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Forex Trading StrategiesUS rates pull USD stronger as the market prices in another Fed hike. Bernanke sworn in as new Fed Chairman - a New Era Begins for Financial Markets.
No interesting comments from Bernanke yesterday - but he will now be the markets' most closely watched man.
MAJOR HEADLINES â€“ PREVIOUS SESSION
â€˘ Canada Ivey Purchasing Managers Index rose to 54.1 from 48.3 in December and vs 53.5 expected
â€˘ Canada Building Permits for December rose 27.4% vs. 2.0% expected
â€˘ Australia's Cashcard Retail Index fell 0.6% in January
â€˘ Japan's Official Reserve Assets rose $3.8Billion to $851.7B total in January
â€˘ Australia's Business Conditions Index fell 2 points to 11 - the lowest level in 2Â˝ years.
â€˘ Japan Machine Tool Orders rose 5.0% in January
THEMES TO WATCH â€“ UPCOMING SESSION
There was nothing in Bernanke's swearing in yesterday or any of his statement that seemed to have any market-specific relevance, but the STIR futures market, for whatever reason, decided otherwise and is beginning to price in very high probabily of an "I can, too!" hike from Bernanke at the next Fed meeting in late March. The bottom line of the "new image for the Fed" that Bernanke is trying to promote is one of more transparency and more explicit inflation targeting. This could ironically have the effect of increasing volatility as each inflation release could cause all kinds of exaggerated reaction as the market tries to draw conclusions from each data point about how it is affecting the Fed's thinking. Time will tell.
For now, the USD looks strong, but the longer term setup doesn't suggest a massive wave of further USD strength just yet - as the EUR/USD market is trendless since last May, for example. For now, we focus on the interesting 1.1870/1.1900 pivot area in EUR/USD to see if this can hold the line. If not, then we may have a full retest of the 1.1640 base. Meanwhile, we can't begin to argue for a bullish view in the short-term unless a strong move back into the 1.2050 - 1.2170 range materializes soon. Perhaps the US trade numbers will be the catalyst for a firmer short-term view. We still prefer the USD weaker eventually for the reasons we have outlined before (slowing US economy, slowing capital flows and continued global imbalances and the need for central banks to seek USD alternatives for its reserves) - though it appears that patience is a virtue in this market...
Elsewhere, the JPY is looking firmer and long JPY trades may be a reasonable bet for the short-term - the question is, which pairs to trade. USD/JPY may have a look toward 118.00 and EUR/JPY toward 141.60.
Australia's RBA Cash Target announcement is up tonight - no change to the 5.50% is expected. The numbers from Australia haven't been terribly inspiring of late, with only strong commodity prices and the still-high interest rate propping up this currency. The disappointment over the failure to break the descending channel in AUD/USD last week continues to weigh. For a longer-term view on AUD in the other crosses, we focus on the EUR/AUD level of 1.6400/1.6500, as a break higher through this area would confirm our preferred view that a new up-trend is forming after 8 months of range trading.
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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