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Forex Trading StrategiesUSD fell again late yesterday. A possible short bout of range trading ahead before market commits to more USD weakening.
The dramatically weak JPY is the most pronounced market phenomenon ahead of Jintao/Bush powwow today. Philly Fed on tap later.
MAJOR HEADLINES â€“ PREVIOUS SESSION
o US Crude Oil inventories fell -806k barrels and gasoline inventories fell -5445k barrels. Oil spiked to new record highs above $74/barrel in New York on the news.
o Japan Merchandise Trade Balance for March out at Â¥978.1B vs. Â¥735.0B expected, and Â¥698.1B vs. Â¥572.1B expected on an adjusted basis.
o China's Q1 GDP rose 10.2% on an annualized basis vs. 9.7% expected. China's PPI for Q1 rose 2.5% on a YoY basis vs. 2.9% expected and the CPI rose 0.8% vs. 1.3% exp. China Retail Sales rose 13.5% and Value Added Industry rose 17.8%.
o In the World Economic Outlook, the IMF said that the USD must weaken "significantly" if global economic imbalances are to be resolved orderly
USD weakened again after a push stronger on the CPI data yesterday. The JPY remains weak.
THEMES TO WATCH â€“ UPCOMING SESSION
Nothing dramatically new to write home about in this environment. The parabolic metals and energy markets continue to astound, Chinese officials continue to talk up flexibility and talk down revaluation. The USD at first followed the moves in interest rates yesterday - as the higher than expected core CPI number had folks out selling bonds in droves and buying the USD in sympathy. But we can see how the interest rate differential theme is slipping as the USD got pummeled again later in the session yesterday, while bonds remained offered. The IMF report about global imbalances is not a reason why this happened - but it points out once again that the painfully obvious and alarming imbalances are the underlying fundamental drivers here - though in the short-term it's always the flow situation that is controlling everything...
Despite those imbalances, the JPY continues to weaken as an isolated phenomenon, as oil prices and the carry trade are still popular themes for the JPY. How much longer this can continue is the question... (a while - but not forever, if you read between the lines) Commodity currencies (CAD and AUD) are alarmingly popular and would seem to be extremely vulnerable if these white-hot commodities markets have a nasty day or two.
Oil prices very much in focus. The Iran situation and fears related to it are actually covering up another big problem - the US gasoline supply situation as we head into the summer "driving season". Gasoline supplies have plummeted in recent weeks as some refineries have closed for maintenance and must reformulate gasoline to comply with summer-time US formulation rules and the new elimination of the MTBE additive from all gasoline blends. It's hard to be bullish the USD with the trade imbalance implications of sustained $75 crude.
Observers apparently found enough "hawkishness" in the BOE minutes report to bid up GBP again as mentions of worries over second round effects from energy prices and the focus on positive developments related to overseas markets saw GBP bid up across the board. Today's inflation data from the UK is likely to see GBP either continue to commit in the direction of strength or get roundly pushed back. The key levels are 0.6870 and 0.6935 in EURGBP for the GBP 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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