Forex Tips & Daily Analysis

Economical News

USD

The massive USD sell-off that took place yesterday, following the release of the New Home Sales data, suggests that traders were caught a little bit off guard. On Friday, Existing Home Sales saw the largest monthly percentage increase in around three years, increasing 3.88% to 6.69mln. Basking in the strength of this figure, markets were expecting today's New Home Sales data to release inline with, and maybe even above, consensus expectations of 0.99mln. Along with Friday's figure, this would have helped in alleviating economists' concerns about the slump in the sub-prime lending sector and in the housing sector as a whole. The woeful 848K New Home Sales figure, however, as well as the 80K downward revision to January's reading, refueled fears of a slowdown in the housing sector that can very well disseminate to other sectors of the economy. The market, in reaction, sent the USD to revisit the 1.3350 and 1.9720 levels against the EUR and the GBP, respectively, and triggered a knee-jerk sell-off against the JPY sending the USDJPY to trade around 80 pips lower at 117.60. While the EUR and GBP managed to hold on to their gains during the overnight Asian session, the JPY could not do the same and returned trading around 118.30.

Today we are expecting the Conference Board's Consumer Confidence, a monthly survey conducted among 5,000 households throughout the US which are being asked to evaluate the prospects for the economy in the future. The survey derives its importance from the great correlation it has with the strength of consumer spending - optimistic consumers tend to spend more and boost economic growth in the process. Consensus estimates are for a 109 reading, which reflect a non significant decline of 3.5 pts from February's reading. Given the pessimism prevailing in the market due to the developments in the US housing sector, we believe the survey will come under great scrutiny, and a figure well below expectations might prompt another USD sell-off, if this would not take place even earlier. Along with this release the Richmond Fed survey is due out as well, and is actually expected to improve by 6 pts after coming at -10 the previous month. The impact of this release is expected to be muted due to the more important Consumer Confidence.

EUR

Yesterday, the EUR traded in a mixed trend on the back of a calendar empty of economic releases. Indeed, the EURUSD retested the 1.3050 level, but this was due to the dollar's weakness rather than to EUR strength. While this can be argued for the EURJPY as well, against the EUR's other major counterparts the currency either devaluated or was little changed.

Today's European calendar is not loaded with events either, and we are only expecting the German IFO Business Climate Index. Expectations are for a 106.5 reading at the Current Situation part and for a 102.6 reading for the Expectations part. Both figures reflect an insignificant decline from last month's reading of 106.5 and 102.2, respectively. Should the survey come stronger than expectations, we might see the EUR make a second attempt for the 1.34 level against the USD.

JPY

The minutes of the BoJ's February monetary policy meeting show that board members agreed the bank should adjust interest rates gradually based on economic and price conditions, while the government's representative at the meeting cautioned against a rate increase, saying deflation had not yet been overcome. At least for now, this was enough to clear the way for further JPY depreciation, and the currency lost considerable ground against most major counterparts.

Meanwhile, the Corporate Services Price Index (CSPI) missed expectations of 0.4% monthly rise, releasing at 0.2%. With the more important data still ahead of us, the release had little, if any, impact. Although we do not expect an additional rate hike from the BoJ in the upcoming month or two, and although we do see carry trades to continue being the theme, we recommend avoiding new short JPY positions ahead of this week's important data coming from Japan- Retails Sales, CPI, PMI, Employment data and more. We see a possibility for another correction which might provide a better opportunity to enter the market on the JPY.

Technical Analysis

EUR/USD

The healthy 50% retracement of the 1.3088-1.3409 move which brought the pair down to 1.3250, seems to have settled the negative divergence we noticed last week. The pair has once again gathered momentum, oscillators are bullish daily and intraday, and another attempt for the 1.34 hill is expected.

GBP/USD

The GBP/USD is still bound in its two months range and the current 1.9730 level serves as a very significant resistance. Although twice breeched, this level has pretty much capped most of the pair's gains in the recent 4 months. The pair, however, is not lacking momentum and oscillators are bullish. The risk/reward ratio is pretty high to place a trade, we rather sit on the sidelines.

USD/JPY

A rising wedge is can be eyed on the 4H chart and is close to an end. MACD is flat at 0.16 and Slow Stochastic is also in positive territory. The breach from the wedge is more likely to occur to the upside, but given the 200SMA capping at 118.60, we recommend tight stop loss orders.

USD/CHF

A pretty wide down sloping channel extends from late February. After hitting its upper boundary at 1.2225, the pair is expected to continue going down.

Wild Card

EUR/AUD

This forex pair, which has been trading roughly between 1.6350 and 1.7200 for the past 9 months, is now nearing the bottom of this range. The 4H MACD produces a bullish divergence, sloping upwards while prices head sharply down. Small longs can be attempted, although a further dip to 1.6350 is possible.

Market Trend

	EUR/USD	GBP/USD	USD/JPY	USD/CHF	AUD/USD	EUR/GBP
Daily Trend
Weekly Trend
Resistance	1.3500	1.9900	120.78	1.2347	0.8212	0.6888
	1.3460	1.9830	119.57	1.2284	0.8157	0.6863
	1.3401	1.9715	118.55	1.2220	0.8110	0.6806
Support	1.3258	1.9586	117.72	1.2115	0.8039	0.6726
	1.3166	1.9447	116.43	1.2046	0.7980	0.6713
	1.3113	1.9330	115.80	1.1975	0.7813	0.6694

Indicators

Date	Time GMT	$€£¥	Event	Period	Prev.	Forecast	Imp
27/03/2007	09:00	USD	Fed's Pianalto Speaks in Prague on Currencies
27/03/2007	09:30	UK	Bank of England Governor King Testimony - Inflation Report	FEB
27/03/2007	14:00	USD	Consumer Confidence	MAR	112.5	112.5
27/03/2007	14:00	USD	Richmond Fed Manufacturing Index	MAR	-10	N/A