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Forex Trading StrategiesUSD struggling close to final support. Are we ever going to see a real capitulation? Commodity currencies continue to blast higher.
USD weakened again yesterday despite massive foreign inflows registered with yesterday's US TICs data release for Feb.
MAJOR HEADLINES â€“ PREVIOUS SESSION
â€¢ Friday: US March Industrial Production out at 0.6% vs. 0.5% expected and Capacity Utilization out at 81.3% vs. 81.4% expected.
â€¢ Monday: Japan Industrial Production final revision for FEbruary out at -1.2% vs. original estimate of -1.7% and Capacity Utilization at 104.4 vs. 106.1 previously.
â€¢ Monday: Japan Consumer Confidence out at 48.2 vs. 48.8 exp.
â€¢ Monday: US Empire Manufacturing for April out at 15.8 vs. 24.3 expected and 29.0 previously
â€¢ Monday: US Net Foreign Security Purchases for February out at +$86.9B vs. $60.0B expected
Market moves: USD sharply weaker yesterday, not moving much overnight. EURJPY close to recent highs and AUD strengthening on rally in metals.
THEMES TO WATCH â€“ UPCOMING SESSION
The market really showed its hand yesterday as a massively positive TICs data number failed to impress and the market erased yet another attempted sell-of in EUR/USD, GBP/USD and USD/CHF rally. The market moves of late have had little to nothing to do with shifts in Fed and ECB expectations (save for the recent isolated EUR sell-off when Trichet so disappointed the market). This seems to all be indicative of a slow fading in the interest rate theme as the market is looking for a new focus. That focus may be the various countries' relative current account positions and a relative reduction in risk as higher rates are drying up liquidity in the market. CHF reigns supreme with the world's largest current account surplus as a percentage of GDP. And it is beginning to show signs of strength despite its anemic interest rates... Is there more to come there?
Still, the interest rate theme is by no means completely dead... The JPY may stay weak in the crosses as the ever-cautious officialdom in Japan once again was out in full force saying that the market is moving too fast in terms of interest rate expectations and actual moves in the longer term interest rates. With this kind of jawboning and cautiousness, together with the record highs in oil benchmarks (Japan 100% dependent on foreign oil) , there may be room for a further rally in EURJPY to new highs above 145.00. Still, the JPY focus may shift later in the week as we have a look at these bilateral talks between China and the US on currency and trade issues and the visit of Mr. Hu Jintao to the US to Washington on the 21st. So JPY shorts are not without risk...
Elsewhere, GBP is looking overpriced again in the crosses. Apparently, its ability to stay reasonably strong after bouts of weakening has to do with tremendous M&A flows. Global stock markets have been dominated by M&A activity of late, and the UK has by far the most open market in Europe, meaning that it's easier for foreign entities to takeover UK corporations than elsewhere in Europe. How long this phenomenon can continue is anyone's guess, but the fundamentals for the GBP have been a screaming sell for a long time now - so one might consider any round of GBP strengthening as an opportunity to sell - vs. CHF and/or EUR.
The commodity currencies continue to flourish and USD/CAD may be ready for another swoon and test of the recent lows if the 1.1430 support gives way.
Watch out for the US PPI today and the US Housing Starts and Building Permits number. There may be some focus on the US housing market again. The NAHB survey of new home builders and their customers' interest is showing a rapid deceleration and is close to multi-year lows. Also, later in the day we have the FOMC minutes, which could spike the market either way briefly depending on any indications. Remember also in general that the Fed may not have much of a plan at this point, as its course may be fully determined by the "incoming data" as it has indicated on several occasions. So consumption, inflation, and housing numbers (as well as - very importantly - the actual moves in oil and long term interest rates) are important for the Fed view.
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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