EU Morning Report – Dollar weakness across the board as risk appetite soars!

• The Dollar was sold across the board as demand for the safe haven eased and the market bought stocks and commodities aggressively. Company Earnings were strong but economic data was a little weak with Weekly Jobless Claims at 464k vs. 449k previously. In US stocks, the DJIA traded up +201 points closing at 10322, S&P +24 points closing at 1093 and NASDAQ +58 points closing at 2245.

 

• The Euro rallied aggressively after some strong economic data and improvement in sentiment helped lift the pair back to the 1.2900 level. The market is eagerly awaiting the European stress tests released at 1400 GMT. July EU Manufacturing PMI jumped 56.5 vs. 55.2. EUR/USD traded with a low of 1.2736 and a high of 1.2934 before closing at 1.2890. Looking ahead, German July IFO forecast at 101.5 vs. 101.8 previously.

 

• The Japanese Yen had a volatile day with the market testing Y110 support on the EUR/JPY and month lows on the USD/JPY at Y86.30 before profit taking and a reversal of stock market direction ignited a fierce short covering rally. Overall the USDJPY traded with a low of 86.32 and a high of 87.25 before closing the day around 87.10 in the New York session.

Currency to watch out for: EURUSD & USDJPY

• The EURUSD pivot point is at 1.2840 with a preference to enter into Long positions at 1.2840
• The USDJPY pivot point is at 86.75 with a preference to enter Long positions at 86.75

Today’s calendar and market movers:

• European Stress Test Results
• German IFO Business Climate Expected at 101.6
• UK GDP year on year expected to grow at 1.1 %
• CAD Core CPI year on year expected at 1.8%

Equity Markets:

• US equities closed positively yesterday with the S&P500 at 2.25% and the DJIA at 1.99%. The European bourses were positive with the FTSE up 1.90% the DAX and the CAC closing at 2.53% and 3.05% respectively. The NIKKEI and the HSI at the time of writing is 2.09% and 1.09% respectively.

Source: Easy Forex

Recommended Forex Brokers: AvaFX and Forex Yard

ECB and BoE leave interest rates unchanged!

• The dollar weakened yesterday as risk appetite kicked-in following ECB President Trichet’s press conference. The ECB monetary stance had not altered however Trichet’s upbeat attitude permeated confidence across the board. The Euro Zone, Trichet’s says, was growing at a moderate pace and that the latest string of data was very good. He also highlighted that the markets have tended to be extremely pessimistic about the European economy however data have not confirmed such a stance. When quizzed about the stress tests however he was reluctant to provide further information saying that everything they wanted to know would be addressed in the release date of the stress tests. Some market participants are arguing that the stress tests are not stringent enough and the results will not bring the necessary confidence in the markets. Others argue that the release of certain scenarios may show that some banks are insolvent and spark another bout to safety in the expense of the financial system. Overall price action in the EURUSD was between 1.2617 – 1.2710.
• In the UK we had the BoE policy rate decision which left interest rates unchanged as widely expected. The GBPUSD had made considerable headway this week following the MPC minutes that showed one member of the BoE diverged from the rest voting for a rate hike. Although economic strength is not supportive for rate hikes a string of higher than expected inflation is worrisome and may deem the need for a hike so as to tame such fears. Industrial production figures were released yesterday which were widely encouraging. The year on year figure came in at 2.6% and the month on month at 0.7% indicating a pickup in activity and casting some hope over the economy. The big fear for UK growth now is the deficit reductions undergone by the new government. Let it be known that almost half of the UK economy equates to the size of government expenditure and a sharp reduction in this spending may jeopardize UK growth. GBPUSD price action was between 1.5173 – 1.5130.

Currency to watch out for: EURUSD & USDJPY

• The EURUSD pivot point is at 1.2620 with a preference to enter into Long positions at 1.263
• The USDJPY pivot point is at 88.25 with a preference to enter Long positions at 88.30

Today’s calendar and market movers:

• German CPI is expected at 0.9%
• The UK Trade Balance is expected to come to GBP -7 Bn
• Canadian Unemployment is estimated at 8.1%
• Finally, US wholesale Sales are expected at 0.5%

Equity Markets:

• US equities were closed positive yesterday with the S&P500 closing at 0.94% and the DJIA closing at 1.20%. The European bourses were positive yesterday with the FTSE up 1.81% the DAX and the CAC closing at 0.71 % and 1.57% respectively. The NIKKEI and the HSI at the time of writing is 0.72% and 1.45% respectively.

