Thursday Update…. Get Ready For Breakout

With EUR/USD all the way back at 1.4800 having failed at 1.4900 you do not need to be a forex guru to suspect that any break of the recent 1.4750/1.4900 range should have some good follow through.
That said 1.4650 or thereabouts could be a good level to buy and vice versa 1.50s a sell but just this time around.Longer term trend still intact.The push and pull on the US Dollar has been helped on the upside by weaker commodities which we’ve mentioned before as a possible catalyst. Also CNBC carried a story that the Fed had a significant discussion on exit strategy at the last FOMC. On the other side of the coin Euro strength helped by rising German Bond rates vs. the US and news that Portugal seems to have reached agreement on a bailout…so much for the Fins.
Of course we my have to wait another day for any break with the ECB the focus tomorrow.
Sterling continues to trade like a dog.

Thursday Update..Bernanke leaves door open for QE3 and Trap Door for Dollar

The statement from Fed Chairman Bernanke gave no intention of any Fed tightening any time soon.QE2 will be completed and nothing was said to rule out QE3. Inflation low and a jobless rate that remains elevated are comments that lead one to believe that there will be no change in tack for some time.
So US Dollar bears took the green light and dumped the currency. EUR/USD has been as high as 1.4880 and settled just below. It seems just a matter of time now before we break 1.50 , the US Dollar index has hit lows not seen since 2008.
Having said all that I have trimmed back positions today. I may regret it but just feel that things could have gotten a little bit extended.What’s more having positions well in the money can get you complacent so better to refocus at some point on a new position at market levels.I am not sure what sort of pullback we might get and why so we shall see. Commodities and the like have also taken another knee jerk move up of course and will continue to mirror the US Currency.
What might the ECB be thinking now though. Perhaps a shred of doubt about another immediate increase. If the Euro strength continues it will leave the peripheral countries even more strained.
The pound had a funny old day yesterday. Markets appeared convinced that GDP numbers would be worse than expected and sterling weakened into the numbers only to recover all ground when they were indeed as projected 0.5% and 1.8% YOY.Sterling though will not I suspect keep up with any EUR/USD strength.

Thursday Update..Bernanke leaves door open for QE3 and Trap Door for Dollar

The statement from Fed Chairman Bernanke gave no intention of any Fed tightening any time soon.QE2 will be completed and nothing was said to rule out QE3. Inflation low and a jobless rate that remains elevated are comments that lead one to believe that there will be no change in tack for some time.
So US Dollar bears took the green light and dumped the currency. EUR/USD has been as high as 1.4880 and settled just below. It seems just a matter of time now before we break 1.50 , the US Dollar index has hit lows not seen since 2008.
Having said all that I have trimmed back positions today. I may regret it but just feel that things could have gotten a little bit extended.What’s more having positions well in the money can get you complacent so better to refocus at some point on a new position at market levels.I am not sure what sort of pullback we might get and why so we shall see. Commodities and the like have also taken another knee jerk move up of course and will continue to mirror the US Currency.
What might the ECB be thinking now though. Perhaps a shred of doubt about another immediate increase. If the Euro strength continues it will leave the peripheral countries even more strained.
The pound had a funny old day yesterday. Markets appeared convinced that GDP numbers would be worse than expected and sterling weakened into the numbers only to recover all ground when they were indeed as projected 0.5% and 1.8% YOY.Sterling though will not I suspect keep up with any EUR/USD strength.

Wednesday Update… Euro storms back leaving bears crushed again

There must be a few uncomfortable commentators this morning as the Euro sell off not only stopped but has made a significant reversal. Back over EUR/USD 1.44 and EUR/JPY 119.
Of course we still have the major hurdles up front above 1.45 but the Euros resilience has been there for all to see.We do have a Spanish Bond Auction today of 10 and 13 years and that will not make good reading for the Spanish authorities. However, barring a disaster it should have limited effect on the currency. Equity markets have helped the cause with a good performance overnight. It seems investors are believing that Corporations are in good health even if Governments are not.Gold through the US$1500 level tells its own story and continued commodity strength will weigh on the US Dollar.
Elsewhere UK Bank of England minutes are expected to confirm the same split of views. Only a change in that will affect Sterling. That said one suspects there are more US Dollar longs in Cable (GBP/USD) than maybe elsewhere so there could be a squeeze there.
Of course there will be more to come on the Euro debt problems but by now the only people who refuse to acknowledge the need for Greek debt restructure are politicians and central bankers, and that in public. An announcement if it happens will be a relief probably to the markets ,certainly not a surprise.

