Forex research

[Alpari_UK]

[B]Pull back imminent as Italian elections and the sequester loom[/B]

Today’s UK opening call provides an update on:

• Stock market pull back could start this week;
• Berlusconi’s PDL party continues to close the gap;
• Political infighting continues as sequester looms;
• Eurogroup meeting today should attract attention.

We could see the start of a long overdue pull back in the stock markets this week, as a light economic calendar and the winding down of corporate earnings season puts the focus back on the political uncertainty in Italy and the upcoming spending cuts in the US.

The rising popularity of Silvio Berlusconi’s PDL party in Italy is by far the most concerning of these, given the pace at which they have gathered support over the past few weeks. The fact that with two weeks to go, the gap between the Democratic Party and the PDL is already within the margin of error means we could be facing the very real possibility that the PDL could return to power, just over 12 months after leaving it on the verge of needing a bailout, with the eurozone facing collapse.

The mandatory spending cuts that come into play at the end of the month is also going to do little to ease the uncertainty. Political infighting has so far made a deal to avoid the sequester impossible, despite both parties agreeing that they desperately want to avoid the spending cuts. This has come alongside unconvincing bluffing from both parties that they’d allow the cuts to occur if they don’t get what they want, which means what we’ll actually see is the can kicked down the road once more.

With both of these on the horizon, we could be looking at as much as a 10% pull back over the next month or so, as traders instead look to protect their cash and wait for the next good buying opportunity. The interesting thing will be how much traders now view Spanish and Italian debt, given the rising political uncertainty, despite the OMT backstop.

Today’s eurogroup meeting may attract some attention, with the inevitable bailout of Cyprus likely to be on the agenda. Ordinarily, this would not be such a big deal, but given Greece’s exposure to Cyprus, the threat of default is being taken very seriously. Also likely to be raised once again is France’s concern over the current exchange rate, although this is likely to fall on deaf ears, with northern European countries not seeing it as a threat at this stage.

Looking ahead to the rest of the week, tomorrow’s inflation data is going to be followed closely following the BoE’s decision to leave the QE program as it is despite the risk of the first ever triple dip recession in the UK. This suggests that the economy is not doing as badly as first thought or this figure tomorrow is headed in the wrong direction.

The other main event will be Wednesday when we’ll get the GDP figures for the eurozone countries, which are not expected to paint a pretty picture. On a brighter note, the economic data so far has pointed to a much brighter start to this year, so barring any significant misses, the reaction to these should be minor.

The euro is trading higher against the dollar this morning. The pair found support last week around 1.3350, the 50% retracement of the move from this year’s lows to highs. We could see further downside in the pair this week though, given that the last two weekly candles have formed a bearish engulfing pattern and the RSI has given a sell signal, crossing in overbought territory. The next key level of support would be 1.3269, where the ascending trend line dating back to July’s lows crosses the 61.8 fib level, of the same move.

Sterling is trading higher against the dollar this morning. The pair has recovered strongly despite dropping below 1.57 last week, which could have led to a much sharper fall. The pair is now close to forming a double bottom, dating back to 18 January. If the neckline is broken, based on the size of the formation, it could prompt a move back above 1.60. However, the neckline falls on what is likely to be a key level of resistance, around 1.5823, which was previously a key support level and is the 50% retracement of the move from June lows to this year’s highs. This would make the break even more significant.

The dollar is trading lower against the yen this morning. The pair has been long overdue a pull back, which is what we appear to be seeing now. On the daily chart, we had two perfect doji candlesticks, followed by a lower close on Friday, while last weeks candle is a spinning top, following six weeks of strong gains. On top of this, the oscillators have given strong sell signals. Given that I remain bullish in the longer term, I expect the next key level of support will come around 91.05, where the ascending trend line, dating back to 10 December crosses the 50% retracement of the move from 23 January lows to this months highs.

The euro is trading higher against the pound this morning. The pair made substantial losses towards the end of last week to end a run of four consecutive weekly gains. It also created a bearish engulfing pattern on the weekly chart which suggests we may see a pull back in the coming weeks. The next level of support is likely to come around 0.8419, the 50% retracement of the move from July 2011 highs to July 2012 lows. This is also a previous level of support and resistance which suggests it won’t easily be broken.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

[B]French problems mount as industrial output falls in December[/B]

Today’s US opening call provides an update on:

[ul]
[li]French industrial output falls by only 0.1% in December;
[/li][li]Fourth quarter GDP figure released Friday expected to still show contraction;
[/li][li]Italian elections likely to weigh on sentiment over the next few weeks;
[/li][/ul]

Sequester also likely to add to uncertainty, potentially prompting pull back in overbought stock indices.
European stock indices are trading higher this morning, boosted by a better industrial output figure from France.

The French economy has become a cause for concern recently, with data suggesting the economy is struggling to adapt to the higher euro and increased competition from its neighbours. PMI figures released this month for example showed manufacturing and services both contracting at a faster rate than both Spain and Italy.

Industrial output fell less than expected in December, which has provided a boost to European indices, in particular the CAC 40, and the euro this morning. This is no way suggests the outlook is any better for France this year, it’s more a reflection of lower trading volumes and a lack of market drivers with the economic calendar very light this week and corporate earnings season drawing to a close.

It’s also unlikely to be enough to stop France contracting in the fourth quarter of last year, when the eurozone figures are released on Thursday. The interesting thing could even be whether the previous quarters reading is revised lower, which could potentially leave France in recession.

