Forex Tips & Daily Analysis

Economical News

USD

Last Friday, the University of Michigan Consumer confidence fell 5.6 pts and printed at 91.3 on expectations for a 93.5 reading. However, the USD's weakness was felt in the currency markets shortly before the release of the important indicator, much on the back of carry trades liquidation. Despite the above mentioned weakness, the USD managed to gain some ground in pairs where its counterpart's weakness was stronger, such as the GBPUSD which fell around 150 pips closed the day around 1.9530.

The week ahead is not so heavy on US economic data, and still, the few indicators scheduled for release this week are of great importance - the final Q4 Non Farm Productivity, Factory Orders, Fed's Beige Book, and most importantly, the headline of this FX trading week - the Non Farm Payrolls and employment report this Friday. As for today, the only data on the tap is the ISM Services Index, which measures the business activity in the non manufacturing sector. The index is seen declining to 57.5 on February from a previous reading of 59.0. The impact of the release is expected to be somewhat muted, however, as the major driver in FX markets will continue being the liquidation of carry trades against the JPY. Therefore we won't be surprised to see the USD gain even in the case of worse than expected ISM Services reading, given the fact that up until now the USDJPY showed the greatest resilience among the major pairs involved in carry trades.

EUR

Several European Service Sector PMIs are also on the tap today, all seen moderately declining. The overall Euro Zone PMI, scheduled for release at 9:00AM, is expected to slide 0.3 pts to 57.6. We see low probability for significant price action following the release, as markets are waiting for some more important Euro Zone data this week, starting with tomorrow's Q42006 GDP, continuing with Euro Zone Retail Sales, and highlighting with the European Central Bank rate decision.

EUR trade is expected to remain mixed today as well, with its weakness against the JPY likely to reflect on EUR's value against other currencies as well.

JPY

The unwinding of JPY carry trades continues dictating the tone in FX markets. For the past couple of years, a huge amount of funds were borrowed in JPY and was invested in better yielding currencies' assets, taking advantage of the interest rates differentials. Following the latest rate hike by the bank of Japan and the rising expectations for future BoJ rate hikes, unwinding of these carry trades take place and the demand for the JPY has increased greatly. Over the past 8 trading days alone the JPY gained more than 1600 pips (!) vs. the GBP and about 800 pips vs. the EUR. Although the heightened volatility in FX has already garnered the attention of Japanese officials who have expressed dissatisfaction with sharp FX moves, Japan is unlikely to intervene to stem further yen strength given the global criticism China has received for its artificially weak currency. Therefore we see JPY's strength continuing today as well, and actually, for the rest of the week as well.

Technical Analysis

EUR/USD

This pair is moving inside a range between 1.3100 to 1.3255; on the daily chart we can also notice an upward rebound from the middle Bollinger band and a slight upward curve of the slow stochastic at 30 which indicates further upward trend.

We can also notice a rather neutral daily RSI at 50 and also momentum is rather neutral at 100.33.

GBP/USD

We can see that the GBP has made a 380 pips loss against the USD in the last 5 trading days, breaking the 1.9450 and now standing at 1.9275, next support is very near at 1.9250 and doesn't show too much stability against the ongoing bearish behavior of this pair in the long run, however we will probably see some upward rebound before the price will continue to drop.

USD/JPY

Volatility has grown drastically as this pair drove into a new 3 month low, driving 630 pips downwards and now is at 115.29 and trying to test new support level at 115.05, we cannot see any reversal yet in the 4 hour chart and technical indicators suggest further continuation of the bearish downtrend.

USD/CHF

The bears have come into action and driven this pair's price level to another 2 month low and now trying to test the next support level at 1.2100 to continue with the journey south. We can see that slow stochastic is curving downwards below 20 and supporting a continuation of the downtrend.

Wild Card

AUD/CHF

Daily indicators show a continuation of the bearish trend. This forex pair has reached a 4 month support level at 0.9400 and trying to break below that level to push trough a new low, stochastic slow is at 0 offering some support to a continuation of the current bearish trend.

Market Trend

	EUR/USD	GBP/USD	USD/JPY	USD/CHF	AUD/USD	EUR/GBP
Daily Trend
Weekly Trend
Resistance	1.3285	1.9550	118.80	1.2400	0.7918	0.6960
	1.3250	1.9470	117.80	1.2305	0.7850	0.6902
	1.3210	1.9400	116.77	1.2250	0.7818	0.6860
Support	1.3080	1.9200	114.80	1.2100	0.7750	0.6754
	1.3040	1.9030	113.90	1.2060	0.7705	0.6690
	1.2950	1.8860	113.40	1.2000	0.7650	0.6660

Indicators

Date	Time GMT	$€£¥	Event	Period	Prev.	Forecast	Imp
05/03/2007	08:55	EUR	Germany Service PMI	Feb'	58.3	58.0
05/03/2007	09:00	EUR	Eurozone Service PMI	Feb'	57.9	57.5
05/03/2007	09:30	GBP	UK Service PMI	Feb'	59.2	59.0
05/03/2007	15:00	USD	ISM Non Manuf'	Feb'	59.0	58.0
05/03/2007	18:00	USD	Fed Poole Speaks