FX Highlights

• The USD is trading mostly higher except versus the EUR, the EUR trades higher in reaction to report that Greece seeks to activate the EU/IMF aid package and in reaction to stronger than expected German IFO business sentiment, GBP trades lower pressured by report of weaker than expected UK Q1 GDP, CAD trades mixed to lower pressured by report of weaker than expected Canadian inflation, AUD trades lower pressured by dovish comments from RBA Governor Stevens, JPY trades lower in reaction to a CNBC report that a number of Fed board members want to begin selling assets, the Fed’s selling of assets would be the beginning of the withdrawal liquidity
• Focus turns to today’s release of US durable goods and new home sales and Canada’s CPI and retail sales are
• EU February industrial orders rose by 1.5%, April IFO improved to 101.6 from 98.2 last month, Greek/ German 10 year bond yield spread narrowed in reaction to report that Greece seeks to activate the EU/ IMF aid package, EU commission says Greek aid will be as soon as possible, EUR higher
• Canada’s March CPI rose by 1.4% and core fell by 0.2%,CAD lower
• RBA Governor Stevens says that interest rates are close to average and the future course of rates is an open question, Australia Q1 export prices rose by 3.8% import prices rose by 0.3%,AUD lower
• BOJ Governor Shirakawa says it’s inappropriate to use Forex as a tool to narrow trade deficit (a reference to China) and warns against inflation focus, JPY lower
• UK Q1 GDP rose by 0.2% , 0.4% rise was expected, GBP lower
• IMF Chief say there is no easy way to resolve the Greek crisis
• US equity markets set to open higher, European equities 1% higher, Nikkei closed 35 points lower

Upcoming Events

• US-Friday, March durable goods will be released expected to rise by 0.3% compared to 0.9% last month and 0.7% % ex. transportation along with March new home sales expected 330k compared to 308k last month
• CAN-Friday, March CPI will be released expected at 0.3% compared to 0.4% last month with the core rate expected at 0.1% and annual rate at 2%, (already released) along with February retail sales expected at 0.8% compared to 0.7% last month and 0.6% ex. autos

Source: Easy Forex

Recommended Forex Brokers: AvaFX and Forex Yard

• USD: Higher, concern about Greek debt troubles and weaker US jobs data fuels risk aversion
• JPY: Higher, supported by safe haven demand and gains in cross trade
• EUR: Lower, S & P may downgrade the Greek debt rating, Greek rescue may be at risk
• GBP: Lower, UK Q4 business investment dropped sharply
• CAD and AUD: AUD & CAD lower, pressured by a spike in risk aversion, RBA rate hike speculation ignored

Overview
The USD traded  higher and the JPY surged supported by a spike in risk aversion sparked by report of a sharp rise in US jobless claims and fresh concern about the Greek debt crisis. Wednesday the US reported that January new home sales fell to a record low. The decline in home sales follows Tuesday’s release of a sharp drop in US consumer confidence consumer confidence. These reports and today’s jobs claims report generate concern about the outlook for the US recovery. A report in the UK telegraph that the Greek rescue plan may be in jeopardy because of comments made by the Greek Deputy PM about Germany’s Nazi war atrocities coupled with increased risk of a downgrade of the Greek debt rating sent European currencies lower. The JPY traded at a one-year high versus the EUR. GBP traded at a nine month low versus the USD pressured by concern about UK debt and report a sharp drop in UK Q4 businesses investment. Commodity currencies traded lower pressured by a spike in risk aversion sparked by weaker equity market trade. AUD weakened despite RBA rate hike speculation. RBA watcher McCrann says there’s nothing standing in the way of a 25bps rate hike next Tuesday. US economic data was mixed with jobless claims posting a sharp rise. Jobless claims are at their highest level since last November. Durable goods came in almost 3 times as strong as expected. The jump in durable gods reflects a sharp increase in civilian aircraft orders. USD extended its gains and the JPY traded at a new high for the day after the release of the unexpected spike in US jobless claims. Fed Chairman Bernanke suggested that weather may be impacting the jobs report but his comments had limited impact and stocks traded sharply lower in reaction to jobless claims report.

Today’s US data:
Jobless claims for week ending 02/20 rose by 22k to 496k, a reading of 460k was expected. January durable goods rose by 3%, a 1% rise was expected.