All in all, this week is likely to be a difficult one for Europe especially. The Italian elections are quickly coming to the attention of investors following the extraordinary rise of the PDL party in the polls. The political uncertainty that this brings, given the PDL’s part in bringing the country to its knees and some of the promises made in relation to taxes recently, is unlikely to boost risk appetite this week.

Stock markets are already extremely overbought so this could be the catalyst for the pull back over the next month or so, with stock indices falling as much as 10%. On top of the election, the sequester is due to come into play on 1 March, unless Congress can come up with an alternative. History would suggest this is unlikely to happen quickly, with the sequester probably being moved back a few months.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

0:09 French industrial output figure and its impact on Thursday’s GDP figure;
0:49 What is moving the markets this week;
1:31 Italian elections and the US sequester;
3:33 Today’s eurogroup meeting.

Forex research: Global markets daily

[Alpari_UK]

[B]Draghi prepares to face Spanish lawmakers[/B]

Today’s UK opening call provides an update on:

[ul]
[li]Italian elections and US budget negotiations likely to drag on sentiment in the coming weeks;
[/li][li]UK inflation likely to remain at 2.7%;
[/li][li]Mario Draghi likely to address the strong euro in a speech in Spanish Parliament today.
[/li][/ul]
Wall Street saw its lowest trading volumes of the year so far yesterday, as a lack of news and economic data forced traders to take profits on their positions ahead of what is likely to be a difficult few weeks.

The Italian election and the sequester in the US are likely to create large amounts of uncertainty in the markets over the next few weeks. Stock markets have become extremely overbought recently, so this provides the perfect opportunity for a correction, with traders already starting to take profits on their positions.

The release of the UK inflation figure this morning is likely to attract a lot of attention, following the Bank of England’s decision not to provide additional stimulus. The figure is expected to remain at the higher end of the BoE’s target range, making some policy members uncomfortable given the questionable impact that asset purchases have on the real economy.

The MPC opted to leave monetary policy unchanged last week, despite the threat of the first ever triple dip recession in the first quarter and against the advice of the OECD, who suggested that during times of fiscal tightening, the central bank should go “the extra mile” to boost the economy.

ECB President Mario Draghi will speak at the Spanish Parliament today where he will attempt to explain the ECB’s strategy. Traders are going to be most interested to hear Draghi’s comments in relation to interest rates, which at 0.75% remain higher than most other major central banks, such as the BoE, Federal Reserve and the Bank of Japan.

There has been a lot of speculation recently that the ECB may cut interest rates in order to help stimulate the economy and ease the pressure on the southern states that are suffering as a result of the higher euro. A current inflation level of 2% opens the door to such a decision, however so far the ECB have resisted the idea.

Draghi may use today as an opportunity to sell the ECB’s OMT program to Spanish lawmakers. Spain has so far resisted asking for aid due to the strict conditions that are likely to be linked to it. Fortunately for Spain, the announcement of the OMT’s brought yields on its debt back down to sustainable levels which took the pressure completely off them to make a rash decision, however you get the feeling this was not exactly Draghi’s intention and he may use today to pursued lawmakers that requesting aid is in their best interests.

The euro is trading lower against the dollar this morning. The pair found support over the past couple of days around 1.3350, the 50% retracement of the move from January’s lows to highs. We could see more pressure on this support level this morning, with a break below here prompting a move towards 1.3270, the 61.% retracement of the same move and also a previous level of support and resistance. It should also get further support around this level from the ascending trend line dating back to July’s lows.

Sterling is trading back below 1.57 against the dollar this morning after making substantial losses yesterday. The pair should now find support around 1.5625, from the ascending trend line dating back to January 2009. There has been a lot of pressure on this support level recently, which suggests we may see a breakout attempt soon. So far any attempt has failed however an inability to follow this will a move back to 1.60 suggests the market isn’t very bullish. If broken, the next target for the pair should be 1.5350, based on the size of the double top formation.

The dollar is trading lower against the yen this morning. The pair continued to trade higher yesterday, edging closer to the next target level of 94.75. It is still extremely overbought on the weekly chart and is long overdue a pull back. This looked like occurring this week, following a very bearish candle last week, however we may now have to wait until it hits 94.75, which is likely to be a big resistance level for the pair.

The euro is trading lower against the pound this morning. The pair found resistance yesterday around 0.8575, the 61.8% retracement of the move from July 2011 highs to July 2012 lows. A break back above here today would be quite bullish for the pair, with the next target being 0.9082. However, if the pair now pulls back to trade below 0.8525 and closes below the 200 weeks simple moving average, it would be quite a bearish signal as it would act as confirmation of last weeks break below.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

[B]Trading volume drops ahead of State of the Union address[/B]

Today’s US opening call provides an update on:

[ul]
[li]Trading volume to remain low today ahead of State of the Union address;
[/li][li]Obama likely to use the address to increase pressure on Congress to come to a deal that does not damage the economy;
[/li][li]Draghi to address Spanish lawmakers on ECB policy;
[/li][li]UK inflation remains at 2.7%.
[/li][/ul]
Trading volumes are expected to be low again today, with focus on Mario Draghi’s speech before Spanish lawmakers and Barack Obama’s State of the Union address.

Obama’s speech is likely to attract the most attention, so close to the sequester at the end of the month. The President is expected to use the address to push Congress to come to a deal which suits both parties, which given his lack of flexibility on spending cuts to this point is becoming laughable.

