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Forex Trading Strategies by Robert P. Balan at Saxo Bank
USD/JPY may extend the rally to 111.50, but should fall thereafter towards 109.00 - 108.75 support area
Japan's services industry contracted for a second month in three in July as companies reduced spending on computer software, telecommunications and financial services.
DEVELOPMENTS TO WATCH TODAY: Sept 24 - Europe
- Japan's services industry contracted for a second month in three in July as companies reduced spending on computer software, telecommunications and financial services. The tertiary index, a measure of service companies' activity, fell 0.8 percent from June, the trade ministry said in Tokyo. Economists forecast a median 0.2 percent increase. The all-industry index, which includes industrial production and construction, fell 0.6 percent in July. Services activity may slide further as Japanese consumers reduce spending because of falling wages and higher social security premiums. Wages have risen in just three months in the past three years, and workers will have to make bigger contributions to their retirement plans.
- New Zealand's economic growth slowed in the second quarter from its fastest pace in four years as factories cut production and interest-rate increases crimped consumer spending. Gross domestic product expanded 0.9 percent in the three months ended June 30 after growing a revised 2.1 percent in the first quarter, Statistics New Zealand said in Wellington. The economy grew 5.7 percent from a year earlier. The report suggests central bank Governor Alan Bollard's five rate increases this year are slowing the economy. Bollard has said he may raise borrowing costs again to slow inflation after the jobless rate fell to a 17-year low of 4 percent in the second quarter.
- The index of leading U.S. economic indicators fell for a third consecutive month in August, the longest streak since early 2003, suggesting slower growth amid rising oil prices. The report by the New York-based Conference Board may undermine President George W. Bush's message that the economy is improving, less than two months before he seeks re-election. Federal Reserve Chairman Alan Greenspan and other policy makers two days ago said the economy is ``regaining some traction'' after slowing in the second quarter. The 0.3 percent decline in the gauge of how the world's largest economy will perform over the next three to six months matches the July drop and follows a 0.1 percent decline in June.
- Crude oil futures in New York were trading near a one-month high on concern that U.S. supplies will not be adequate to meet demand after disruptions caused by Hurricane Ivan. Oil stockpiles fell 9.1 million barrels to 269.5 million in the week ended Sept. 17, according to the Energy Department. The fall left supplies close to a 29-year low reached in January. High winds from the tail of the storm are delaying efforts to restart some platforms in the Gulf of Mexico and yesterday shut the Louisiana Offshore Oil Port, the nation's largest import terminal. Crude oil for November delivery fell 26 cents, or 0.5 percent, to $48.20 a barrel in after-hours electronic trading on the New York Mercantile Exchange at 9:54 a.m. Sydney time.
- The Bush administration may lend refiners oil from the Strategic Petroleum Reserve after Hurricane Ivan disrupted Gulf of Mexico shipping and production, lifting prices toward a record and threatening the economy. ``We've always said that the SPR was set up to protect against physical disruptions of oil supplies such as national emergencies or natural disasters, and not to manipulate prices for political purposes,'' White House spokesman Scott McClellan said. ``Certainly Hurricane Ivan had an effect on the temporary supply of oil imports and production.'' President George W. Bush, 58, rejected calls this summer from airlines, truckers and shippers seeking a release of oil to ease prices near $50 a barrel. Democratic presidential challenger John Kerry said in March that Bush should end his policy of filling the reserve as prices climbed and that consumers are being squeezed by high gasoline prices.
FX Market Summary -
The yen headed for a second losing week against the dollar in Asia on speculation rising oil prices will undermine a recovery in the Japanese economy, causing the Nikkei 225 Stock Average to extend a one-month low. The yen also may weaken after a government report showed Japan's services industry unexpectedly shrank in July, adding to concerns of a slowdown in the world's second-largest economy. Confidence among large manufactures will drop through December, the Bank of Japan's quarterly Tankan survey will show on Oct. 1, according to a survey of economists. Against the dollar, the yen traded at 110.65 at 11:15 a.m. in Tokyo from 110.80 late yesterday in New York. The Japanese currency dropped 0.8 percent this week, the biggest decline since the week ended July 30. It also traded at 135.73 per euro from 135.95, down 1.4 percent on the week. The Nikkei fell 1.2 percent today and 1.8 percent for the week.
Thursday's summary: the dollar staged a late-afternoon rally against the majors, finishing the regular session little changed. Upward momentum coincided with the late day sell-off in Treasuries. The greenback finished the regular session slightly higher against the yen and marginally lower versus the euro.
