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Forex Trading StrategiesTrichet made it very clear on Friday where the ECB stands on rates - and market finally listened. EUR/USD may challenge key resistance.
JPY remains weak after Bush uses kid gloves on China. USD/JPY may try for 120.00, but with NO expectations now for China to move - they probably will, and soon.
MAJOR HEADLINES – PREVIOUS SESSION
* President Bush supposedly gave China an easy treatment on the Yuan revaluation issue on his trip to China over the weekend, as more progress was made on intellectual property rights issues.
* Friday, Trichet made it very clear that the ECB is "ready to move interest rates and said that it will "withdraw ... accomodation" after recent reports of internal squabbling at the ECB on whether they would hike rates in December or further out.
* Australia New Motor Vehicle Sales dropped -6.7% in October
JPY remained weak after Bush concluded his visit to China. EUR/USD rebounded from another attempt at lows on Friday and EUR/JPY rose above 140.20 resistance.
THEMES TO WATCH – UPCOMING SESSION
Apparently, the market was not expecting much from Bush's visit to Asia, even if we were. And Bush supposedly delivered little of interest to the market with this visit as the currency issues were only hinted at and moves on intellectual property rights received more attention. But I think reading the main newswires offers little of value for an indication on what is going on here. The fact that Bush had a comfortable and smooth visit to Asia without making any waves is a sign that China is gaining confidence on the world stage and that promises have already been made on the Yuan issue.
It would have been counter-productive to any chance for real reform on the Yuan issue to see Bush or anyone else in his administration making sharp statements about the revaluation problem before or during this visit - and it would have been a sign that no progress was being made. So, it is precisely the lack of news from that gives the surest sign that China is ready to move, and soon. Expect the USD to come down like a ton of bricks when it does. The question, as always, is one of timing, and with the US Thanksgiving holiday this week (Thursday is a full day off and Friday is a half-day), one wonders whether we must wait until next week or later for any announcement on a widening of the trading band for the Yuan vs. the USD.
So in the meantime, the ironic knee-jerk reaction may be to send USD/JPY even higher as the market gets over its "disappointment" - though I wouldn't expect this to last for any time.
On the EUR/USD front - the currency market finally listened to the interest rate market, which put a screaming buy on EUR/USD after Trichet's comments on Friday. We've only seen a move to first resistance there, however, and EUR/USD could now challenge the key 1.1850/70 area, and a move above 1.1900 begins to smell of a full-scale reversal.
Note: the support/resistance levels used in the matrix’s of this document are levels derived from yesterday high, low and close. Reference in the text to other support/resistance levels will occur.
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