Obama’s comments on the economy are also likely to be watched closely, with particular focus on what the White House plans to do about the high unemployment rate. However, as we’re used to seeing with these things, the President is unlikely to go into specifics about how he intends to boost the economy and jobs and instead use it as an opportunity to put pressure on the Republicans to cave on their demands for spending cuts.

Before this, Mario Draghi will appear before Spanish lawmakers in a bid to explain the ECB’s policy. Draghi may also use this opportunity to sell the ECB’s OMT program to lawmakers, with Spain still the most likely country to take advantage of the program this year.

The central bank’s interest rate policy is going to attract the most interest, given that it remains higher than a lot of the other major central banks including the Fed, BoE and the BoJ. I expect we’ll see a rate cut in the next few months, especially if we continue to see the euro appreciate as it will soon reach a level when it will be damaging to the stronger northern states.

This speech, followed by questions after will hopefully provide clues as to when we’re likely to see it or what specific events must occur in order to trigger the cut. Draghi rarely gives anything away but when he does, his message tends to be loud and clear.

Inflation in the UK remained at 2.7% last month as expected, leaving some room for the Bank of England to manoeuvre next month if they decide to increase the asset purchase program. Despite remaining within the BoE’s target range, further asset purchases are unlikely given the MPC’s doubts over its effect on the real economy.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

0:46 Mario Draghi’s speech to Spanish lawmakers;
2:24 Barack Obama’s State of the Union address;
3:35 CHART – GBP/USD analysis

Forex research: Global markets daily

[Alpari_UK]

Today’s UK opening call provides an update on:

• Obama uses the State of the Union address to push for higher taxes on the wealthy;
• Japanese stocks drop following G7 statement on currency devaluation;
• BoE to release its inflation report;
• US retail sales expected to be hit in January by new payroll tax.

President Obama’s State of the Union address offered nothing in the way of surprises last night.

As we’ve seen from many of his speeches recently, he used the opportunity to heap pressure on the Republicans and paint them as the unreasonable, inflexible party that are a threat to growth in the US. In reality, this is far from the truth at this stage.

Congress avoided the fiscal cliff at the end of the year when an agreement was made that included tax hikes on the wealthy and no spending cuts whatsoever. Now Obama is pushing for further taxes on the wealthy, some cuts to entitlements and more spending. This is going to make him very popular when addressing large crowds but it has no chance of getting through Congress given the concessions made by the Republicans six weeks ago.

One of the more surprising calls from Obama was to raise the minimum wage from $7.25 to $9. I fail to see what this is going to do to tackle two of the more pressing issues in the US right now, the economy and unemployment. If anything, raising the minimum wage is going to damage the latter as it doesn’t exactly encourage companies to hire and could encourage some that are just about making ends meet to lay off workers. It may go some way to growing the middle class which is something Obama focused heavily on, but you can’t grow the middle class if people aren’t working.

The markets took little from Obama’s speech, everything we heard here was largely expected, especially in relation to the economy. The simple fact of the matter is, while Congress remains stuck in a constant battle over how to reduce the deficit, the economy is going to achieve moderate growth at best.

Japanese stock pared recent gains overnight after a G7 statement was misinterpreted yesterday. The statement suggested there was no concerns over a currency war, or of countries manipulating their exchange rates for personal gain, which was seen as the green light for Japan to continue down the same path.

However, this was quickly denied and Japan was actually singled out for its recent efforts, which pushed the yen higher yesterday afternoon, with the Nikkei then dropping in the Asian session. The comments suggest that Japan won’t be able t get away with its devaluation for much longer, which means there may not be much downside left in the yen, which is close to hitting 100 against the dollar.

Bank of England Governor will provide inflation projections for the next two years this morning, before carrying out one of his final press conferences before his term ends in a few months. The report is expected to predict that inflation will rise in the medium term before falling back to 2% in two years, leaving little room for new Governor Mark Carney to manoeuvre.

King’s press conference after is going to attract the most attention, given the lack of action taken in recent months by the BoE, despite the fact that the UK now faces its first ever triple dip recession. While inflation is far from the central banks goal of 2%, it does remain within the target range so he’s likely to be questioned about the central banks’ stance on providing additional stimulus in the coming months, with some potentially even citing recent claims from the OECD that the BoE should “go the extra mile” to stimulate the economy at a time of fiscal tightening.

The economic calendar is once again pretty light today, although one release that’s going to attract some attention is January’s retail sales for the US. Consumer surveys have so far suggested that spending has been heavily cut back this month, with a combination of the new payroll tax and the post Christmas squeeze hitting disposable income.

Given how much the US relies on consumer spending, it will be interesting over the next couple of months to see if the introduction of the payroll tax is a temporary drag on spending or a more permanent issue.

The euro is trading lower against the dollar this morning. The pair is looking quite bullish though in the shorter term, since finding support earlier in the week around 1.3353, the 50% retracement of the move from this year’s lows to highs. The stochastic on the daily chart has just crossed in oversold territory which is quite a bullish signal and could prompt a move back towards this year’s highs around 1.3710. It’s currently finding resistance though around 1.3437, the 38.2% retracement of the same move which could suggest that the bullish run was temporary and there’s further downside to come. In the longer term I think the pair is going to hit 1.42 based on the size of the inverse head and shoulders that formed over the last year, however before then I think we’re likely to see some consolidation between 1.32 and 1.35.

