. The EURUSD has been trading a 1.2800 � 1.2915 range since 17:00 GMT yesterday � While the EUR fought back in previous sessions the dollar continues to shine through, current retracement move initiated Jan 28th which brought us from 1.3329 to 1.2703.
The Japanese government announced this morning it would set about buying financial stocks through April 2010 in a bid to boost the capital of financial institutions. The 1Trillion Yen ($11.1 Bn) stimulus package comes after President Obama stated his concern over the intervention-like action by China as of late in a bid to weaken it�s currency � the likelihood the U.S would accept such antics from Japan are low. The Yen took a dive on this announcement, but continues to trade a broad 88.05 � 91.34 range (looking at a monthly), any break out of this range could pave the way for a strong trend.
The RBA announced its own addition to its stimulus package � with a plan to spend A$41.5Bn ($26.5Bn) in cash grants to low/middle income families and infrastructure, A$12.7Bn and A$28.8Bn respectively. However the news that everyone was waiting for sent the Aussie sky high, jumping 70pips on the 100bps rate cut. The benchmark now stands at 3.25%. While this is the lowest level interest rates have been in 45 years � both the AUD and the NZD remain high yielding assets compared to the 0.1% Yen, 0.25% dollar � carry trades are imminent on AUDJPY and NZDJPY.
Continued weakness in the Euro zone and the unwillingness by the ECB to use un-orthodox methods to tackle the global current economic downturn and a lack of a concerted effort set sentiment largely bearish in the near to medium term.
Today’s Key Issues (time in GMT):
07:15 CHF Trade Balance (DEC)
09:30 GBP Purchasing Manager Index 29 vs 29.3
10:00 EUR Euro Zone Producer Price Index (YoY) 2.1% vs 3.3%
10:00 EUR Euro Zone Producer Price Index (MoM) -1.2% vs -1.9%
15:00 USD Pending Home Sales 0.0% vs -4.0%
22:00 USD ABC Consumer confidence
The Risk Today:
EurUsd: The broad move that started on the 28th � taking us from 1.3328 to 1.2707 sets an initial resistance at 1.2853 (23.60% retracement), then 1.2944 on the 38.2% line. However focus is on the downside, 1.2812 as the initial support then a strong support at 1.2787 (61.80% level on the 1.2707 � 1.2917 retracement move which coincides with the January 23rd low. 1.2562 then 1.2389 levels a midterm target as December (2 year) lows.
GbpUsd: The cable has seen its price action contract and trade a narrower range since the beginning of February. Strong resistance stands at 1.4500 (Feb 1st high). Nearer to current prices we see 1.4350 and 1.4290 as key levels to watch for as they take into account the 1.4506 � 1.4058 move and recent highs. Below 1.4163 stands as an initial support, which gives way to 1.4070 � 14050 levels, further Sterling weakness could pave the way for sub 1.40 levels � Cable continues to be under pressure.
UsdJpy: The Yen weakened late last session as the Japanese government sets guidelines to buy 1 Trillion Yen worth of financial stocks. While the Yen has been bucking the trend as of late sneaky attempts at intervention are creeping in � for the meantime the Yen�s advance seems to be slowing, Strong support stands at 87.13 � levels never seen since mid 1995 however closer to market price we are looking at 88.33 and 88.80. We see a dagger entry opportunity forming as price action converges � this usually signals a breakout on the upside � recent intervention could be the instigator. We see 90.00, 90.89 and 91.20 as initial resistances, however a strong breakout would test 94.65 (Jan 6 high).
UsdChf: The swissy has risen steadily recently, the strong bullish trend that took us from 1.0892 to 1.1720 during the month of February sees multiple support levels. 1.1099 is a very strong level we tested 4 times last month before the pair moved higher, the next key level stands at 1.1315. In the nearer term 1.1581 looks to hold if we move higher. On the upside the pair is capped at 1.172 (Jan 23 high), closer we see 1.1681 as a strong resistance 0.9646 � 1.2309 move from May 2008 to November 2008.
Resistance and Support:
By Philippe Meyer - ACM Advanced Currency Markets, Geneva, Switzerland