Special Consultant to the FPA
EUROPEAN FOREX PROFESSIONAL WEEKLY
Analysis and Signals
March 24, 2010
Analysis and Signals
March 24, 2010
The macro data during the week mostly was in a row with expectations. The Philadelphia Fed Index even has shown growth 18.9 instead of 18 as expected. Existing home sales came out at 5.02M vs. expected 5.0M. There is very shallow growth but it still growth. New home sales should be released also with low growth or in a row with expectations. The point is that Real estate inventory will hold growth in new home sales for some time, although existing homes show some growth in prices.
The next mostly awaited event is Non-farm payrolls release. As I’ve said in previous research, there are rumors that they will released about 275K, due to revision, better weather conditions and additional jobs that were created during the month. So, for now macro data is in a row with a recovery trend. Taking into account expectations of better retail sales and car sales, we can make an assumption that the situation in the US economy improves gradually and there are some signs of self support starting to appear. This leads to our expectation concerning rate tightening should stay intact.
Other events in the economy are not so clear. I mean Healthcare reform in US, and the situation in Greece and China. It’s very difficult to make any forecasts for now, because each event is at a start point and development of situation will depend mostly on political decisions that will be made by officials. Nevertheless, we can discuss some nuances. First is a healthcare reform, that is worth about 940B for 10 years. There are two important moments here in the mid term. The first moment is a higher taxes on upper wage earners and taxes on unearned income when the economy just starts to make first steps in the direction of recovery. In fact the first stage of reform can become a capital and job destroyer. Second, history teaches us, that programs become bigger and lead to deficits. Rating agencies are looking for measures that cut the deficit, not new programs. This is as any other business – you do not know if you will have a profit but you definitely will have spending. So, the government will spend 940 B but will the reform lead to deficit cut for 10 years? I’m not sure. This makes the market think more about US credit rating.
The Chinese have been worried about a U.S. fiscal crisis, and could view the healthcare plan as more fiscal recklessness. They are stress testing the yuan for potential appreciation and movement toward a more flexible currency will reduce US Treasury demand and as a result will press down on the value of the USD. Besides, if the US administration will continue to press China in direction of free flow yuan currency rate, then China's trade balance in USD will reduce significantly due to growth in CNY/USD rate, and the demand for USD and US Treasuries will fall. This will lead to possible problems in deficit financing.
There is nothing particularly new in the Greece situation. The one event that worth noting is that A. Merkel said that probably Germany will not provide fiscal support to Greece and Greece should talk to IMF about stabilization credit. Anyway, as I said earlier the X-point will be in April and May when Greece will pay debt and interest payments.
Résumé: The US economy continues to show signs of improvement. For now the basic expectation is that the Fed will tight rates to 0.5% in Q3. It will happen with solid probability if the current trend in macro data will continue. The healthcare reform can change the economic and fiscal landscape in the long term. For now it is too difficult to make forecasts, but some worrisome signs already exist.
The situation in he EU is very complicated, and I think that it will not be fully resolved until the summer. Investors want to see debt maturity from Greece, how EU supportive programs will work and maturing of debt obligations from Spain and Italy in 2010. For now all this stuff has too much uncertainty and remains a Pandora’s Box rather than a clear plan of stabilization. This situation allows me to assume that 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 movement may become a bit slower than before.
Monthly (EURO FX all sessions CME futures)
Yesterday prices have renewed lows and have reached as far as 1.3420 level. The trend is bearish. So, just one support still stands – the major 0.618 level at 1.3402 (although March has not closed yet). The nearest monthly target is COP=1.2881, next is previous lows at 1.25 and then is OP=1.1482.
Weekly (EURO FX all sessions CME futures)
The downward movement renewed even earlier then I expected (I thought that NFP will trigger it), so the trend is still bearish, no oversold. 1.3402 is a major monthly and weekly support, so market may show some tricks around it. We should care for that possible Wash & Rinse of it, market already has touched 1.3402.
Still we have two collections of possible targets – XOP=1.3074 from the most early price swing, COP=1.3112 and OP=1.2675 from the latest swing. I think that XOP and COP we can unite in area 1.3074-1.3112. So, if the market will not show tricks with breaking of 1.3402 support, we can expect that these targets will be reached.
Daily (EURO FX all sessions CME futures)
The market has not passed through 1.3840 and not even reached weekly resistance at 1.3870 level. I have not expected that down move will return so fast, but the assumption that was made two weeks ago, concerning upper break and fast return, has been realized.
Unfortunately the daily chart does not give us much to make a solid analysis and add some details to weekly, because the downward move just renews, and for now it is difficult to predict what will be around 1.34. If market can break it and grab stops around 1.3350-1.3380 then, possibly, we will see move to weekly targets. If not – there will be W&R of 1.34 support and we should expect upward retracement.
I just want to point that we have an Agreement around 1.340 with two OP’s at 1.3398 and 1.3412. It makes support a bit stronger.
The 4-hour chart shows that market has Oversold and reached XOP=1.3419. In the near term upper retracement is possible to 1.3480-1.35 level.
4 Hour EUR/USD
Trade possibilities (1):
The nearest long-term target is COP=1.2880.
We have down trend, no oversold conditions. Although the market has renewed lows, it does not pass through 1.3400 level yet. We should care of possible W&R of 1.34 major support. Weekly nearest target is 1.3074-1.3112 area.
Although I’ve expected deeper upwards retracement, the general forecasts concerning fast returning after upper retracement has taken place. For now we should carefully watch for market behavior around 1.3402 and possible break. If market will reach stops below 1.3350-1.3380 then down move should continue, if it will show W&R – then we have to wait for possible upper pull back. The situation should become clearer during near days.
In nearest perspective (1-4 Hours) we can see retracement to 1.3480-1.35 area due to XOP and oversold conditions on 4-hour chart.
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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