Weekly Review…. Anyone Else Smell Burnt PIG

Politics , disasters and revolutions aside the highlight of the week was supposed to be the EU summit and its conclusions for the European Stability Mechanism. Well the increase in the fund to €700 Billion by 2013 was sanctioned; Germany securing better terms for themselves you might say. While the Euro performed well against the Swiss Franc (closing EUR/CHF 1.2955) it did less well against the US currency closing at EUR/USD 1.4075.
What strikes me as amazing is that the politicians can ignore what the Bond markets are saying. That is at some point Ireland Greece and Portugal are going to default or require Debt Restructuring and a loss for Bond holders. Whatever rhetoric they or Central Bankers come out with the bottom line is that these countries are on an unsustainable path. They just cannot get out of the mess with continued austerity measures. Greece is going backwards. Ireland who’s Banks have outstanding loans of €150 Billion to the ECB and Bank of Ireland are still sinking and the Nations debt bill is unsustainable. In Portugal which rejected its budget last week the opposition are pondering a bridging loan but no not a bail out. Oh come on and please cop on.This really is kicking the can down the road.
The Euro continues to get support from the ECB in the near certain rate rise next month. I would certainly not expect much reaction to it when it happens as it is well in the market. I find myself unable to remain bullish because there has to be another crisis in the Pigs’ ,indeed we re still in it as I have pointed out. Of course forex trading is all about timing and who knows when forex markets will take notice of what bond markets are saying. Germany marches on with others on their coat tails but the system is just not working.
Ireland could be the next focus as there is still negotiation on their interest rates paid on bailout loans. Ireland has refused point blank to raise its Corporate Tax rates.They will not back down on that ( especially as the UK is lowering theirs) so either the Germans and French do or we could have a crisis sooner rather than later.
Elsewhere the Australian Dollar rose to new highs against the US Dollar as risk sentiment and commodities improved. Sterling had an uncomfortable week, the catalyst for its sell off was Moody’s comments on the UK AAA rating against the background of reduced growth forecasts. Inflation figures were worse but there was no sign the Bank of England will move any time soon. In the event Cable,USD/GBP was sold off closing at 1.6020 and looks vulnerable technically.

Friday Update… Forex Markets Ignore Portugal Mess

The Forex markets appeared oblivious to to events in Portugal and the apparent lack of immediate substance in announcements from EU Summit. The Euro powered back against the US Dollar and was stronger against the Swiss Franc and Sterling, which was tripped up by comments from Moody’s.Equities were improved led by Company results in the US rather than Economic data all adding to a more positive risk tone.
EUR/USD recovered over 1.42 but has settled a little lower for the time being. Progress through the 1.4250/80 level may prove tough but little seems to dent its bullish sentiment at the moment. Given an insight into yesterdays events not many of us would have expected the Euro to have performed so well. It seems that Portugal is considered small enough not to worry about and that Spain is a wholly different animal,one probably capable of escaping similar traumas. What is a little strange is that the long awaited news on the EFSF and Irelands debt terms have all been kicked a little down the road.Much may be to do with the political tight rope being walked by Angela Merkel and also in Finland where the electorate are getting twitchy about further financial commitments.
For the time being Portugal is hanging on in, but bonds are weaker still this morning ( 10 years rising through 8% yields). They would have to pull the biggest ever rabbit to escape the inevitable.