Source: Easy Forex

Recommended Forex Brokers: AvaFX and Forex Yard

US Non Farm Payrolls expected at -110K!

The dollar weakened across the board yesterday as global growth concerns were in the limelight ahead of today’s NFP report. Manufacturing ISM disappointed by dropping to 56.2 pending home sales fell by 30%, construction spending down by -0.2% and we also had an increase in initial jobless claims to 472K. Overall rate hike expectations have been pushed out to 2011 and the USD has lost its safe haven status to the JPY. Today the market is focusing on payrolls with an expectation of -110k jobs been lost. USDJPY price action yesterday was between 1.2200 – 1.2540.

In Europe we saw some positive bond auctions from France and Spain and an ECB 6 day tender of Eur 112 bio to 78 EU banks as a bridge loan so as to roll over future debt maturities. Economic data has remained relatively stable in the EU with Manufacturing PMI coming in line with expectations at 55.6. Overall price action for the EURUSD was very strong as the combination of successful bond auctions by member states, and the weak economic data from the US push the EURUSD to 1.2540 as a bout of short covering took hold and short term specs could not help themselves from adding to the momentum.

Currency to watch out for: EURUSD & USDJPY

• § The EURUSD pivot point is at 1.2450 with a preference to enter into Long positions at 1.2460
• § The USDJPY pivot point is at 88.25 with a preference to enter Short positions at 88.20

Today’s calendar and market movers:

• § Eurozone Unemployment rate for May expected at 10.1%
• § US Unemployment rate for June expected at 9.8%
• § Non Farm payrolls for June expected at -110K

Equity Markets:

US equities closed negative yesterday with the S&P500 down by -0.32% and the DJIA down by -0.42%. The European bourses were negative yesterday with the FTSE down -2.29% the DAX and the CAC closing at -1.81% and -2.99% respectively. The NIKKEI and the HSI at the time of writing is 0.13% and -1.38% respectively.

Source: Easy Forex

Recommended Forex Brokers: AvaFX and Forex Yard

G20 Agrees to disagree on fiscal consolidation!

• Markets traded cautiously on Friday and the USD softer on Friday as Q1 GDP was revised to 2.7% from earlier 3.0% estimates. Markets on Friday were sidelined as trader’s squared positions ahead of the weekend G20 meeting. The agenda at the G20 was fiscal consolidation however fear arose as countries varied in their opinion on the matter. Countries such as the US for e.g. favored growth policies and want to avoid fiscal cuts as it would put the fragile recovery in to jeopardy. On the other side of the Atlantic however we had countries such as Germany promoting fiscal consolidation saying that it will bring confidence to the markets and restore trust between counter parties. As the G20 came to an end however we had brilliant communiqué from the G20 as all countries agreed to disagree. All members agreed that growth is their main policy however the agreed different countries must consider their individual circumstances and must be flexible in deciding when to cut their deficits. The markets seemed to have taken a liking to the communiqué and risk appetite has picked up since. USDJPY price action was between 89.76 – 89.21.
• In the Europe we had ECB executive board member Tumpel-Gugerell say that Europe’s economic recovery is on track and that fiscal consolidation may have positive longer term affects as it will increase confidence in the markets. He also noted that if the EU bank stress tests show that banks require more capital than it can be raised either via private or public sector funds. In Greece we had agreement over a pension reform plan which will be a significant reduction to Greece is deficit reduction plans. EURUSD price action was between 1.2467 – 1.2207.