The U.S. dollar started out the trading day in Europe somewhat soft against the principal Europeans, only to regain some of its losses at the close. Concern as to the sustainability of U.S. growth, which seems to unwisely preoccupy the currency markets, helped lift the euro a modest 0.3% today, to trade recently around 1.230. Sterling shrugged off the weak CBI industrial trends report, rising 0.4% vis-à-vis the greenback, to 1.80, and trading near 0.683 to the euro, down a modest 0.1% on the day. The interest differential is temporarily favouring the pound, as the market chases yields.
- EUR/USD - the short-term uptrend suffered a setback, in sympathy with the pullback in bond prices following the publication of the August FOMC minutes. The Committee was fairly confident last month that the weakness in economic activity would soon pass, and that had the bond market and the major currencies spooked. Allow further downtick to 1.2230 - 1.2220 after which the single currency should make another pass at the 1.2350 top. And as before, an upmove beyond 1.2350 reinstates the rally towards 1.2500 -- the single currency should take out the 1.2350 resistance at some point next week.
The slightly longer-term positive outlook remains well -- the rally should eventually make it to 1.2500. But we repeat -- there is no real reason for bulls to celebrate until 1.2530 hypothetical resistance is taken out. This level is shaping up to be the major resistance in the current investment cycle. Take out 1,2530 top in turn, and you get a run-up to the 1.2925 high before year-end. Failure to do so consigns the currency pair to a long sojourn at 1.2500 - 1.2000 range.
- GBP/USD - Cable did test of the 1.8030 top then pulled back in line with the rest of the European majors; expect the ongoing correction to extend towards the 1.7930 - 1.7920 area. The rally should resume thereafter, and should take out the 1.8050 top, and may trigger a new series of advances -- there is no barrier between 1.8050 and 1.8500. Fundamentals are still getting in the way however -- the perception that the BoE is close to the end of the rate-tightening cycle should hurt the pound henceforth.
- USD/JPY - the currency pair continues to consolidate, but may yet proceed to 111.50 later in the week. Our downside projections have to be abandoned temporarily until we get a handle on this new uptrend.
- USD/CHF - there's a slight adjustment in the short-term view: the currency will probably rise further to 1.2660 - 1.2680 to complete the countertrend rally. The longer-term negative view kicks in thereafter -- the downtrend should resume. The currency pair may still be bound for 1.2380 next. Expect further declines to 1.2200 further out.
- USD/CAD -- the currency has been to as low as 1.2764 but may yet rise further to 1.2450 - 1.2460. The sell-off should resume thereafter. Momentum projections suggests that it might head towards the 1.2685 trough at least -- we are now extending the downside target area towards 1.2500.
- AUD/USD - the currency pair has been to .7160, and pulled back -- it might extend the correction to just above .7100. But the rally should resume thereafter. A rally towards .7300 - .7400 is now on track further out. The Aussie continues to benefit from its high-yield status and should lead the charge against the Dollar, and will alternate with the Kiwi for market leadership in the next few weeks.
- NZD/USD - the uptrend has brought the Kiwi to as high as .6685 and currently consolidates -- no change in the view. The Kiwi should eventually make a move towards the .6750 top, then extend gains towards the .7100 high for the year. Long Kiwi remains the best candidate for in the medium-term, from both technical and fundamental perspective.
- EUR/JPY - the cross has been to 136.50 and corrects back to 135.40 - 135.30. But the uptrend is still looking good -- its open waters until 137.00 - 138.00. The cross should continue to rally -- the next major focus being the 138.00 major resistance.
- EUR/CHF - the cross continues to trade sideways with support showing up at 1.5465 -- we still see a continued rise towards the 1.5510 top thereafter. The cross should continue to push through to 1.5550 and higher -- perhaps even to 1.5600.
- EUR/GBP - no change in view -- the cross did form a base at .6825. The uptrend resumes from here (.6840) and should eventually push through .6856, which may trigger a rally to .7000.
- GBP/JPY - the uptrend consolidates back to .6815 and may have initiated a new upmove towards the .6867 top. The next target is 200.00 after which it should make a beeline for the 205.00 target.
- GBP/CHF - the cross found a new base at 2.2520, but the rally since then may pullback further towards 2.2580/75. The rally should continue thereafter -- make a new probe of 2.2780 top, and if taken out, we reinstate a 2.3000 target.
