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Forex Trading StrategiesUSD reversal yesterday on poor data from the US. Noise level on end of BoJ's quantitative easing policy increases.
US ISM key test for today - buy main event is tomorrow's ECB meeting. Next resistance zone for EUR/USD at 1.1970 to 1.2030.
MAJOR HEADLINES â€“ PREVIOUS SESSION
â€˘ US Consumer Confidence for February out at 101.7 vs. 104.0 expected
â€˘ US Existing Home Sales for January out at 6.56M vs. 6.60M expected
â€˘ US Richmond Fed Index for February out at 0 vs -4 in January
â€˘ US Chicago PMI for February out at 54.9 vs. 58.5 expected
â€˘ Poland's Central Bank lowered it's rate 25 bp to 4.00% vs. no change expected
â€˘ US Weekly ABC Consumer Confidence out at -12 vs. -13 the previous week.
â€˘ Australia AiG Performance of Manufacturing Index for February dropped to 46.7 vs. 50.2 in January
â€˘ Australia Q4 GDP out at +0.5% QoQ vs. +0.7% expected
â€˘ China CLSA Manufacturing PMI for February rose to 50.7 from 50.2 in Jan.
USD was weak late yesterday and JPY eased stronger overnight in a mostly quiet Asian session.
THEMES TO WATCH â€“ UPCOMING SESSION
Very interesting stories out overnight in Asian trading, even if there was little volatility to back them up. First, a news story out from the Nikkei newspaper in Japan that suggests the Bank of Japan will be very careful to keep rates stable and low while it is unwinding the quantitative easing policy. This is interesting as it could mean that Bank of Japan operations could keep rates artificially low along the yield curve - potentially JPY bearish - while the overall JPY bullish theme of the end of quantitative easing is the important backdrop. Of course, the most JPY bullish scenario comes if rates continue to edge higher despite the BoJ's actions. Keep in mind that the end of the Japanese fiscal year comes at the end of March, so some kind of concrete announcement on the official end of q.e. is likely very soon.
The other interesting story out was based on an interview with a "senior currency official" who indicated China was taking steps to allow freer movement of domestic Chinese capital abroad to ease the pressure on the strengthening yuan. No timetable was given. Meanwhile, the US Treasury under-secretary Adams said in an interview today that China should allow its currency to strengthen. The Treasury is actively investigating whether China manipulates its currency, as there is increasing speculation that this time (in a mid-April report), the Treasury will actually find the China guilty - with unknown policy consequences.
The round of data from the US late yesterday was truly ugly - with especially the Existing Home Sales number standing out - considering that this number is seasonally adjusted and that the US had the warmest January on record, this is real warning light for the US economy in the long run as the home equity extraction driven strong consumption pattern must certainly be threatened by a cooling housing market. The ISM is up today and is expected to have increased to 55.5 from 54.8 in January.
Of course, the main event is tomorrow's ECB, and with the reversal yesterday, it looks like there is room for EUR/USD to rise toward the 1.1970/1.2030 resistance zone - with tomorrow showing us whether this is a "buy the rumor, sell the fact" setup for the EUR/USD, or whether a bigger reversal higher is underway.
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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