Currency to watch out for: EURUSD & USDJPY

• § The EURUSD pivot point is at 1.2320 with a preference to enter into Long positions at 1.2330
• § The USDJPY pivot point is at 89.20 with a preference to enter Long positions at 89.25

Today’s calendar and market movers:

• § Germany Consumer Price Index m/m June expected at 0.1%
• § United States Core PCE for May m/m expected at 0.1%

Equity Markets:

• US equities closed mixed yesterday with the S&P500 down by 0.29% and the DJIA down by -0.09%. The European bourses were negative yesterday with the FTSE down -1.05% the DAX and the CAC closing at -0.73% and -1.00% respectively. The NIKKEI and the HSI at the time of writing is -0.45% and 0.35% respectively.

Source: Easy Forex

Recommended Forex Brokers: AvaFX and Forex Yard

CURRENCY TRADING SUMMARY – 21^st June (00:30 GMT)

U.S. Dollar Trading (USD) ended the week little loved with most pairs remaining at week highs against the greenback. With little data out, the markets turned to US Equities which finished at month highs. Risk appetite was further boosted over the weekend with China announcing they would ‘enhance renminbi flexibility’. In US stocks, DJIA +16 points closing at 10450, S&P +1 points closing at 1117 and NASDAQ +2 points closing at 2309.

The Euro (EUR) traded in a tight and quiet range close to the 1.2400 level with the market supported on dips. Germany’s PPI jumped to 0.9% in May y/y from 0.6% previously. The Single currency gapped higher on Monday morning following China’s move and will be looking to test 1.2500 if the positive environment continues. EUR/USD traded with a low of 1.2355 and a high of 1.2417 before closing at 1.2390. Looking ahead, ECB President Trichet speaks.

The Japanese Yen (JPY) was strong against the USD as the USD/JPY remained heavy towards the close struggling to gain traction under Y91. Most Crosses were buoyant however in the ‘risk on’ environment. GBP/JPY remains near Y135 and AUD/JPY in striking distance of Y80. Overall the USDJPY traded with a low of 90.45 and a high of 90.85 before closing the day around 90.70 in the New York session.

The Sterling (GBP) was not immune to quiet trading into the weekend with a rally in Europe sold back to support under 1.4800. UK Public Debt borrowing was 16bn in May, slightly less then 18.2bn forecast. Preliminary Mortgage Approvals came in near expectations at 51k vs. 48k previously. Overall the GBP/USD traded with a low of 1.4775 and a high of 1.4885 before closing the day at 1.4800 in the New York session.

The Australian Dollar (AUD) was the best performing currency on Friday and surged at the Monday open as the heavily Chinese linked economy was supported from the revaluation talk. The news is positive also in reducing trade tensions with the US. Overall the AUD/USD traded with a low of 0.8652 and a high of 0.8725 before closing the US session at 0.8720.

Oil & Gold (XAU) Fresh year high again on Friday, surging on the break above $1250. Overall trading with a low of USD$1243 and high of USD$1262 before ending the New York session at USD$1257 an ounce. Maintained recent strength extending the rally slightly higher. WTI Oil Closed +$0.39 at $77.18 a barrel.

TECHNICAL COMMENTARY

Currency	Sup 2	Sup 1	Spot	Res 1	Res 2
EUR/USD	1.2045	1.2242	1.2385	1.2453	1.2672
USD/JPY	88.87	89.81	90.75	91.09	92.12
GBP/USD	1.4505	1.4646	1.4820	1.4918	1.5054
AUD/USD	0.8427	0.8506	0.8770	0.8865	0.9027
XAU/USD	1210.00	1227	1257	1280	1300.00
OIL/USD	75	78.00	78.10	79.50	80.00

Euro – 1.2385

Initial support at 1.2242 (June 17 low) followed by 1.2045 (June 11 low). Initial resistance is now located at 1.2453 (May 28 high) followed by 1.2672 (May 21 high)

Yen – 90.75

Initial support is located at 89.81 (May 27 low) followed by 88.97 (May 20 low). Initial resistance is now at 91.09 (June 18 high) followed by 92.12 (June 14 high).

Pound – 1.4820

Initial support at 1.4646 (Jun 17 low) followed by 1.4505 (Jun 11 low). Initial resistance is now at 1.4918 (May 13 high) followed by 1.5054 (May 10 high).