Upcoming US data:
On February 26th Q4 preliminary GDP will be released expected at 5.5% compared to 5.7% in the original report. February Chicago PMI and final Michigan sentiment will also be released on February 26th. The PMI is expected at 60 compared to 61.5 last month and Michigan consumer sentiment is expected at 74 compared to 73.7 last month. Finally on February 26th, January existing home sales will be released expected at 550k compared to 545k last month.

JPY
JPY traded sharply higher supported by safe haven demand sparked by weaker equity market trade, fresh concern about the Greek debt crisis and uncertainty about the outlook for the US recovery. This week’s release of weaker than expected US consumer confidence and the home sales data generates concern about the outlook for the US recovery. JPY extended gains after the release of an unexpected rise in US jobless claims. In his testimony before Congress, Fed Chairman Bernanke said it is still uncertain whether the US recovery self-sustaining. Bernanke’s comments add to the deterioration in risk sentiment. S&P says that it may downgrade the Greek sovereign debt rating by the end of March. Concern about a possible Greek debt downgrade and report in the European press that a Greek aid package may be in jeopardy sent the EUR/JPY cross to a one-year low. GBP/JPY cross traded almost 2% lower with GBP pressured by report of a sharp decline in UK Q4 business investment. AUD/JPY cross traded sharply lower with the AUD pressured by today’s decline in global equity markets and spike in risk aversion. JPY price direction is expected to continue to track risk sentiment and diminished Fed rate hike speculation. Analysts at J.P. Morgan Chase forecast JPY will trade at 87 next month as traders reduce bets that the Fed will raise interest rates sooner than expected. In his testimony before Congress Fed chairman Bernanke said that US interest rates will remain low for an extended period.

On February 26th January CPI will be released expected at -0.2% compared to -0.5% last month along with January industrial output, retail sales, housing starts and construction orders. Industrial output is expected at 2.2% compared to 0.7% last month. Retail sales are expected to fall by 1.2% compared to 0.2% last month. Housing starts are expected to rise by 3.3% compared to 2.5% last month and construction spending is expected to rise by 0.6% compared to 24.5% last month.

Key technical levels to watch in USD/JPY include support at 88.55 the February 4th low with resistance at 90.29 the February 25th high.

EUR
EUR traded lower pressured by concern over Greece and a spike in risk aversion. The UK Telegraph reports that a rescue plan for Greece may be in jeopardy because of comments made by the Greek Deputy PM on Germany’s Nazi past. In addition, S&P says that it may cut Greece’s BBB+ plus rating by one or two notches within a month. Speculation of a possible downgrade to the Greek debt rating sparked selling of the EUR. EUR has declined by almost 10% since its December high primarily pressured by concern about sovereign debt risk in peripheral EU countries. EU economic data was mixed and had limited impact on today’s EUR trade. EU February business confidence index improved to -0.98 from -1.13 last month and economic sentiment posted an unexpected decline to 95.9 from 96 last month. German unemployment for February rose less than expected with job losses at 7k, a reading of -16k was expected. These reports suggest that the outlook for the EU recovery remains mixed and the data is expected to encourage the ECB to maintain steady monetary policy. To address sovereign debt risk in peripheral EU nations these nations will be required to cut spending. The spending cuts will likely be a drag on the EU economic recovery. Because of the sovereign debt crisis the ECB may delay implementation of its exit strategy from nonconventional monetary measures. EUR remains vulnerable to concern about EU sovereign debt risk and steady ECB policy outlook.

On February 26th EU January CPI will be released expected at 1.2% compared to 1.1% last month.

The technical outlook for the EUR is negative. Expect EUR support at 1.3425 the May 18th low with resistance at 1.3627 the February 24th high.