Sterling is trading higher against the dollar this morning. The pair broke below the ascending trend line dating back to January 2009, which has been a key level of support to this point. The daily candle closed back above here, however this could be a sign that the market has turned more bearish and we could see more breakout attempts in the coming weeks. A break below here should prompt a significant move lower, with the next target being 1.5350, based on the size of the double top formed since August last year.

The dollar is trading lower against the yen this morning. The pair has found support so far around 93.0, however I expected to see it break below here, with the target being 92.0, where the ascending trend line dating back to 10 December crosses the 38.2 fib level, of the move from 23 January lows to this month’s highs. In the longer term, the pair still looks bullish, with the next big resistance level being 94.75.

The euro is trading flat against the pound this morning. The pair broke back above 0.8575 yesterday, the 61.8% retracement of the move from July 2011 highs to July 2012 lows, and has since found support here this morning, which suggests the outlook is quite bullish. It is also trading back above the 200 week moving average, which would suggest the next target is 0.9082.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

[B]King offers hawkish tone, US retail sales up next[/B]

Today’s US opening call provides an update on:

[ul]
[li]BoE inflation report forecasts inflation to fall close to 2% in two years;
[/li][li]King comments spark sterling sell off;
[/li][li]Gilt yields rise as investors unconvinced that BoE will increase asset purchases;
[/li][li]Retail sales provide first evidence of consumer spending since introduction of payroll tax.
[/li][/ul]
The Bank of England inflation report released this morning left investors none the wiser about BoE monetary policy this morning.

The release of the UK inflation report this morning confirmed that UK inflation will remain high in the medium term before returning to 2% in two years. Given that this was widely known, very little has been taken away from the report and Sir Mervyn Kings press conference, which came shortly after the release.

That being said, sterling fell sharply during the press conference following King’s suggestion that despite the central banks already very accommodative policy, which as a comparison to GDP has been greater than the US, they still remain willing to do more should it be deemed necessary.

However, this has been stated many times previously by the MPC raises the question, why have we seen such a significant reaction? If anything, King came across more hawkish, claiming that there were limits to what monetary policy can do, calling for more supply side reform and stating that the MPC must also pay close attention to inflation which is two years away from falling back to 2%.

All in all, I expect to see any losses to the dollar reversed as the day goes on, just as we’ve seen in UK Gilt yields which fell shortly after the release of the statement but have since rallied to trade 8 bps higher on the day.

The US retail sales figure is one to watch this afternoon, with it being the first piece of real data that shows how consumers have coped with the new payroll tax. The consumer surveys last month suggest that people felt the pinch, which the retail sales figure should now confirm.

The big question that will follow is whether the tax will continue to impact consumer spending this year, or will people quickly adjust. Consumer spending makes up around 70% of US GDP so the greater the impact of the new tax, the more it will effect growth this year.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

0:09 BoE inflation report and Sir Mervyn King’s press conference;
1:58 CHART – GBP/USD analysis;
3:07 US retail sales data out this afternoon.

Forex research: Global markets daily

[Alpari_UK]

[B]Eurozone GDP, ECB monthly report and G20 meeting today[/B]

Today’s UK opening call provides an update on:
• Bank of Japan keeps monetary policy on hold;
• Japanese contraction leaves country in recession for third quarter;
• ECB monthly report likely to highlight downside risks facing euro area;
• G20 meeting gets underway with currency manipulation top of the agenda;
• Eurozone recession expected to deepen in Q4;
• Two voting Federal Reserve members to speak today.

The Bank of Japan left monetary policy unchanged at their monthly meeting over night, despite expectations of 0% inflation this year and a new 2% inflation target. The decision was hardly surprising though, given that BoJ Governor Masaaki Shirakawa is due to step down next month after deciding to leave his post a few weeks early.

We can probably expect the same again at next months meeting, which will be Shiarakawa’s last as Governor before Shinzo Abe replaces him with someone that is likely to be much more dovish.

The decision to keep policy on hold came despite the fact that Japan remained in recession for a third quarter. The country was expected to climb out of recession in the fourth quarter with growth of 0.1%, however a contraction figure of 0.1% highlighted the need for further stimulus, which is now unlikely to come for a couple more months.

The ECB monthly report will be released this morning and is likely to highlight the downside risks facing the euro area this year, and potentially suggest a longer recovery than anticipated only a month ago. There could also be a reference to the impact of a stronger euro on growth in some members of the currency union, which is likely to reduce growth forecasts in the months ahead.

The main event today though is likely to be the start of the G20 meeting, with currency wars firmly on the agenda. The comment from the G7 a few days ago hardly cleared things up, especially considering it was following by comments from officials pointing the finger at Japan and suggesting the statement had been misinterpreted.

I’m sure we’ll get a much clearer message today, with finance ministers providing a much clearer statement in support of Japanese policy while in the background making it very clear to Japan officials to avoid talk of weakening the yen in the future. The simple fact of the matter is that the BoJ is not doing anything different than many other central banks, the mistake the government made was explicitly stating that they wanted to weaken the currency.

Eurozone GDP figures will be released this morning and are unlikely to provide much in the way of positives, however as long as they don’t point to worse conditions in the euro area than is expected, the knock on effect should be minimal. At this stage, we’ve become accustomed to seeing negative growth in the euro area as it goes through a transitional period, and recent improvements in business and consumer surveys are likely to overshadow the contraction figures we’re expecting.

On the flip side of that, if these GDP figures miss expectations and suggest the eurozone has fallen even deeper into recession than originally thought, we could see a very negative reaction in the markets. Especially when you take into consideration the effect a stronger euro could have on growth this year, as raised by France and the ECB in particular.

