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Forex Trading StrategiesMarket yawns at mostly positive overnight data from Japan as all eyes on tonight's FOMC meeting.
We see little probability of a significant change in the Fed statement and the likelihood that the market may have to price in further hikes beyond tonight's
MAJOR HEADLINES â€“ PREVIOUS SESSION
â€˘ New Zealand Building Permits for December rose 21.0%
â€˘ Japan Jobless Rate for Dec. fell -0.2% to 4.4% vs. 4.5% expected
â€˘ Japan Nomura/JMMA Jan. Manufacturing PMI rose to 57 from 55.7.
â€˘ Japan Workers' Household Spending rose 3.2% vs. 2.5% expected year-on-year, and +0.4% as expected month-on-month
â€˘ Australia December Business Survey showed falling confidence (-2 at 6) as companies planned to invest less.
â€˘ Japan Housing Starts for December fell -0.9% vs. +7.2% expected
â€˘ Japan Small Business Confidence for January dropped to 49.6 from 50.1
â€˘ Russia and China have agreed with the other permanent members of the UN security council that Iran should be referred to the Security Council for its nuclear program. The IAEA will meet Thursday, when the referral will likely take place, but the case may not be taken up until March.
JPY remained very weak and the USD was mostly rangebound as AUD strengthened a bit overnight.
THEMES TO WATCH â€“ UPCOMING SESSION
The key news on the geopolitical front overnight was the apparent agreement among the major powers to refer Iran to the UN Security Council. This is an interesting development, as the previous string of stories seemed to suggest very divergent stances on this issue - as China seemed to want to avoid a referral. Perhaps in the end, the various powers didn't like the idea that Iran was transparently trying to "play" them off one another in an effort to forward its own agenda, using oil as some kind of strategic weapon of political leverage. Iran desperately needs to sell its oil for its own domestic stability - so it's ambitions to manipulating the large powers have clearly over-reached and it will have to listen to what the international community says if it approaches Iran with a united front. Hopefully, this issue will fade into the background again - though the response from Iran will be key and the actual Security Council decisions that issue from meetings apparently scheduled for some time in March.
The other thing to watch on the geopolitical front is President Bush's state of the union address tonight - a key speech as the Iran issue is on the front burner, the US is tiring of the situation in Iraq, and the whole political system is under fire due to the Abramoff scandal.
On the FOMC front, we don't look for any dramatic change of stance from the Fed, and we think there are high odds of at least one more hike to come after the one tonight, if not 2 - especially if stock markets remain so risk-willing. The market only seems to be pricing in low odds of an additional hike and is actually already pricing in hikes by the end of 2006. If the market continues to push interest rates higher, JPY may continue to find itself under pressure from the popularity of the carry trades - the complete lack of a response to the mostly positive numbers from Japan are a warning sign that the weak JPY trend may not be over with.
On the more mundane economic data front, the Germany Retail Sales from Dec. and Unemployment numbers from Jan. are scheduled for release today, as is the US Consumer Confidence number and Chicago PMI. Watch out also for the New Zealand Trade Balance number in early Asian trading, as it is the desperate current account imbalance that is dragging at NZD fundamentals.
Note: the support/resistance levels used in the matrixâ€™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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