Special Consultant to the FPA
EUROPEAN FOREX PROFESSIONAL WEEKLY
Analysis and Signals
March 17, 2010
Analysis and Signals
March 17, 2010
During the current week main attention was attracted not by macro data but by different events, such as the FOMC meeting, rhetoric concerning the Greece austerity plan and healthcare reform voting in US Congress. Although there were not many data releases, in general it was positive. Empire Manufacturing Index shows 22.86, better than expected 22.0. Real estate sector has not showed solid expansion, but nevertheless has shown numbers, greater than expected. Building Permits 612K (exp.601K), Housing starts 575K (exp. 570), previous data was revised upward for 20K. Retail sales also have shown good numbers on the previous week. All these numbers confirm that the economic recovery is underway and trend is continuing.
The most expected event – FOMC meeting, did not show any meaningful surprises. The Fed noted that the recovery remains intact but was still very cautious. The decision encouraged risk taking behavior as the statement suggested that the outlook for a rate hike was not pulled forward; therefore the carry trade may ensue.
Risks, concerning US healthcare reform are a bit long-term, but the way of passing healthcare reform through Congress can make influence on political risks equilibrium and on Dollar trend. If Congress comes to their senses and waits to pass this bill using conventional constitutional measures, then the medium-term uptrend should not be challenged. But still, I think that the US is closer to tightening than other central banks (BOE, ECB and BOJ). The Fed already has started programs for draining liquidity (reverse REPO’s, hiking of the discount rate), and they will gradually adjust the language of FOMC meeting statements. For now, according Bloomberg there is a 58% probability that the first hike in the Fed fund rate will take place in Q3.
The recent upward drift/short-covering rally in EUR/USD has also been triggered by the fact that nothing cataclysmic has happened in Greece since the country has started to propose/implement its austerity plans. Although we can see some short-term relief in the situation that was supported by EU officials, the problem still remains and it includes not only Greece but Spain, Italy and peripherals. I will not repeat here the detail numbers that I’ve written in previous research but for me the X-point of EU situation is April – June 2010 when EU countries should pay much in debt and interest. In the short-term period we can see some strength in the EUR.
Résumé: Th US economy continues to show signs of improvement. For now the basic expectation is that Fed will tighten rates to 0.5% in Q3. It will happen with solid probability if the current trend in macro data will continue. For now all seems good. The situation in EU very complicated, and I think that it will not be fully resolved until summer. Investors want to see debt maturity from Greece, how the EU supportive program will work and maturing of debt obligations from Spain and Italy in 2010. For now all this stuff has too much uncertainty and reminds me of Pandora’s Box rather than a clear plan of stabilization. This situation allows me to assume that the EUR will stay under pressure and EUR/USD downtrend will hold. Possible long-term targets – is 1.28 and psychological 1.25 levels. But the moving may be a bit slower than before.
In the near short-term we can see some strength in EUR due lack of surprises from Fed about tightening and short-term relief in Greece crisis.
Monthly (EURO FX all sessions CME futures)
Prices continue to move higher from 1.3400-1.3480 0.618 support, but the trend is bearish. Although we can see some retracement higher in mid-term period, the long term monthly target is COP=1.2881 (there will be an oversold by the way), next is OP=1.1482.
Weekly (EURO FX all sessions CME futures)
The FOMC meeting did not have much influence on weekly market behavior, although the upward move continues. We have downtrend still, but market becomes closer to its changing. We know the main weekly support at 1.3400-1.3480, so I’ve decided to mark weekly resistance levels and one of them (1.3870) close enough already. We see strong resistance at 1.4087-1.4140 area. Although I’ve marked it as K (confluence resistance), it’s a bit wide for confluence, but this is strong resistance zone anyway.
We can’t estimate the upward movement targets yet for weekly chart, because do not see any retracement. Nearest down move target is XOP at 1.3074 (look for weekly graph in previous research).
Looks like that the next event that will be able to change the weekly picture is the next Non-farm payrolls release.
Daily (EURO FX all sessions CME futures)
Our daily expectations were confirmed (watch for previous research). The diamond formation was broken up, and the market has almost reached 1.38 level. The development of price movement is very choppy, but still is upward. Now the price movement reminds me of a round bottom reversal pattern. The daily trend is bullish. Also I see a solid resistance area at 1.3870-1.3950 levels. 1.3870 is a weekly resistance also by the way.
It’s too difficult to predict something with solid certainty, but forming round bottom pattern, the fact that prices did not return back below 1.3650 level and didn’t show fake diamond break makes me think that we can see further up movement, possibly to the 1.3950-1.40 level.
Trade possibilities (1):
Now we can say that monthly bearish trend has been confirmed. Although there can be some improvements in Greece’s situation in the mid-term (and a retracement higher as a result), I think that in the long-term the USD is more favorable. The nearest long-term target is COP=1.2880.
We have a down trend, no oversold conditions. The market has shown some development in an upwards move. At the same time we’ve seen failing attempts to pass through 1.3400-1.3480 support. I think that we can see some retracement higher to 1.3970-1.40 level. Probably, mostly only the NFP release can change the picture drastically and trigger EUR/USD down move continuation.
The market has shown an upper break of a diamond formation and prices didn’t return back below 1.3650 level. Also prices show something that looks like a round bottom reversal pattern. This makes me think that we can see further gradual upwards movement to 1.3970-1.40 area in the near term. This area has many resistance levels and overbought condition, so I do not expect that market easily can pass through it. The intermediate target is OP=1.3840 and weekly resistance at 1.3870.
Current European Forex Professional Weekly Signal - Forex Peace Army Forum
(1) “Trade possibilities” are not detailed trade signals with specific entries and exits. They are expectations about possible moves of the market during the week based on market analysis.
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