One area of concern could come from the French figures. There is growing concern that France has fallen behind in implementing reforms and reducing the deficit and this may now be having an impact on the country’s competitiveness. Recent surveys have shown manufacturing and services contracting at a faster rate than both Italy and Spain, and if the economy contracted as expected in Q4, it could now face recession, potentially quicker than expected if the previous figure is revised lower.

There’s not much in the way of economic data out of the US later on today. Jobless claims will be watched closely as always, and are expected to drop slightly to 360,000 today. Attracting more attention will be speeches from two voting members of the Federal Reserve, Daniel Tarullo and James Bullard.

Both speeches and Q&A section after will be watched closely for clues on when the Fed will begin to wind down the open-ended asset purchase program which currently stands at $85 billion per month. Recent comments have suggested it could be as early as the end of this year and further comments to support this would prompt a negative response in the markets.

The euro is trading lower against the dollar this morning. The pair found strong resistance yesterday around 1.3520 from the 200 week simple moving average. A failure to break back above here would be quiet a bearish signal for the pair, at least in the short term. Since bouncing off this level, the pair has pulled back to find resistance around 1.3437, the 38.2% retracement of the move from this year’s lows to highs. The next target for the pair looks to be around 1.3269, where the ascending trend line, dating back to July, crosses the 61.8 fib level. That being said, the next levels of support are likely to come around 1.3377 and 1.3353.

Sterling is trading lower against the dollar this morning. The pair broke below a key level of support yesterday, the ascending trend line dating back to January 2009, which could now prompt a move back towards 1.5350. That is based on the size of the double top that formed between August 2012 and January this year. Given the significance of this break, I expect to see a pull back though, with the pair testing the trend line as a new level of resistance. The next support level for the pair is likely to come around 1.5480, followed by 1.5420.

The dollar is trading higher against the yen this morning. The pair appears to have entered a period of consolidation recently as it awaits the catalyst for the next move higher. The longer term outlook for the pair remains quite bullish with the next target being 94.75, followed by 100. In the shorter term, I expect to see further consolidation, which is generally a bullish signal following such a strong dollar rally.

The euro is trading lower against the pound this morning. The pair broke back above 0.8575 yesterday, the 61.8% retracement of the move from July 2011 highs to July 2012 lows, which is quite a bullish signal. The next target for the pair should now be 0.9082 in the coming months, although in the shorter term it will be 0.875, followed by 0.88. The pair is currently finding support around 0.8640, which is a previous level of support and resistance, and could now prompt the next move higher.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

[B]US jobless claims up next after grim start in Europe[/B]

Today’s US opening call provides an update on:

[ul]
[li]Eurozone economies contract faster than expected in Q4;
[/li][li]Japan fails to climb out of recession at the first time of asking;
[/li][li]BoJ keeps monetary policy on hold ahead of the G20 meeting;
[/li][/ul]
Later in the US we have jobless claims data and speeches from two voting Fed members.
It’s been a morning of disappointing GDP figures so far, with Japan, the eurozone, Germany and France all contracting at a faster rate than expected.

GDP figures out of the eurozone this morning were far from encouraging. Just as things were starting to look up in the region, data showed this morning that both Germany and France contracted at a faster rate than expected. The eurozone as a whole also fell deeper into recession, however this wasn’t s surprise given that the release came after the German and French figures.

At this stage, I don’t think people will get too carried away with the German figure. The data out so far this year for January has been much better and the chance of it falling into recession looks slim at this stage.

France on the other hand is a different story. The manufacturing and services sectors contracted at a faster rate than in both Spain and Italy in January, which has stoked fears that the country is losing the battle to regain competitiveness and therefore faces a very difficult year. With the gap between the eurozone’s growing every month, the rest of the year may not be looking as bright for the region as originally hoped.

The reaction to the GDP figures was understandably negative, although looking at how overbought European stocks and the euro have become, people may just be using this as an excuse to get out and wait for the next opportunity to buy at a low again. Traders still appear to be cautiously optimistic at this stage, but this can quickly change as we’ve seen in the past.

Japan failed to climb out of a shallow recession at the first time of asking in the fourth quarter, despite expectations of 0.1% growth. The contraction figure was not enough to convince the Bank of Japan to ease monetary policy any further, which hardly came as a surprise given how much the country has been in the spotlight recently open-ended asset purchase program.

In fact, Japan is likely to be at the centre of discussions at the G20 meeting today, after questions were raised over the motives behind its ultra loose monetary policy. A statement released by the G7 earlier in the week suggested there are no concerns at this stage over Japan, however the comments that followed from one official in particular shows not everyone is so accepting of Japan’s actions.

Looking ahead to the rest of the day and the US in going to be in focus, starting with the weekly jobless claims which are expected to fall slightly to 360,000. Following this we’ll hear from two voting members of the Federal Reserve, Daniel Tarullo and James Bullard. With the Fed’s $85 billion of asset purchases expected to be wound up starting later this year, both of these could provide clues over when this will start.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

0:08 Reaction to the eurozone fourth quarter GDP figures
2:16 Japanese GDP figure and the BoJ meeting
3:25 G20 meeting today

Forex research: Global markets daily

[Alpari_UK]

[B]Nikkei tumbles over night ahead of G20 meeting[/B]

Today’s UK opening call provides an update on:

• Currency wars on the agenda at today’s G20 meeting;
• Nikkei pulls back as Toshiro Muto emerges as favourite for BoJ Governor post;
• UK retail sales expected to improve significantly in January;
• US consumer sentiment watched closely this afternoon for signs of more permanent impact from payroll tax.