Australian Dollar – 0.8770

Initial support at 0.8506 (June 15 low) followed by the 0.8427 (June 10 low). Initial resistance is now at 0. 8865 (May 17 high) followed by 0.9027 (May 17 high).

Gold – 1257

Initial support at 1227 (June 16 low) followed by 1210 (June 7 low). Initial resistance is now at 1280 (1241.97 plus 1.618 of 1227.09- 1251.18) followed by 1300 (Round Number).

Oil – 78.10

Initial support at 78.00 (Intraday Support) followed by 75.00 (Intraday Support). Initial resistance is now at 79.50 (Intraday Resistance) followed by 80.00 (Intraday Resistance).

Source: Easy Forex

Recommended Forex Brokers: AvaFX and Forex Yard

Last week’s currency trading review

The Dollar was on the backfoot for most of the week as stock markets staged an impressive rebound. Heavily overbought, the USD was ripe for profit taking and the market did so in a broad based fashion. April’s Trade Balance was -40.3bn vs. -40.8bn forecast and US Retail Sales Slumped -1.2% vs. 0.2% forecast for the first negative reading in 8 months. On a Positive note, UoM Consumer Confidence soared to a 2 year high at 75.5 in June. The Euro was bought up quite aggressively on comments from the head of the Chinese pension Fund that the Euro will survive the crisis and that the he was more concerned about their US debt holdings. Also helping sentiment towards the single currency was the improvement in the ECB’s GDP outlook and positive comments from President Trichet after the ECB Rate Meeting where they at 1.0%. The EUR/USD gained +1.19% closing at 1.2119, after opening the week at 1.1967.

The Japanese Yen lost ground against most currencies but stayed in a range against the USD as the two safe haven currencies competed for the weakest performance of the week. AUD/JPY soared in the ‘risk on’ environment up over 3Yen and EUR/JPY also did very well reclaiming the Y110 level after testing support at 108 in recent weeks. Q1 GDP was confirmed at 1.2% Q/Q. The USD/JPY fell -0.29% closing at 91.63, after opening at 91.90 previously. The GBP made small gains but underperformed as heavy EUR/GBP buying on Friday hurt the Pound going into the weekend. The market is paying close attention to the new government’s fiscal outlook and the coming budget will by closely scrutinized. The GBP/USD gained +0.66% closing at 1.4548 after opening at 1.4452. The AUD was the best performing currency in the market as the fundamentals of the commodity based economy continued to outshine the rest of the market and it was only risk aversion keeping the Aussie at lower levels. With the rebound in stocks the market covered shorts quickly testing 0.8500 into the weekend. May Employment change was very strong at 26k vs. 20k forecast and the Unemployment rate dropped to 5.2% vs. 5.4% previously. The AUD/USD gained +3.18% closing at 0.8501 after opening at 0.8231.

The forex trading week preview

In the States; On Tuesday, Net Long Term TIC Flows previously at 140.5bn. On Wednesday, May Housing Starts are forecast at 650k vs. 672k previously. Also released, May Industrial Production forecast at 0.9% vs. 0.8% previously. Also Fed Chief Bernanke speaks. On Thursday, Weekly Jobless Claims are forecast at 453k vs. 456k previously. Also released, June Philly Fed forecast at 21 vs. 21.4 previously. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone; On Tuesday, German ZEW Survey forecast at 42 vs. 45.8 previously. On Wednesday, May CPI is forecast at 0.8% y/y. On Thursday, ECB Monthly Report Released. In the UK; On Tuesday, May CPI is forecast at 3.5% vs. 3.7% previously y/y. On Thursday, May Core Retail Sales forecast at 0.4% vs. 0.1% previously. We will provide our previews and reviews of these data releases in the daily summary.

In Japan; On Tuesday, BoJ Target Rate is forecast unchanged at 0.1%. On Friday, BoJ Monetary Policy Minutes. In Australia; On Tuesday, June RBA Minutes Released. We will provide our previews and reviews of these data releases in the daily summary.

