Will The JPY Continue To Rally Up Today?. USD Shows First Recovary Signals After Strong Inflation Numbers.
Economical News
USD
The USD climbed higher against most of its counterparts yesterday on the back of some expectations beating data. US personal income and spending rose 1.0% MoM and 0.5% respectively in January, easily besting consensus expectations of 0.3% and 0.4%. Core Personal Consumption Expenditure Index, an inflationary measure, rose 0.3% on expectations of a 0.2% rise. The surprisingly strong figures made traders ignore the 338K rise in weekly New Jobless Claims and sent the USD to surge higher all across the board, with the only exception being the USDJPY- which continued heading lower due to JPY short covering.
The ISM manufacturing index, which was released shortly after, further supported the USD as it rose to 52.3 in February after visiting below the 50 boom/bust level in January. While market expectations were for a neutral 50 reading, the stronger reading provides some comfort to those worried of a weakening US economy.
The only data on the tap form the US today is the University of Michigan Consumer Sentiment. The Index is expected to slightly improve to 94.0 from a previous 93.3 reading. A stronger sentiment reading might strengthen the USD further.
EUR
Yesterday, the EUR lost ground all across the board, mainly due to the better than expected US data but also due to the somewhat disappointing EZ data. The German Manufacturing Purchasing Managers Index fell to 57.2 in February, falling short of the market's 58.6 consensus. Due to better the better performing Italian and French Manufacturing sectors, the all European Manufacturing PMI was slightly changed, but the Euro Zone CPI that was released shortly after, posted another disappointment. The preliminary YoY reading was 1.8%, lower than the European Central Bank's discomfort level. Although the ECB is highly expected to hike rates in its March meeting, lower inflation readings lower the probability of additional hikes during the second Quarter of 2007.
The EZ Producer Price Index is on the tap later today. Month over month, producer prices are seen rising 0.3% in February. A reading inline with, or better than expectations, might provide support for the falling EUR.
JPY
JPY strength is all over the market and no currency escaped the revenge of the Yen. Liquidation of carry trades and JPY short covering continues taking place and so does the JPY pairs' freefall. In the last week, the GBPJPY fell 800 pips and the EURJPY skydived 500 pips, about the same as it did vs. the USD.
The recent JPY short covering comes on the back of speculations of possible additional rate hikes by the BoJ, but also due to Japanese firms repatriating funds invested abroad ahead of the Japanese fiscal year end.
However the data that was released in Japan overnight was not all JPY positive. While overall Household Spending grew 0.6% YoY on expectations of -0.2% and unemployment rate ticked 0.1% lower to stand on 4.0%, Average Cash Earnings dropped 1.4% on expectations of 0.3% rise. Tokyo CPI also disappointed coming at -0.2% vs. expectations of 0.1%. All in all, it seems that even if we believe that the Japanese economy is doing better, it is not at the phase of constant and steady monetary tightening cycle yet. Even though it is possible that JPY strength will continue in the upcoming days, or even weeks, we doubt these gains constitute a trend reversal rather than a technical correction.
Technical Analysis
EUR/USD
Prices dropped overnight and found support around 1.3150, which is the Feb 26 low. A break below that level is needed to confirm the overbought signals on the dailies, which feature a fresh bearish cross on the stochastic. Hourlies are in neutral territory.
GBP/USD
It has been a very choppy trading session for the pair yesterday, as the dailies produce mixed signal. The hourlies signal a slight bearishness but with an overall neutral sentiment. Staying out of this pair might be a preferable choice today.
USD/JPY
The pair dropped from 118.80 to 117.60 in the last 24 hours, and has been doing so in a very consistent manner, since the end of last month. It looks as if the downtrend still has plenty of steam as supported by the dailies and the hourlies.
USD/CHF
The pair is showing its first bullish signals since the downtrend started at the beginning of February. The 1.2150 support held again yesterday which established it as major one.
The dailies are bullish and supported by an overbought bullish hourlies, indicating that buying on dips might a preferable strategy.
Wild Card
NZD/JPY
The pair is floating around a point that might be very interesting for forex traders, as it now reaches 81.00. This is a very strong support and if a sustained break will occur we might be seeing the trend continue to the 79.00 levels.
Market Trend
| EUR/USD | GBP/USD | USD/JPY | USD/CHF | AUD/USD | EUR/GBP | |
|---|---|---|---|---|---|---|
| Daily Trend |  |
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| Weekly Trend |  |
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| Resistance | 1.3311 | 1.9805 | 120.05 | 1.2375 | 0.7979 | 0.6812 |
| 1.3285 | 1.9765 | 119.10 | 1.2305 | 0.7955 | 0.6777 | |
| 1.3251 | 1.9680 | 118.65 | 1.2250 | 0.7905 | 0.6756 | |
| Support | 1.3180 | 1.9570 | 117.50 | 1.2113 | 0.7821 | 0.6705 |
| 1.3115 | 1.9500 | 116.85 | 1.2075 | 0.7785 | 0.6673 | |
| 1.3080 | 1.9460 | 116.02 | 1.2005 | 0.7721 | 0.6621 |
Indicators
| Date | Time GMT | $€£¥ | Event | Period | Prev. | Forecast | Imp |
|---|---|---|---|---|---|---|---|
| 02/03/2007 | 09:30 | GBP | Construction PMI | Feb | 57.9 | N/A |  |
| 02/03/2007 | 10:00 | EUR | PPI | Feb (MoM) | 0.0% | 0.3% |  |
| 02/03/2007 | 15:00 | USD | Consumer Sentiment (r) | Feb | 94.0 | 93.3 | |