Tuesday Update…. EUR/USD Same old grind higher

Late today technical problems in Spain, i.e. power cuts.
The EUR/USD seems to be in a ´grind its way up´ mode again ,now just shy of 1.4250. Having made a small retrace yesterday it has moved up under a barrage of comments from ECB board members all intent it appears in getting their hawkish words out. Difficult to see any rapid rise today but looks like pullbacks will continue to be met by buyers. USD/GBP (Cable) up to 1.6400 just now on CPI data higher than expected (+0.7 and 4.4% YOY) which has given it a small lift against the Euro under 87. USD/GBP 1.6350 was considered a big level but on recent form will probably pop back down with a few longs on board now no doubt.
Equity markets improved yesterday and with Japan up 4.5 % overnight you might have expected a weaker yen. Not so really and I continue to think there will be more joy in EUR/JPY than USD/JPY.
Geopolitical risk seems to be edging higher in the Gulf area.No panic in markets yet but any escalation will be a signal for oil to take off . Risk reward seems to offer more to the upside there.

Tuesday Update… Markets await Big Ben and Jean-Claude

The EUR/USD tested resistance at 1.3850/60 level yesterday before easing back as forex markets anticipate this weeks comments from the 2 big central bankers. Fed chairman Bernanke testifies at a Senate Banking Committee today while the ECB meeting on Thursday will have markets listening to every word from Chairman Trichet. Thus far markets are backing much tougher anti inflation language from Trichet.
The Swiss franc and Japanese Yen have lost their luster as Libyan tensions are seen to have eased and oil settles under US$ 100.That may be premature but certainly equity markets have recovered some ground and continue on balance to show very good resistance. Sterling led the advance yesterday seemingly a little oversold against the Euro which saw cable (US$GBP) surge above 1,62.
On balance I feel the EUR/USD 1.3860 level should cap before the central bankers finish but it remains a major level having been tested twice. If ECB Trichet is not so hawkish then any move lower will bring talk of a double top in EUR/USD.

Friday Update .Does Trichet burst the Euro bubble?

If yesterday teaches us anything it was that markets had gotten ahead themselves as far as ECB tightening goes. I did see a rash of technically generated longs in EUR/USD and GBP/USD which were all stopped out and added to the reversal. Anyway with EUR/USD down near 1.36 I am reluctant to call an instant bounce today especially with Non Farm Payroll figures this afternoon. It could well be that we see a further sell off. The line in the sand remains at 1.3320/50.
Back to Trichet and I feel that he made an effort not to be hawkish on rates but the truth is if we get higher inflation numbers then unlike the Fed or Bank of England the ECB they will raise rates. That might still happen in a few months but in the meantime Trichet will not want to rattle markets.The answer is watch the CPI data.
Sterling led the way in the early morning with more bumper PMI data in services which will have cheered the politicians. GBP/USD hitting highs of 1.6275. Although sold off along with everything else EUR/GBP has fallen to 84.35( 1.1855 ). taking the bearish edge off it.
Elsewhere the Ausie Dollar has returned to favour as the sums on GDP look better with huge post disaster rebuilding.
Equities continue to ignore the Middle East for the time being helping risk attitude.

Thursday Update.. Forex markets tread water ahead of busy stats day

Despite its continued weaker tone the US Dollar escaped any huge damage yesterday as markets continued to keep an eye on events in Egypt Today sees a wealth of statistics first in Europe and then the US with Non Farm Payroll. The ECB meeting will not provide any shocks unless statements following it diverge from the recent tone. Trichet has to balance his words carefully so as not to spook markets. However, with inflation up at 2.4% he does not have much more leeway..
All in all I think we have potential either way but feel US Dollar bears will still get a cheaper entry at some point.The Stock markets have failed to push on but what little corrections have not influenced forex markets. USD/GBP( Cable) seems thus far to have been the biggest indicator of a further move lower for the US dollar. However, as we know from experience a bad set of figures cause more effect because of its illiquidity at times. As far as EUR/USD goes would probably risk a short 100 pips higher and the reverse if we went down.

France´s Lagarde has just been quoted as saying France and Germany are working on common proposals for the Euro zone. Designed for competitiveness and coordination. Of course we all know they will be calling the shots as the biggest paymasters. Ireland may well have its ´High Noon´ moment coming on its low Corporation Tax.