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Forex Trading StrategiesUSD breaks lower in Asia's Monday session on plummeting stocks and dovish Fed comments. EUR/USD focus shifts to 1.2500 if break holds
Big market moves may continue with stocks witnessing massive sell-off and as crude pushes up against new record highs.
MAJOR HEADLINES ï¿½ PREVIOUS SESSION
ï¿½ Friday: Swedenï¿½s Riksbank raised rate 25 bp to 1.75%
ï¿½ Friday: UK Dec. Retail Sales at 0.4% as expected
ï¿½ Friday: January Preliminary University of Michigan surprised to upside (93.4 vs. 92.5 expected)
ï¿½ Dovish remarks from US Fedï¿½s Poole ï¿½ ï¿½Weï¿½re in balanced position.ï¿½
ï¿½ Australia Producer Prices 0.8% in Q4 vs. 0.9% expected
ï¿½ Various ECB officials indicate inflation worries late Friday (Noyer and Bini Smaghi)
USD fell to new recent lows against European currencies after ECB officials seemed to remain rather concerned about inflation while the US Fed's Poole suggested that the Fed's streak of rate rises would soon come to an end.
THEMES TO WATCH ï¿½ UPCOMING SESSION
Markets are really heating up with the stock market meltdown on Friday likely to shake investors' confidence. This kind of move could easily rub off on the currency market as the speculative world looks to shift its money around to take this ugly development into consideration. It was interesting to see the University of Michigan preliminary January number surprise to the upside. That's because this survey is often just a reflection of how well the stock market has been doing lately - and the majority of votes was likely collected earlier in the month, when it looked like the stock market was off to a roaring start for the year. The final January number for Michigan confidence will look entirely different if stocks even stay at present levels, much less sell off.
The specific spark for the USD sell-off on Friday was the combination of dovish Fed comments (AFTER the Friday close) and hawkish ECB comments (BEFORE the Friday close). The former came from Poole, apparently one of the more hawkish members of the Fed (though he is a non-voting member in 2006), who said that "We're in a very balanced position." and "I think we're vey much in a stable inflation environment now and that it's going to continue.". Poole also noted the lack of second round effects from energy price rises and said that the 1ï¿½ further hikes from the Fed priced into STIR futures seemed "perfectly sensible" based on current information in the market. The ECB comments were more general expressions of concern on inflation, with Noyer even saying that ECB rates are "too low for price stability."
Technically, EUR/USD performed the classic "tease and reverse" turnaround on Friday - briefly tickling the 1.2050 support in the European session and even falling below it for about 2 minutes before spiking back into the range. Then the developments late Friday pummeled the greenback even further. The sell-off seems broad and decisive - so unless we reverse immediately today - it looks like we have a weak USD trend continuation now that we've finally moved out of the range that held since the second trading day of the year.
Elsewhere - the JPY looks surprisingly weak as EUR/JPY was all the way to 140.80 overnight before meeting a wall of offers - will EUR/JPY really go any higher? A break of 140.80 suggests a try at the 143.55 top again. USD/CAD may have done all it can do to the downside for the short term with the upcoming event risks possibly triggering a move back up to 1.1600 on profit-taking.
Looking ahead at all of the data this week - highlights include the Canadian election tonight and BOC tomorrow., but also:
TUE: UK CBI Industrial Trends
WED: US Existing Home Sales, UK BOE Minutes, Germany IFO
THU: Japan Merchandise Trade Balance, US Durable Goods Orders
FRI: Japan Tokyo & National CPI, US Q4 GDP (first estimate), US New Home Sales
Note - these are only highlights.
Note: the support/resistance levels used in the matrixï¿½s 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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