The two day G20 meeting gets underway today, with Japan’s recent monetary policy decisions under the spotlight.

Currency manipulation will once again be discussed in depth at the G20 meeting today, as Japan continues to come under scrutiny over its open-ended bond buying program. At this stage I don’t expect the G20 statement to single out Japan and condemn it for its recent actions, instead it’s likely to be similar to the G7 statement in highlighting the countries commitment to market-determined exchange rates.

That being said, I’m sure the language used at the meeting won’t be quite so relaxed on the subject. Japan’s monetary policy actually isn’t all that different to the Fed’s in the US, and following a decade of deflation and the recession they find themselves in, strong action is justified. The only mistake they’ve made to this point is openly calling for the yen to be weakened, which they are likely to be warned to avoid in the future.

Japanese shares retreated over night ahead of the G20 meeting, with traders viewing these talks as a sign that the central bank may be forced to be less aggressive. On top of that, Toshiro Muto has emerged as Shinzo Abe’s preferred candidate for the role, which is seen as a less aggressive selection than the markets were anticipating.

While Muto is an advocate of further stimulus, he’s not as aggressive or radical as the markets were expecting, which has pushed the yen higher over night and weighed on the Nikkei 225.

UK retail sales are expected to have risen by 0.4% in January, easing any fears that the UK could fall into its first ever triple dip recession in the first quarter. Even this may be too conservative an estimate, based on the BRC retail sales figure earlier this month that showed a jump of 1.9%, compared to expectations of a small drop.

Over in the US, the Empire State manufacturing index is expected to improve to -2.0 this month, which is a move in the right direction and suggests we could see growth in the industry in the months ahead following six months of negative figures.

The preliminary UoM consumer sentiment figure for February will be the most closely watched economic release this afternoon. The figures has dropped significantly over the past couple of months, due to the uncertainty surrounding the fiscal cliff and then the impact of the new payroll tax on disposable income.

We’re expecting to see a slight improvement in the data today, which would be a positive sign for the US, given that consumer spending accounts for more than 70% GDP in the country. Any drop here is likely to hit investor sentiment today as it wouldn’t only raise the possibility of recession in the US in this quarter, but also growth for the rest of the year as it would suggest the impact of the tax on consumer spending may not be temporary as hoped.

The euro is trading higher against the dollar this morning. The pair found support again yesterday around 1.3353, the 50% retracement of the move from this year’s lows to highs, however I think there could still be some more downside left in the pair. The next level of support would likely be around 1.3269, where the ascending trend line dating back to July’s lows crosses the 61.8 fib level. This is also a previous level of resistance, which suggests a break below here is unlikely at the moment.

Sterling is trading higher against the dollar this morning. The pair found support yesterday just below 1.55, which has previously acted as a key level of support. This could now prompt a move back towards 1.5640, with the pair testing the long term ascending trend line that it broke below on Wednesday, dating back to January 2009, as a new area of resistance. This would act as confirmation of the break below, with the next target then being 1.5350, based on the size of the double top that formed between 31 August and 18 January.

The dollar is trading lower against the yen this morning. The pair has been dropping for most of the week, but is approaching a key level of support around 92.0, where the ascending trend line, dating back to 10 December, crosses the 38.2 fib level, of the move from 23 January lows to 11 February highs. From here I expect to see the pair continue to edge higher, with a key level of resistance being 94.75. A break above here should result in the pair targeting 100 for the first time since April 2009.

The euro is trading lower against the pound this morning. The pair appears to be in the process of forming a double top at the moment. If it breaks back below 0.8575, the 61.8% retracement of the move from July 2011 highs to July 2012 lows, we could see it target 0.84, which would complete the formation. However, if it finds support around 0.8575, it would be quite a bullish signal, prompting a move towards 0.9082 in the coming months.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

[B]G20 meeting and US consumer confidence up next today[/B]

Today’s US opening call provides an update on:

[ul]
[li]Traders cautious ahead of G20 statement;
[/li][li]Japan unlikely to be singled out but there’s clearly division among G20;
[/li][li]UK retail sales tumble in January, as snow keeps shoppers indoors;
[/li][/ul]
US consumer sentiment data in focus this afternoon.
There is an element of caution in the markets this morning, as traders await the G20 statement on currency manipulation before making the next move.

There is clearly a divide among the G20 over whether countries are intentionally devaluing their currency, and also who the guilty parties are. That was made clear earlier this week in the confusion following the release of the G7 statement, and can be seen now by the difficulties the G20 are having drawing up theirs.

Most appear to be pointing the finger at Japan, however the only difference between Japan and the rest is that they were more vocal about the damaging effects of a strong yen in the lead up to their decision. Sir Mervyn King earlier this week pointed out that on a percentage of GDP measure, the UK has been more aggressive than most, including the US.

The question now is what impact all this will have on the markets and so far, the answer appears to be very little. We’ve seen some strengthening in then yen and weakness in the the Nikkei 225, however this is simple going to be a case of traders taking profits and allowing for the correction, before getting back in at a lower price.

Retail sales in the UK took a nosedive in January, falling by 0.6% despite expectations of a 0.4% increase. The figure is likely to raise concerns once again that the UK could fall into its third recession in four years, however I’m not so sure.