TECHNICAL COMMENTARY

Currency	Sup 2	Sup 1	Spot	Res 1	Res 2
EUR/USD	1.1881	1.2103	1.2220	1.2327	1.2453
USD/JPY	90.54	91.24	91.60	92.97	93.64
GBP/USD	1.4347	1.4505	1.4740	1.4809	1.4918
AUD/USD	0.8263	0.8427	0.8590	0.8728	0.8865
XAU/USD	1197.00	1211	1223	1252	1261.00
OIL/USD	70.00	72.50	74.80	75.00	76.00

Euro – 1.2220

Initial support at 1.2103 (June 14 low) followed by 1.1881 (June 7 low). Initial resistance is now located at 1.2327 (June 3 high) followed by 1.2453 (May 28 high)

Yen – 91.60

Initial support is located at 91.24 (June 11 low) followed by 90.54 (June 1 low). Initial resistance is now at 92.97 (May 18 high) followed by 93.64 (May 13 high).

Pound – 1.4740

Initial support at 1.4505 (Jun 11 low) followed by 1.4347 (Jun 8 low). Initial resistance is now at 1.4809 (June 14 high) followed by 1.4918 (May 12 high).

Australian Dollar – 0.8590

Initial support at 0.8427 (June 11 low) followed by the 0.8263 (June 10 low). Initial resistance is now at 0. 8728 (0.505 retrace of 0.9388 – 0.8068) followed by 0.8865 (May 17 high).

Gold – 1223

Initial support at 1211 (June 7 low) followed by 1197 (June 4 low). Initial resistance is now at 1252 (Jun 8 high) followed by 1261 (1123.90 plus 1.618 of 1085.3-1170.1).

Oil – 74.80

Initial support at 72.50 (Intraday Support) followed by 70.00 (Intraday Support). Initial resistance is now at 75.00 (Intraday Resistance) followed by 76.00 (Intraday Resistance).

Source: Easy Forex

Recommended Forex Brokers: AvaFX and Forex Yard

Gold surges, equities fall as risk aversion picks up!

• Markets yesterday traded with caution once again with the US equity markets finishing the session below -1.15% and gold approached last month’s record highs to $1245. The VIX, a gauge of fear, traded above 3% to 36.6 as the overall market uncertainty as to developments in Europe and US economic recovery are causing many market participants to purchase insurance in the form of options against future adverse movements in most assets. The only economic data released out of the US on the day was the consumer credit report which showed an increase of $1 bio. We also heard some comments from soon to be Federal Reserve Vice Chairman Janet Yellen saying that ”significant; headwinds to stability remain”. USDJPY price action yesterday was between 91.00 – 92.07.
• In Europe we saw continuous declines in equity and currency markets following the previous days shocking comments from Hungarian officials about the possibility of default. From the financial calendar we had a much stronger than expected factory orders report jumping 2.8% for the month as well as a successful bond auction by the Dutch and Belgian treasury.  This shows that the market still segregates between Northern and Southern countries and that Northern EU members have not experienced any significant rise in the cost of financing their debt. EURUSD price action yesterday was between 1.1991 – 1.1875.

Currency to watch out for: EURUSD & USDJPY

• § The EURUSD pivot point is at 1.1990 with a preference to enter into Short positions at 1.1980
• § The USDJPY pivot point is at 91.85 with a preference to enter Short positions at 91.80

Today’s calendar and market movers:

• § Germany Industrial Output for the month of April expected at 0.8%
• § Canada Housing Starts for May expected at 200K
• § US Redbook for the week, previous months reading was 0.3%

Equity Markets:

• US equities closed negative yesterday with the S&P500 down by -1.35% and the DJIA down by -1.16%. The European bourses were negative yesterday with the FTSE down -1.11% the DAX and the CAC closing at -0.57% and -1.21%. The NIKKEI and the HSI at the time of writing is 0.18% and 0.35% respectively.

