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Forex Trading StrategiesTime for the USD to follow through weaker. Key week for US housing data.
JPY finally eases back a bit overnight, but any weakness may fade quickly ahead.
MAJOR HEADLINES – PREVIOUS SESSION
• Strong German IFO Friday: 99.6 vs. 98.2 expected and highest in over 5 years.
• US Current Account Deficit for Q3 out at –195B vs. –205B expected
• WTO talks end with limited agreements – EU to halt all farm export subsidies by 2013. US to to cut payments to cotton farmers. Most imports from poorest nations to be made duty free in US and EU.
JPY eased weaker again overnight, while AUD moved a bit stronger and USD remained steady.
THEMES TO WATCH – UPCOMING SESSION
The USD avoided an acceleration weaker on Friday as the Current Account balance for Q3 came out smaller than expected. Keep in mind, however, that this is one of the "latest" data points in the market - meaning that this data point is for activity ending in late September. The worst Trade Balance number, for example, came in October, the first month of Q4 - so there's still the possibility that the "global imbalance" theme may be renewed going forward.
This week will be a key one for US housing data as we have US Housing Starts and Building Permits up tomorrow - remember the disappointment in this number last month. On Friday, we have the US New Home Sales for November just ahead of the Christmas weekend, which will tell us whether the October data (a record) was a fluke.
Technically, it looks like 1.1950 is becoming quite the line in the sand for EUR/USD, which now is looking comfortable with its break through the 1.1900 resistance last week. With that now accomplished, we need to see some follow through action higher, as we focus on the 1.2150/1.2200 zone initially, but possibly 1.2450 eventually. The JPY has finally eased back a bit, but a renewed round of buying may set in soon as the damage to the trend there appears fatal. 140.00 may be symbolic resistance for EUR/JPY, while 116.50/70 may contain USD/JPY.
One cross of interest is EUR/GBP, which doesn't look particularly interesting from a technical point of view, but GBP still looks overvalued in this market. Possibly it's the market's interest in beating up on EUR/JPY that has warped the picture in the European crosses, but it would seem that EUR/GBP is mispriced here with all of the miserable data coming out of the UK while the short rates picture in Europe is looking bullish and business surveys stream in at multi-year highs. A break of 0.6795 may be worth following.
Looking for the market's weakling (besides our favorite punching bag, the NZD), we single out CAD, which really looks to take a beating with the strong JPY (CAD/JPY was the top performer of 2005 among the major crosses in 2005), weaker energy prices and a weak USD. An acceleration weaker in CAD may be due today with the Canada CPI up and Canada Retail Sales out tomorrow.
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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