January’s figures will have undoubtedly been negatively impacted by the bad weather in January, in particular the snow, as we’ve seen in the past. I’m convinced that we’ll see these figures improve in February and March, helping ensure the UK doesn’t contract again in Q1.

Looking ahead to this afternoon and the data that’s likely to attract the most attention is the preliminary UoM consumer sentiment figure. This number dipped in December and January due to the uncertainty surrounding the fiscal cliff and then the introduction of the payroll tax.

If we see improvements here over the next few months it would suggest that the payroll tax will have little impact on consumer spending over the course of the year, which is vital to US growth as it contributes to around 70% of GDP.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

0:08 Expected outcome from today’s G20 meeting;
1:51 What January’s retail sales figure means for the UK;
2:49 What to look out for this afternoon;
3:40 CHART – GBP/USD analysis.

Forex research: Global markets daily

[Alpari_UK]

[B]Draghi to be grilled again, US closed for Presidents Day[/B]

Today’s UK opening call provides an update on:

[ul]
[li]Asian markets higher as G20 statement back Japanese monetary policy;
[/li][li]Statement also leaves the door open to ECB rate cut;
[/li][li]US markets closed in observance of Presidents Day;
[/li][li]Mario Draghi speaks later in front of Economic and Monetary Committee.
[/li][/ul]

Asian markets got off to a positive start over night, following the decision by the G20 not to single out Japan as currency manipulators.

The G20 statement, which was very similar to the G7 statement released earlier in the week, has therefore been viewed as a sign of support for Japan’s monetary policy, which is bullish for Japanese equities and bearish for the yen. The decision by the G20 isn’t only good news for Japan though.

With the eurozone deep in recession, Germany potentially facing a recession and inflation within the ECB’s mandate, the G20 have essentially left the door wide open for an interest rate cut from the ECB in the months ahead, which would also happen to weaken the euro to the benefit of the the southern members who’s competitiveness is being hit by a stronger currency.

Trading volume is likely to be low once again today, with US markets closed in observance of Presidents Day. As always, this isn’t necessarily a bad thing though as lower volumes tend to lead to higher volatility.

One thing that the holiday does bring though is a lighter economic calendar, with the main economic release coming early in the European session. The eurozone current account figure is a key measure of confidence in the region and has shown a gradual improvement over recent months.

December’s surplus is expected to be similar to November’s, at €13.6 billion, highlighting the fact that people believe the worst of the debt crisis is behind us. I expect to see the figures for the opening months of this year to be even better again.

Later in the day, we’ll hear from ECB president Mario Draghi, who is due to speak before the Economic and Monetary Committee. As always, this will be watched closely for hints over the ECB’s monetary policy in the coming months.

A rate cut, from 0.75% to 0.5% is widely expected in the coming months, after data showed recently that the region isn’t necessarily recovering as quickly as hoped, with the recovery of the southern states, especially, being hampered by a stronger euro.

Obviously, following the statements from the G7 and G20, the ECB couldn’t justify a rate cut citing the damaging effects of the stronger euro on exports, but given fourth quarter data and the recession, there is some room for manoeuvre.

The GDP figures for the fourth quarter showed all countries, and the region as a whole, contracted at a faster rate than had been expected, raising questions over the regions ability to climb out of recession later this year.

The euro is trading flat against the dollar this morning. The pair has broken below 1.3353, the 50% retracement of the move from this year’s lows to highs, despite finding support here repeatedly over the last week. It should find further support now around 1.33, from the ascending trend line dating back to 13 November lows. This is also a previous level of support and resistance for the pair. Below here the pair should find further support around 1.3269, where the longer term ascending trend line, dating back to July’s lows crosses the 61.8 fib level.

Sterling is trading lower against the dollar this morning. The pair broke below a long term ascending trend line last week, dating back to January 2009, which is a very bearish signal for the pair. Based on the size of the double top that formed between the end of August and January, the next target for the pair should now be 1.5350. However, first we may see the pair test the ascending trend line as a new area of resistance, thus confirming the breakout. Friday’s candle is a spinning top, which indicates a trend reversal, meaning we could see this over the next week or so.

The dollar is trading higher against the yen this morning. The pair entered a period of consolidation over the past couple of weeks, however this appears to be over now as the pair has broken above the flag formation and could now target 94.75. This was previously a key level of support and resistance so a break above here would be a very bullish signal, with the next targets being 97.6 followed by 100.45.

The euro is trading higher against the pound this morning. The pair broke back above the 200 week simple moving average and the 61.8 fib level last week which is a very bullish signal. In fact, Friday’s candle actually found support from the 61.8 fib level, which acts as confirmation of the break back above. If the pair can now break above this year’s highs of 0.8716, we could see a move towards 0.9082, the 2011 highs. First though, it should find resistance around 0.875, followed by 0.88, the 78.6 fib level and a previous level of support and resistance.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

0:09 European markets lower ahead of Italian elections;
0:32 US markets closed in observance of Presidents Day;
0:50 Reaction in Japan to G20 statement;
1:38 Draghi speech in front of Economic and Monetary Committee;
2:42 CHART – USD/JPY analysis.