GBP
GBP traded at a nine-month low versus the USD pressured by concern about UK debt and in reaction to report of a sharp decline in UK business investment. As we approach the May 6th national election in the UK there are two major concerns about how the election may impact the UK deficit. Rating agencies have put the UK on notice that if the government does not take action take credible action to reduce the deficit the UK AAA sovereign debt rating may be cut. The most recent UK election polls suggest that the election may result in a hung parliament. A hung parliament could lead to gridlock and lack of credible effort to reduce the UK deficit. The other concern is that the new UK government will be under intense pressure to take immediate action to reduce the UK deficit. A premature withdrawal of the UK stimulus while the UK economy is still struggling could lead to more significant deterioration not only in the economic but the long-range deficit outlook. Analysts at UBS said that GBP could fall below parity with the EUR and 1.05 versus the USD if the UK government prematurely withdraws stimulus and tightens fiscal policy.  UK Q4 business investment declined by 5.8%, a 0.1% rise was expected. The decline in business investment generates concern about the outlook for the UK economy and may intensify speculation that the BOE will be forced to expand quantitative ease. This week a number of BOE officials opened the door for possible expansion of quantitative ease if needed. BOE’s Posen said that he expects UK inflation to remain subdued and that the BOE will expand quantitative ease if needed. Posen’s comments follow a statement from BOE Governor King Tuesday that it may be necessary to expand quantitative ease. King made his comments in testimony before Parliament and his comments followed Tuesday’s report of weaker than expected January UK mortgage lending. This week’s main focus will be Friday’s release of UK GDP. An upward revision in GDP could help to slow the rate of the GBP decline.

This week’s UK economic calendar includes the February 26th release of Q4 GDP expected at 0.2% compared to 0.1% in the prior report. January GFK survey and nationwide home prices will also be released on the 26th. The GFK is expected unchanged at -17 and house prices are expected to rise by 0.4% compared to 1.2% last month.

The technical outlook for GBP is negative as GBP trades below 1.5300. Expect near-term support at 1.5200 with resistance at 1.5475 the February 23rd high.

CAD
CAD traded sharply lower pressured by the spike in risk aversion and weaker commodity and equity markets. The spike in risk aversion is attributed to this week’s release of weaker than expected US consumer confidence, new home sales and jobs claims data along with Wednesday’s report that China was taking additional measures to curb lending and concern about a possible Greek downgrade. The US reported an unexpected sharp drop in consumer confidence in January, with new home sales declining at a record pace and jobs claims posted an unexpected rise last week. These reports generate concern about the US and global recovery. According to a Reuters report China’s banking regulator told banks to restrict funding to local governments. China raised its bank reserve requirements by 50bps twice this year to try to curb lending. Tightening in China contributes to recent weakness in global equity and commodity markets and has generated a reappraisal of risk appetite. Tightening in China may discourage demand for commodity-based currencies if the tightening leads to slower global growth. There were no major economic reports released from Canada today. The next major focus for CAD trade will be the BOC policy meeting scheduled for March 2nd. The BOC has pledged to maintain record low yields through June of 2010 provided inflation remains in check. Last week Canada reported above expectation inflation with CPI rising close to the 2% BOC target. Despite the rise in Canada’s inflation the BOC is expected to maintain steady rate policy. The BOC’s decision to maintain steady rate policy could be a mild negative for CAD.

On February 26th Q4 current account will be released expected at -8.75bln compared to -13.12bln last quarter

The technical outlook for CAD is mixed to negative as USD/CAD trades above 1.0600. Look for near-term support at 1.0514 the February 25th high with resistance at 1.0780 the February 5th high.

AUD
AUD traded sharply lower pressured by a spike in risk aversion as stocks decline pressured by concern about possible Greek downgrade, weaker than expected US jobs claims data and China’s tightening of credit conditions. AUD was also pressured by a report in the UK Telegraph which says that a Greek aid rescue may be in jeopardy because of comments made by the deputy Greek Deputy PM about German war atrocities. US equities traded sharply lower after the release of today’s unexpected rise in US jobless claims. The spike in US jobless claims follows this week’s disappointing US consumer confidence and housing data and contributes to concern about the global recovery. The sharp decline in the AUD was all the more striking in light today’s release of strong Australian CAPEX spending data and increased speculation that the RBA will hike rates next week. Australia’s Q4 CAPEX rose by 5.5%, a 2% rise was expected. CAPEX spending is generally considered the fuel for economic growth and this report suggests that the Australian domestic recovery is sound. RBA watcher McCrann says there’s nothing standing in the way of the RBA from hiking rates 25bps at next Tuesday’s policy meeting. In light of this week’s US disappointing US economic reports and China’s tightening of credit the RBA may be less inclined to hike rates. RBA policy uncertainty adds to today’s AUD decline.

On February 26th January private sector credit will be released expected unchanged at 0.3%.

The technical outlook for the AUD is negative as the AUD failed to hold above 8900. Expect AUD support at 8750 the February 11th low with resistance at 8953 the February 25th high.

Source: Easy Forex

My recommended Forex Broker is Forex Yard.