DEVELOPMENTS TO WATCH TODAY: Sept 23 - New York
- The number of U.S. workers filing new claims for jobless benefits rose by 14,000 last week to 350,000, the Labor Department said in Washington, linking most of the increase to hurricanes Charley and Frances. The increase, from a revised 336,000 the week before, was greater than the median forecast of 335,000. The four-week moving average of claims rose to 341,000 from 339,000. Claims began to fluctuate last month because of disruptions from hurricanes, with figures ranging from 317,000 to 360,000 since the first storm, Charley, struck Florida on Aug. 13. Last week's number is close to the 344,000 average for the year and consistent with increased hiring as demand recovers from a mid-year lull, economists said.
- Fannie Mae's federal regulator found the largest U.S. mortgage finance company violated accounting rules, raising ``doubts'' about the validity of earnings. Shares of the company fell the most in 18 months. The Office of Federal Housing Enterprise Oversight also found at least one instance where the Washington-based company deferred expenses to meet executive bonus targets and used improper ``cookie jar'' reserves. The findings were disclosed in a statement by Fannie Mae's directors, which said it ``takes the report seriously and is working with Ofheo to resolve these matters.'' Fannie Mae spokeswoman Janice Daue declined comment. Ofheo's eight-month investigation was triggered last year when Freddie Mac said it understated earnings by $5 billion to make profits look less volatile. The report may give more ammunition to lawmakers seeking stricter oversight of the government-chartered, shareholder-owned companies and their combined $1.7 trillion of debt.
- Crude oil futures slid, after surging above $48 a barrel yesterday, as traders said the 11 percent gain in prices since Hurricane Ivan struck land a week ago more than reflects the disruption caused to U.S. supplies. Prices rose yesterday after an Energy Department report showed that U.S. crude oil inventories fell 9.1 million barrels to 269.5 million last week as companies shut rigs and platforms in the hurricane's path. The jump in prices may have been extended by speculators buying back contracts they held to sell oil at lower prices. Crude oil for November delivery fell as much as 61 cents, or 1.3 percent, to $47.74 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $47.90 at 9:44 a.m. Sydney time. The contract yesterday rose $1.59, or 3.4 percent, to close at $48.35 a barrel. Prices touched $48.65, the highest since reaching a record $49.40 on Aug. 20.
- New Zealand's current account deficit unexpectedly widened in the year ended June 30 because consumers spent more on cars, appliances and other imports, while the price of imported gasoline surged. The annual gap widened to NZ$6.44 billion ($4.3 billion) from a revised NZ$6.02 billion in the year through March, Statistics New Zealand said in Wellington. That's the biggest gap since September 2000. Economists expected the deficit would narrow to NZ$5.6 billion. Reserve Bank Governor Alan Bollard this month raised the benchmark interest rate for a fifth time this year to 6.25 percent and said another increase is needed to slow the economy and curb inflation. Economists expect he will raise the rate to 6.5 percent on Oct. 28.
- Housing prices in the U.K., Australia and Spain may be poised to fall because of an expected increase in global interest rates, the International Monetary Fund said in its semi-annual World Economic Outlook. In countries where home prices are overpriced and household debts has grown, ``there is the risk that an increase in interest rates could trigger a sharp house price drop with more severe consequences for economic activity,'' the IMF said. underpinning a boom in consumer spending that helped Britain post its longest period of growth in about 200 years. HBOS Plc., the nation's biggest mortgage lender, said prices fell in August for the first time in two years.
FX Market Summary -
The U.S. dollar was mixed against the majors in European trading.
The Minutes of the August 10 FOMC meeting, due at 1400 EST, will give currency traders plenty to pore over today, especially given the confusion sown in the wake of the Fed meeting earlier this week. Lingering concerns about the durability of U.S. growth continued to weigh on the dollar, pushing the greenback southward vis-à-vis the euro. Other U.S. indicators due today are initial claims for the week ending September 18 and the Conference Board’s index of leading indicators for August.
Initial claims for unemployment benefits jumped 14K to 350K in the week of Sept 18 as the Southeast hurricanes play a small part. The 4-week average rose to 341K as the largely flat growth since in mid-May hasn't pushed through the 334K three and a half year low. Continued claims rose 5K to 2.883 mln as the 2.881 mln 4-week average matches the three year low of late July. The labor market is improving but evidence is seen in the net rise in payrolls (and unemployment decline) as layoffs have flattened.
The yen backed-off to five week-lows against the dollar in overnight trading and was rapidly closing on a four week-low vis-à-vis the euro. High oil prices weighed on Asian equity markets and undermined the yen on concerns that Japan’s oil imports will climb even further.
In the absence of any major data, the euro has taken its tack from U.S. dollar weakness, gaining modestly as traders unwound some of yesterday’s greenback gains and mulled over the implications of sustained, high oil prices. The July print of Italy's retail sales index – which revealed further seesawing in domestic demand in one of the euro area’s laggards – did little to check the single European currency’s modest rise. It will likely hold to its current range in advance of the U.S. data releases.
