FX WEEKLY REPORT, January 28, 2008

With an emergency 75bp rate cut from the Federal Reserve and Societe Generale losing $7 billion in a trading fraud, volatility has ripped through the financial markets this past week. For those traders who are hoping for the tides to calm in the coming week, they will have to continue hoping because the economic calendar is filled with market moving data. The Federal Reserve has their official monetary policy meeting on Wednesday while non-farm payrolls are due for release on Friday. According to Bloomberg, analysts are calling for only a 25bp rate cut but the futures market is pricing in a greater chance of a 50bp cut. Regardless of who is right, one thing is assured and that is volatility. In addition to the actual rate cut, the Fed’s guidance will also have a meaningful impact on the currency market. An article in today’s Wall Street Journal criticizes Bernanke for being too sensitive to stock market fluctuations. If that is the case, then today’s 171 point slide in the Dow is not going to make him happy. Should equities give back more gains, the Fed may deliver a larger move on the fear that 75bp was not enough. We can’t envision the FOMC statement being hawkish because we expect interest rates to fall to as low as 2.50 percent this year. Friday’s non-farm payrolls report will confirm or deny whether the Federal Reserve has made the right decision. After the weakest rise in job growth since August 2003 analysts expect the labor markets to improve in the month of January. Although it may be difficult to believe that companies are still be hiring in the current market environment, jobless claims suggest that at least they are not firing. In addition to the FOMC and NFP, we are expecting durable goods, personal income, personal spending, Chicago PMI, the University of Michigan Consumer Confidence survey, manufacturing ISM and construction spending. The manufacturing sector is already in a recession and we expect it to remain that way, therefore the PMI and ISM numbers should not be dollar positive. (Dailyfx.com)

TECHNICAL OUTLOOK – DAILY CHARTS

EUR/USD

Resistance: 1.4960

Support: 1.4355

Sentiment: bullish

GBP/USD

Resistance: 2.0100

Support: 1.9500

Sentiment: bullish

AUD/USD

Resistance: 0.9020

Support: 0.8515

Sentiment: bullish

USD/JPY

Resistance: 108.65

Support: 104.70

Sentiment: bearish

USD/CAD

Resistance: 1.0395

Support: 1.0000

Sentiment: mixed

USD/CHF

Resistance: 1.1130

Support: 1.0840

Sentiment: bearish

GPB/JPY

Resistance: 217.65

Support: 203.90

Sentiment: mixed to bearish

 

 

 

 

 

 

 

 

TECHNICAL OUTLOOK – DAILY CHARTS

EUR/USD
Resistance: 1.4770
Support: 1.4390
Sentiment: bearish

GBP/USD
Resistance: 1.9790
Support: 1.9215
Sentiment: bearish

AUD/USD
Resistance: 0.9020
Support: 0.8665
Sentiment: bearish

USD/JPY
Resistance: 107.90  
Support: 104.70
Sentiment: bearish

USD/CAD
Resistance: 1.0395
Support: 1.0125
Sentiment: bullish

USD/CHF
Resistance: 1.1130
Support: 1.0840
Sentiment: bullish

GPB/JPY
Resistance: 211.80
Support: 203.90
Sentiment: bearish

Deeper rate cuts, slowing growth prospects in the USA hurting USD and CAD; supporting EUR, JPY and AUD

Federal Reserve Chairman Ben S. Bernanke signaled he has resolved months of debate over the competing risks of slower growth and faster inflation, and is ready to make deeper interest-rate cuts.

Bernanke yesterday pledged ``substantive additional action'' to insure against ``downside risks'' to the six-year economic expansion. His remarks in a Washington speech led HSBC Securities USA Inc. and Morgan Stanley to predict the Fed will reduce its benchmark rate by half a percentage point this month, up from their previous forecast of a quarter point.

ECB and BoE left their respective interest rates unchanged this week.The hawkish tone remained for the ECB, however, it's not the case for the BoE, hence the pound has been disconnceted from the euro's rise, as usually has been the case in the past.

Canada's dollar fell for a sixth day, its longest slide since March, as the economy's unexpected loss of jobs in December bolstered speculation the U.S. slump is hurting Canada. The economy lost 18,700 jobs last month after creating 42,600 positions in November, Statistics Canada said Friday.

It worth noting that gold prices catapulted and reached the forecasted $900/ounce, oil prices still hovering near $100 per barrel, the Canadian dollar was not able to capitalize on that.

TECHNICAL OUTLOOK – DAILY CHARTS

EUR/USD – new hope for 1.5000+?

Resistance: 1.4965

Support: 1.4570

Sentiment: bullish

GBP/USD – lagging behind the euro

Resistance: 1.9830

Support: 1.9330

Sentiment: mixed w. bearish bias

USD/JPY – at crossroads

Resistance: 110.45

Support: 107.20

Sentiment: bearish

USD/CAD – disconnect from commodities!

Resistance: 1.0500

Support: 1.0000

Sentiment: bullish

AUDUSD

Resistance: 0.9070

Support: 0.8800

Sentiment: bullish

USDINX (USD INDEX)
Resistance:76.1800, 76.5150
Support: 75.4200
Sentiment: mildly bearish

2008 - year of the Yen?

The dollar posted its biggest decline against the yen in almost two months as a slowdown in hiring raised concern that U.S. economic weakness will spread globally. The U.S. currency fell this week against the euro and Swiss franc as traders priced in for the first time a more than 50 percent chance the Federal Reserve will cut borrowing costs by a half-percentage point on Jan. 30. Import prices were unchanged last month, easing concern inflation is accelerating, the government is forecast by economists to report next week.

China's yuan advanced against the dollar for a fourth week, rising 0.4 percent to 7.274 per dollar, as a local newspaper reported that the central bank signaled it will allow faster gains in the currency to help curb inflation.

Watch the yuan and trade the yen! They yen acts as a proxy for the yuan so it's likely to be a good guide for trend/trade direction.

Have a great trading year!

Zoltan Vass

EURUSD

RESISTANCE: 1.4970

SUPPORT: 1.4550

SENTIMENT: still bullish

 USDJPY

RESISTANCE: 112.30

SUPPORT: 104.20

SENTIMENT: bearish

 GBPUSD

RESISTANCE: 2.0100

SUPPORT: 1.9570

SENTIMENT: bearish – the strong disconnect from the EURUSD is unusual though, be alert!

 USDCHF

RESISTANCE: 1.1270

SUPPORT: 1.0890

SENTIMENT: mixed to bearish

USDCAD

RESISTANCE: 1.0250

SUPPORT: 0.9650

SENTIMENT: mildly bullish, needs a break above 1.0070 to confirm

 AUDUSD

RESISTANCE: 0.88725

SUPPORT: 0.8540

SENTIMENT: mixed to bearish

 GBPJPY

RESISTANCE: 219.10

SUPPORT: 205.60

SENTIMENT: bearish but very oversold

 EURJPY

RESISTANCE: 163.20

SUPPORT: 158.20

SENTIMENT: mixed – getting oversold