Forex research: Global markets daily

[Alpari_UK]

[B]Economic sentiment seen improving for third month in euro area[/B]

Today’s UK opening call provides an update on:

[ul]
[li]Stocks flat ahead of Italian elections and sequester later this month;
[/li][li]Stock rally supported by big increase in M&A activity so far this year;
[/li][li]Chinese shares dip as PBOC withdraws liquidity for first time in eight months;
[/li][li]ZEW economic sentiment figures suggest more optimism in the second half of the year.
[/li][/ul]
Trading volumes are likely to be higher again today, as traders in the US return to their desk following Presidents Day.

Equity futures are pointing to a relatively flat open though, which is a sign that investors are opting to wait on the sidelines and see how the Italian elections and US sequester play out over the next couple of weeks before making their next move.

Given the rally we’ve seen since the start of the year, I think people are using both of these events as an excuse to take a breather and allow for a minor correction before riding the rally higher. Stocks may be overbought since the turn of the year but that isn’t discouraging anyone, the general market consensus is that there’s plenty more upside to come.

The merger and acquisition activity since the start of the year has been the biggest sign that things are improving. More than $158 billion of activity has been announced since the start of the year, which is a strong indication that businesses are optimistic about the outlook for the economy, and if businesses are, we should be too.

Moves in Asia were also limited over night, as the PBOC withdrew liquidity from the financial system for the first time in eight months. With more expected to be withdrawn this week, it will be interesting to see if the economy will continue to improve despite the recovery last year being driven in part by large central bank stimulus.

While trading volumes may be up today, the economic calendar is light again, with the ZEW economic sentiment figures for February being the key releases. Both the German and eurozone figures are expected to improve for a third month, highlighting the fact that investors and analysts believe the region turned a corner in December.

In both cases, figures in the mid-30′s are expected, which is a positive sign for the euro area and shows that confidence is finally returning to the region. Given that these tend to be an early indication of future performance, we could now see an improvement in spending and investment in the region in the months ahead.

The euro is trading flat against the dollar again this morning. The pair is trading flat for a third day, which suggests there’s significant support around 1.3350, the 50% retracement of the move from this year’s lows to highs. This could actually be quite a bullish signal at this point, especially with further support coming just below here from the ascending trend line, dating back to 13 November. If we do see a move higher, the next target will be 1.3457, followed by 1.3490.

Sterling is trading higher against the dollar this morning. The pair has found support around 1.5460 after breaking below the long tern ascending trend line, dating back to January 2009. This has previously been a key level of support, however I expect to see it break below here, with the target being 1.5350, based on the size of the double top. We could first see a pull back though, with the pair testing the trend line as a new level of resistance, which would act as confirmation of last weeks break.

The dollar is trading lower against the yen today. The pair has been consolidating for a couple of weeks now, following a strong upward trend, and is showing no signs at the moment of breaking out of it. The outlook for the pair is still bullish, however we may have to wait for the announcement of the new BoJ Governor, which would give an indication of how aggressive the central banks monetary policy will be in the future, before we see a further move to the upside. The next key level of resistance is still 94.75, with a break above here prompting a move towards 97.6.

The euro is trading lower against the pound this morning. The pair appears to be struggling for direction at the minute, despite having broken above 0.8575, the 61.8 fib level, which is quite a bullish signal. I still remain quite bullish in the short term, with the next target being 0.875, however it is worth noting that just above here is a long term descending trend line, dating back to January 2009, which is likely to provide strong resistance. A break above here would be very bullish for the pair, with the next resistance levels coming around 0.88 and 0.89.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

[B]Stocks boosted by huge jump in ZEW figures[/B]

Today’s US opening call provides an update on:

[ul]
[li]European markets open higher as Italian election concerns ease;
[/li][li]ZEW economic sentiment figures smash expectations for a second month;
[/li][li]US futures point to flat start following the bank holiday.
[/li][/ul]
Stock markets opened slightly higher in Europe this morning, a sign that investors are more interested in keeping the stock market rally going than the elections this weekend.

With no more polls being conducted in Italy between now and the election at the weekend, it’s difficult to predict what the outcome of the election is going to be. The most recent polls showed Berlusconi had closed the gap to within the margin of error meaning they’re not going to be quite as straightforward as we hoped a month ago.

Despite the PdL’s late charge, the reaction in the markets suggests that investors are cautious but not overly concerned. A coalition government between the party’s led by Pierre Luigi Bersani and Mario Monti looks the most likely outcome at this stage, which is easing concerns, however I’m sure as the election nears we’ll see more caution creeping back into the markets.

Stocks were given a boost though following the release of the German and eurozone ZEW economic sentiment figures. Both figures jumped significantly for a second consecutive month, hitting the highest levels since April 2010 and adding further weight to the argument that the region turned a corner at the end of 2012.

This is just the latest in a long list of surveys out of the eurozone which suggest 2013 is going to be the year when the region bottoms out and begins the move back towards recovery. It also all but confirms what the Bundesbank said yesterday that the German economy will not fall into recession in this quarter, despite contracting by 0.6% in Q4.

We shouldn’t get too carried away with the data though, while these surveys are positive, we are yet to see any hard data to confirm that worst is actually behind us. Once this starts to make its way out, I think we could see the start of the next phase of the equity rally, not to mention the euro’s ascent back towards 1.40.

US stock index futures are pointing to a relatively flat open at this stage, having missed very little yesterday. With the economic calendar light once again, especially in the US, we could see lower trading volumes again today, although as always, this does tend to lead to an increase in volatility.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

0:09 ZEW economic sentiment figures out of Germany and the eurozone;
1:47 Mario Draghi’s interest rate hint yesterday;
3:00 CHART - EUR/USD analysis

Forex research: Global markets daily