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Forex Trading Strategies More rhetoric keeps the JPY strength on the front burner overnight. EUR/USD testing lower.
Focus this week may shift to ECB on Thursday, as Trichet is expected to hike rates 25 bp to 2.50%. Can this give EUR any support?
MAJOR HEADLINES â€“ PREVIOUS SESSION
â€˘ Friday: US Durable Goods for January out at -10.2% vs. -2.0% expected, but ex Transportation 0.6% vs. +0.5% exp.
â€˘ Friday: Germanyâ€™s Inflation in Feb. at 0.4%
â€˘ Friday: Oil jumped higher on foiled terrorist attack in Saudi Arabia
â€˘ Japanâ€™s Fiscal and Economic Policy Minister Yosano said the govt. supports the Bank of Japanâ€™s plans to end the quantitative easing policy.
JPY moved stronger still overnight with USD/JPY briefly below 116.00 before edging higher and EUR/JPY as far south as 137.25 before bouncing strongly later in the session.
THEMES TO WATCH â€“ UPCOMING SESSION
More rhetoric from Asia overnight, this time from Yosano, as all of the Japanese government organs of importance are lining up to assure the market that this quantitative easing policy will finally be dismantled. The statements are very important for the long run encouragement of JPY strengthening further - but we have to remember the main factor that previously was driving JPY weakness before this latest round of rhetoric got everyone excited about the rate view: capital flows moving abroad from Japan in search of higher yields. After all, the stopping of the flooding of cash and perhaps a quarter point move higher in rates later this year by the Bank of Japan doesn't exactly remove the carry aspect of selling JPY.
This isn't to say that we're headed for a reversal to weak JPY again - just that the action may get increasingly choppy rather than the JPY continuing to strengthen unabated as the capital flows will provide some resistance to those buying the JPY in anticipation of tightening. Technically, the firm break through 116.50 looks like a real change of trend to the downside for USD/JPY, though we'll need to see the pair hold below the 116.50/80 area for a couple of days for confirmation. In terms of economic data, Friday is clearly the focus for the JPY, as the Asian session on Friday will see everything from Japanese employment and spending data to the latest inflation numbers for Tokyo and Japan as a whole.
While the EUR should see some action this week with the upcoming ECB meeting on Thursday, EUR/USD remains profoundly uninteresting for the moment technically due to the lack of volatility. It seems that the increasing anticipation of a more hawkish ECB and some narrowing in US/Europe rate spreads over the last couple of days could give the pair a chance at pulling a bit higher again, though there's no reasonable sign of relief for the bearish view unless EUR/USD pulls above 1.1900 again.
The US New Home Sales number today will be interesting in light of the record housing starts number from last month. It appeared we had turned the corner to the downside for housing starts and building permits only to see the freakish strength for the January numbers. Will the New Home Sales number follow suit?
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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