Sterling was trending higher in advance of the CBI industrial report. However, expectations of only a modest decline were disappointed and export orders plunged to their lowest level since February, dragging down overall orders. The pound has since given up some of this morning’s gains.
The dollar declined against the euro to near a one-month low as U.S. 10-year Treasury note yields fell to their lowest since April, undermining demand from some investors seeking higher returns. Ten-year yields fell today as far as 3.97 percent, the lowest since April 1 and below most of the government securities with the same maturity issued by the 12 euro-region countries. U.S. yields fell as oil prices rose to their highest in a month. Against the euro, the U.S. currency dropped to $1.2311 as of 8:03 a.m. in New York from $1.2266 late yesterday, according to EBS. Stannard said the dollar's losses may accelerate should it breach its low on Tuesday of $1.2346 per euro, the weakest since Aug. 20. The dollar traded at 110.65 yen from 110.62 yesterday.
- EUR/USD - the short-term uptrend survived the corrective test; the upmove beyond 1.2300 reinstates the rally towards 1.2500 -- the single currency should take out the 1.2350 resistance shortly. The slightly longer-term positive outlook still looks good -- the rally should eventually make it to 1.2500. But we repeat -- there is no real reason for bulls to celebrate until 1.2530 hypothetical resistance is taken out. This level is shaping up to be the major resistance in the current investment cycle. Take out 1,2530 top in turn, and you get a run-up to the 1.2925 high before year-end. Failure to do so consigns the currency pair to a long sojourn at 1.2500 - 1.2000 range.
- GBP/USD - Cable did test of the 1.8030 top and has gone through marginally. This break of 1.8030 top should trigger a new series of advances -- there is no barrier between 1.8030 and 1.8500, but may find intiial barrier at 1.8200. Fundamentals are still getting in the way however. A report by the Royal Institute of Chartered Surveyors gave the latest indications of a moderating housing market, which has further undermined rate hike expectations and continue to hobble the pound going forward.
- USD/JPY - the currency pair corrects back, but may yet proceed to 111.50 later in the week. Our downside projections have to be abandoned temporarily until we get a handle on this new uptrend.
- USD/CHF - no change in view -- the uptick ended at 1.2655 and the downtrend may have resumed. The currency pair may still be bound for 1.2380 next. Expect further declines to 1.2200 further out.
- USD/CAD -- the currency made new lows -- it has been to 1.2795 -- and the momentum of the descent suggests that it might head further towards the 1.2685 trough.
- AUD/USD - the currency pair has been a lot higher to .7150, and should keep the uptrend ticking. The outlook has become significantly more positive after.7130 resistance was taken out. A rally towards .7300 - .7400 is now on track further out.
- NZD/USD - the uptrend has brought the Kiwi to as high as .6685. The Kiwi should eventually make a move towards the .6750 top, then extend gains towards the .7100 high for the year. Long Kiwi remains the best candidate for in the medium-term, from both technical and fundamental perspective.
- EUR/JPY - the cross has been to 136.50 and the uptrend is looking good -- its open waters until 137.00 - 138.00. The cross should continue to rally -- the next major focus being the 138.00 major resistance.
- EUR/CHF - the cross found support at 1.5435 again -- we still see a continued rise towards the 1.5510 top. The cross should continue to push through to 1.5550 and higher -- perhaps even to 1.5600.
- EUR/GBP - no change in view -- the cross did form a base at .6825. The uptrend resumes from here (.6840) and should eventually push through .6856, which may trigger a rally to .7000.
- GBP/JPY - the uptrend has been to 199.70 and consolidates somewhat. The next target is 200.00 after which it should make a beeline for the 205.00 target.
- GBP/CHF - no change in view -- the cross found a new base at 2.2520. The rally should continue -- make a new probe of 2.2780 top, and if taken out, we reinstate a 2.3000 target.
News, data, references and commentaries compiled from Bloomberg, Reuters, Financial Times, Wall Street Journal, Dow-Jones, CBSMarketWatch, Briefing.com, and Economy.com
Saxo Bank A/S accepts no responsibility for the accuracy or completeness of any information here in contained nor for any forecasts or recommendations. Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by Saxo Bank that you will profit from the strategies herein or that your losses in connection therewith can or will be limited. Stops may not necessarily limit losses to intended levels. Please read the full disclaimer at http://www.saxobank.com/?id=193&Lan=DA&Au=2&Grp=6
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