Source: Easy Forex

Recommended Forex Brokers: AvaFX and Forex Yard

CURRENCY TRADING SUMMARY – 2^nd June (00:30 GMT)

U.S. Dollar Trading (USD) Stock markets rallied aggressively in the US session after a poor lead from Europe on better than expected ISM manufacturing in May which fell to 59.7 vs. 60.4 previously. Also strong, April Construction spending jumping 2.7% vs. 0.1% previously. News that Lebanon had fired on Israeli Planes late in the US session sent risk aversion higher sent stocks sharply lower and Dollar higher. In US stocks, DJIA -122 points closing at 10024, S&P -18 points closing at 1070 and NASDAQ -7 points closing at 2222. Looking ahead, April Pending Home Sales Change forecast at 5.0 vs. 5.3%.

The Euro (EUR) broke through year lows at 1.2140 to test fresh lows before staging a solid recovery rally on the stock market gains at the start of the US session. German Unemployment Change was good at -45k vs. -20k forecast but EU Unemployment rate jumped to 10.1% vs. 10.0%. EUR/USD traded with a low of 1.2110 and a high of 1.2356 before closing at 1.2230. Looking ahead, April PPI is forecast at 0.7% vs. 0.6% previously.

The Japanese Yen (JPY) risk aversion was met by bargain hunters and the prospect of political turmoil in Japan. The USD/JPY gyrated around the Y91 level although solid US data did push the pair higher. GBP/JPY was the stand out performer as the Pound led the recovery. Overall the USDJPY traded with a low of 90.52 and a high of 91.47 before closing the day around 91.10 in the New York session. UPDATE PM Hayotama Resigns.

The Sterling (GBP) continued to outperform the rest of the market as the collapse of the Prud/AIG deal was seen as a major GBP positive and EUR/GBP broke to fresh multi-year lows. Cable soared above resistance at 1.4600 to test 1.4700 before weakness at the end of the US stock session prompted profit taking. May Manufacturing PMI remained at 58.0. Overall the GBP/USD traded with a low of 1.4437 and a high of 1.4726 before closing the day at 1.4670 in the New York session. Looking ahead, April Mortgage Approvals are forecast at 49k vs. 48.9k previously.

The Australian Dollar (AUD) continued with recent volatility breaking below 0.8300 at the height of the Euro weakness before rebounding on solid US data. AUD/JPY buying on dips is providing support as the high yielder is still seen as the key carry trade. The RBA held at 4.5% but did provide a upbeat statement. Overall the AUD/USD traded with a low of 0.8280 and a high of 0.8447 before closing the US session at 0.8330. UPDATE Q1 GDP is 0.5% vs. 0.6% forecast but revisions of Q4 2009 were at 1.1% Q/Q.

Oil & Gold (XAU) pushed higher on Euro concerns and alternate investment demand. Overall trading with a low of USD$1215 and high of USD$1229 before ending the New York session at USD$1224 an ounce. Crude Oil was softer on concerns about EU and China Demand. WTI Oil Closed $1.39 at $72.50 a barrel.

TECHNICAL COMMENTARY

Currency	Sup 2	Sup 1	Spot	Res 1	Res 2
EUR/USD	1.2000	1.2110	1.2215	1.2453	1.2587
USD/JPY	89.81	90.61	91.15	91.88	92.97
GBP/USD	1.4231	1.4366	1.4670	1.4722	1.4918
AUD/USD	0.8067	0.8202	0.8325	0.8552	0.8579
XAU/USD	1185.00	1202	1225	1229	1250.00
OIL/USD	69.50	70.00	72.35	75.00	76.00

Euro – 1.2215

Initial support at 1.2110 (June 1 low) followed by 1.2000 (Round Number). Initial resistance is now located at 1.2453 (May 28 high) followed by 1.2587 (May 24 high)

Yen – 91.15

Initial support is located at 90.61 (May 28 low) followed by 89.81 (May 27 low). Initial resistance is now at 91.88 (May 20 low) followed by 92.97 (May 18 high).

Pound – 1.4670

Initial support at 1.4366 (Mary 27 low) followed by 1.4231 (May 20 low). Initial resistance is now at 1.4722 (June 1 High) followed by 1.4918 (May 13 high).

Australian Dollar – 0.8325

Initial support at 0.8202 (May 27 low) followed by the 0.8067 (May 25 low). Initial resistance is now at 0. 8552 (May 28 low) followed by 0.8579 (Feb 5 low).

