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Forex Trading StrategiesBig rate moves continue to give USD a tailwind. 118.00 falls in USD/JPY.
EUR/USD support at 1.2000 looks under attack. Heavy data up tomorrow with US employment figures and ISM Non-manufacturing
MAJOR HEADLINES â€“ PREVIOUS SESSION
â€˘ US ISM Manufacturing for January out at 54.8 vs. 55.5 expected. ISM Prices Paid out at 65.0 vs. 64.0 expected
â€˘ US Pending Home Sales dropped -3.0% in December vs. -0.5% expected
â€˘ US Energy Supplies showed a stronger than expected build in Crude Oil and Gasoline supplies. Energy prices were lower before recovering overnight
â€˘ US Vehicle Sales in January rose to 17.6 Million vs. 16.4 Million expected
â€˘ Australia Building Approvals fell -3.5% vs. -0.7% expected in December
USD was stronger overnight with USD/JPY as high as 118.60 and EUR/USD breaking below 1.2050.
THEMES TO WATCH â€“ UPCOMING SESSION
We've seen huge moves in the STIR futures market, suggesting that the market is beginning to think it has gotten it wrong on what the Fed will do going forward. This seems to be the driving force in the market right now, and the interest in carry is seeing JPY as the biggest victim for the moment. Even EUR/JPY was to new highs overnight, though that chart is beginning to look a bit overdone.
EUR/USD is trading in an interesting area (1.2010 - 1.2050) defined by the lows all through January and the highs in December. This really looks like a pivot area where the pair decides whether to commit lower toward 1.1900 and even 1.1800 or whether it will attempt to stage some kind of recovery. The aggressive moves in the rate markets and the bouncing back of US stocks suggests that risk willingness is a theme and seems to correlate with a stronger USD at the moment. With this in mind, we shift to a neutral to bearish bias for the short term for EUR/USD - with 1.2150 necessary to argue for any upside from a technical standpoint.
Further out, we're not looking for a rally to new highs for the USD (save for in USD/JPY potentially) unless new market developments suggest this is a possibility. Factors that could change our perception for the USD moving stronger still are a continued strong rally in interest rates (if the US 10-year takes out the 4.9% level - currently at 4.56%) and strong upside surprises in a few key numbers in the coming month. In general, we still prefer a fairly limited rally in the USD as we feel that, while the economic picture may look better than what Q4 showed, other factors besides interest rates and growth may begin to weigh further out..
Market may trade nervously today with the big US data up tomorrow. USD/CAD could be vulnerable to a sharp upside consolidation considering that the pair has not at all tracked the big moves in rate differentials that favor the USD over the last several trading days. Watch out for Iran news today with the potential referral of Iran to the UN Security Council - according to IAEA's website, this announcement is scheduled to take place at 1000 GMT today.
The ECB is up today - which could be a non-event, or could be the main event depending on how they present their message. Trichet will undoubtedly express considerable worries about oil prices which could give the EUR a little temporary relief.
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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