Signs of JPY bottoming?
Economical News
USD
Yesterday, the ISM Services Index released at 54.3 on the back of expectations of 57.2. The ISM Services measures the business activity in the non manufacturing sector of the US economy, and the reading reflected nearly a 5 pt drop from January's 59 reading. The weak ISM figure suggests that the weakness previously seen in other parts of the economy has started to have an impact on the service sector as well. Despite the weaker than expected reading, markets seem to have shrugged off the disappointing figure as the main force driving the markets was once again the carry trade liquidation taking place over the last couple of weeks and the falling equity markets around the world. The USD managed to hold on to most of the gains made vs. the major currencies earlier during the day, trading around 1.3100 against the EUR, and even managed to regain some of the ground it lost against the JPY, climbing as high as 116.30.
The day ahead is a little more promising in terms of US data. We are expecting the revised Q42006 Non Farm Productivity and Unit Labor Costs, as well as the Factory Orders data and a speech by Fed chairman Bernanke. Given the significant downwards revision last week in the Q4 GDP reading (from 3.5% down to 2.2%), revisions are expected in today's quarterly data as well. February's Factory Orders are also seen dropping 4.3% after they've increased 2.4% on January. Today's data has the potential to make the USD give back some of the gains made during the previous days against the major currency pairs.
EUR
The EUR was weaker yesterday against all currencies aside from the GBP and the AUD. Its weakness derived mainly from its extensive sell-off against the JPY, where it shed nearly 350 pips during the day. The two currencies against which the EUR actually strengthened were the two currencies that were hit more severely by the JPY carry trade liquidation.
Today's data from the Euro Zone includes the revised Q4GDP reading, which is expected to remain unchanged from its preliminary reading. Along with the revised Q4 GDP reading the European Commission will release its 1Q2007 GDP forecast. We are also expecting the EZ Retail Sales data for February, which is expected to drop 0.3%. An optimistic GDP forecast and better than expected EZ Retail Sales can help prevent the EUR from continuing to fall, and might even trigger reversal.
JPY
The excessive volatility in the currency markets is still all due to the JPY, and as the carry trade liquidation continues the JPY sees more gains. Although the JPY crosses have already started to recover some of their losses during the overnight Asian session, it remains to be seen whether this is only a short break in JPY rally or the first signs of a JPY topping. All in all, we see no change in the macroeconomic environment, at least not such that should support such a JPY appreciation. However, longing the JPY is of course too risky at the moment, and we recommend extra caution if doing so.
Technical Analysis
EUR/USD
The pair found a trendline support around 1.3080, a trendline that is basically the lower boundary of an upsloping channel. A retracement towards 1.3250 is likely, but a breech below the trendline support might trigger a 200 pip move, which is the size of the channel.
GBP/USD
A trendline extending from late July 2006 held firm yesterday in this pair's attempt to breech below 1.9080. This might signal a bottom in the recent pair's sell-off. 4H oscillators are negative but facing up, we recommend rethinking shorts at this point.
USD/JPY
4H MACD intersects bullishly, and the Slow Stochastics is generating a bullish divergence that signals an end to the recent USDJPY sell off. Nevertheless, there is no significant support for the pair before 114.80, and we hold the opinion of staying on the sidelines for now.
USD/CHF
A negative divergence is spotted on the 4H charts, both on the MACD and the Slow Stochastics. Given the support level at 1.21 from which the pair has bounced back up, heading for a retest of the downsloping trendline at 1.25, is not out of the question.
Wild Card
AUD/USD
This forex pair has violently retraced from its 0.7690 support, making more than 50 pips overnight. We see good probability for continuing range trading, as the pair heads back up towards 0.7950.
Market Trend
| EUR/USD | GBP/USD | USD/JPY | USD/CHF | AUD/USD | EUR/GBP | |
|---|---|---|---|---|---|---|
| Daily Trend |  |
|
|
|
|
|
| Weekly Trend |  |
|
|
|
|
|
| Resistance | 1.3250 | 1.9550 | 118.80 | 1.2400 | 0.7918 | 0.6960 |
| 1.3210 | 1.9470 | 117.80 | 1.2305 | 0.7850 | 0.6902 | |
| 1.3150 | 1.9400 | 116.77 | 1.2250 | 0.7818 | 0.6860 | |
| Support | 1.3080 | 1.9185 | 114.80 | 1.2100 | 0.7680 | 0.6754 |
| 1.3040 | 1.9030 | 113.90 | 1.2060 | 0.7650 | 0.6690 | |
| 1.2950 | 1.8860 | 113.40 | 1.2000 | 0.7600 | 0.6660 |
Indicators
| Date | Time GMT | $€£¥ | Event | Period | Prev. | Forecast | Imp |
|---|---|---|---|---|---|---|---|
| 06/03/2007 | 10:00 | EUR | Retail Sales | (MoM) (JAN) | 0.3% | -0.4% |  |
| 06/03/2007 | 11:00 | GBP | BRC Retail Sales | y/y | 3.1% | 2.2% | |
| 06/03/2007 | 13:30 | USD | Nonfarm Productivity | (4Q F) | 3.0% | 1.7% | |
| 06/03/2007 | 13:55 | USD | RedBook | (MAR 3) | -1.2% | N/A | |
| 06/03/2007 | 18:00 | USD | Philadelphia Federal Reserve President Plosser Speaks to Economists at Harvard Club in New York | | |||
| 06/03/2007 | 19:00 | USD | Bernanke Speaks on GSEs |  |