Gold – 1225

Initial support at 1202 (May 28 low) followed by 1185 (May 25 low). Initial resistance is now at 1229 (Key level) followed by 1250 (1123.90 plus 1.618 of 1085.3-1170.1).

Oil – 72.35

Initial support at 70.00 (Intraday Support) followed by 69.50 (Intraday Support). Initial resistance is now at 72.50 (Intraday Resistance) followed by 75.00 (Intraday Resistance).

Source: Easy Forex

Recommended Forex Brokers: AvaFX and Forex Yard

Consumer confidence surprises the market coming at 57.7!

• Markets yesterday were of the V variety across the board. Equity markets along with risk currencies started the day with eerie risk aversion building momentum as fears from the Spanish banking sector continued to weigh on the markets. We also saw a lack of unity between European member states as Germany was against the issuance of a joint EUR bond as it would ”reward states pursuing wrong policies”. Reports also surfaced that Germany’s Finance Ministry is proposing an extension on the short selling ban in Germany to more securities. From the financial calendar however we saw industrial orders come in at a 5.2% increase and the ECB announced that it will absorb EUR 2.6bio in one week fixed term deposits. EURUSD price action was between 1.2177 – 1.2386.
• In the US we had the FOMC minutes show that 3 regional Fed banks are in favor of the first rate hike by 25bp to 1% as it would restore the pre crisis discount rate structure. The highlight of the day however was the Consumer confidence index which beat expectations in May and came in at 63.3 compared to an expectation of 57.7 effectively the equity markets erased all loses and closed at 0.04%. We also had a good Case Shiller (S&P) which came in at 0.3% growth for the month. USDJPY price action yesterday was between 89.25 – 90.48.
• In the UK we saw the release of the quarterly GDP report which showed a 0.3% growth meeting expectations. There was a reduction in government spending by 0.5% for the quarter and private consumption was flat. Price action in the pound yesterday was between 1.4258 – 1.4448.

Currency to watch out for: EURUSD & USDJPY

• § The EURUSD pivot point is at 1.2400 with a preference to enter into Short positions at 1.2390
• § The USDJPY pivot point is at 89.90 with a preference to enter Long positions at 89.95

Today’s calendar and market movers:

• § US Durable Goods Orders for April is forecasted at 1.3%
• § New Home Sales for April is expected at 0.43 mio
• § US Crude Oil inventories for the week expected at 0.2 mio

Equity Markets:

• US equities closed mixed yesterday with the DJIA and the SP500 closing -0.23%% and 0.04% respectively.  The European bourses were negative yesterday with the FTSE closing -2.54% the DAX and the CAC closing down at -2.34% and -2.90%. The NIKKEI and the HSI at the time of writing is 0.78% and 1.20% respectively.

Source: Easy Forex

Recommended Forex Brokers: AvaFX and Forex Yard

After plunging to a four year low versus the USD in reaction to report Germany has temporarily banned naked short sales of government bonds and default swaps the EUR posted a sharp short covering rebound in US trading session Wednesday. The ban on naked short selling is to try and prevent speculative assaults on German financial markets. German officials believe that speculative assaults, particularly in EU bond markets helped to drive up the cost of funding EU debt and exacerbated the EU debt crisis. Whether the German ban on naked short sales will be successful in discouraging speculative assaults on the German/EU financial markets remains to be seen. So far the ban has added to market panic and skepticism. Traders generally find ways around trading curbs and according to a Bloomberg report Germany took the action to ban naked short selling as a political move to show that the German government is taking action to try to defend the EUR.

The EUR traded at the four year low of 1.2143 in European trade and surged above 1.2350 in the US trading session. One explanation for the sharp rebound in the EUR was a rumor that the ECB is holding an emergency meeting and soon may announce a Euro Zone wide ban on naked short selling. The fact that Germany so far has acted unilaterally in its action to try to discourage excessive speculation in its financial markets generates concern about lack of cohesion among EU nations to tackle the fallout from the Greek debt crisis. A ban on naked short selling across the Euro Zone would be confirmation of greater unity within the EU community. This could increase the credibility of the German and EU efforts to help restore confidence in EU financial markets and the EUR. Investors remain skeptical about the efficacy of the near $1trln EU rescue plan announced earlier in the week for Europe. The plan does little more than buy time for Europe to try to deal with the debt crisis and offers limited solutions to the debt crisis. The same could be said of plans to ban naked short selling. The ban on naked short selling does not address the underlying fundamental problems facing the EU.

The EUR rebound Wednesday was also attributed to rumors of central bank intervention. There was a rumor that the ECB intervened in support of the EUR. There was a rumor that the Fed intervened along with the ECB to support the EUR. And the SNB intervened in EUR/CHF cross. EUR/CHF cross dropped to a record low with the CHF supported  by safe haven flows sparked  by the EU debt crisis and the German ban on naked short selling. EUR/CHF traded below 1.40 in overseas trade and surged above 1.42 in the US session supported by what appeared to be SNB intervention buying the EUR. SNB officials have consistently stated that they plan to take aggressive action to stop excessive CHF appreciation versus the EUR. Until today the SNB has been intervening unilaterally. G-7 members may be coming to the conclusion that in order to stabilize the global markets the EUR must be stabilized by intervention. There is a growing threat of Forex intervention from the ECB and possibly coordinated intervention with the Fed and other G-7 members.

The threat of intervention or actual intervention may disrupt or interrupt the current short-term trends in FX markets. This means that traders need to consider how intervention may affect Forex price action and their trading strategies. There are three main types of central bank Forex intervention. The first is rhetorical intervention. Rhetorical invention takes place when government officials and central bankers try to influence Forex markets with comments about a specific currency. The impact of rhetorical intervention is usually short-lived and it may be the prelude for physical intervention. Physical intervention is when a central bank buys or sells a currency to try to support a currency or limit a currencies appreciation. There are two types of physical intervention. The first is unilateral. This is when one central bank acts along. The second is coordinated. This is when central banks act in concert. In general, unilateral invention is less successful than coordinated intervention and there have been numerous studies questioning the effectiveness of either type of intervention. Additionally intervention that is not supported by underlying fundamentals will fail to have lasting impact on the direction of a currency. Our study of past currency interventions suggest that it’s easier to slow the rate of  appreciation of a currency  than to support a currency and the most effective intervention tends to be associated with the element of surprise backed up by underlying fundamentals. When intervention is expected the impact is generally deluded and limited. Most times central banks will refuse to comment on intervention to try to keep currency traders guessing. In contrast, the SNB has made clear its intention to intervene. Maybe other G-7 central banks will follow the SNB’s lead.

The fundamental outlook for the EUR remains negative due to uncertainty about whether the EU rescue plan will contain the contagion risk of the Greek debt crisis. The EUR is also vulnerable to concern that EU austerity measures will to slow the EU recovery and force the ECB to maintain accommodative policy possibly into 2012. The negative fundamental outlook for the EUR means that central bank intervention to support the EUR will likely have limited lasting impact. Central banks sometimes intervene into try to manage currency fluctuations and try and keep a currency within a given range. This is called a smoothing operation. A smoothing operation is designed to stop the rate of acceleration or deceleration in a currency market price direction not to try to change the overall price direction of a currency. Unless something dramatically changes in the fundamental outlook for the EU, intervention at this time will likely be limited to smoothing operations. One factor that may work in favor of ECB and/or coordinated intervention is statement from the IMF that the EUR is nearing equilibrium. According to the IMF’s Lipsky the 18% decline in the EUR since the beginning of the year is positive for EU exports and long-range growth. We noted in a special report Monday that the EUR is approaching major technical support at the 50% retracement level of the record low in the EUR at 0.82 from the record high above 1.60. The 50% retracement of range comes in just above 1.20. Central banks may have temporary success supporting EUR above this level. We suspect that intervention in EUR will be seen as opportunity to sell the EUR at a better value and the threat of intervention will have limited lasting impact.

Note in the graph below the impact of rumored SNB intervention in the EUR/CHF cross.

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