» 2008 » March

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Currency trading with Fibonacci numbersOne of the pioneers in adapting currency trading (and other trading) to Fibonacci numbers is Joe DiNapoli. Using his DiNapoli levels can be one way to plan your currency trading on the FX market.

Take a look at this forex trading video to get an idea of how DiNapoli levels work in technical analysis.

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US dollar to remain under pressure Forex trading strategy for the US dollar should consider that it remains under pressure. In currency trading, the US dollar is being weighed upon by such factors as consumer confidence. Investors also remain worried about the credit crisis. Inquirer.net reports on the US dollar in currency trading on the FX market:

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Yen expected to strengthen in currency tradingThe Japanese yen forex trading forecast calls for more strength against the US dollar. In currency trading, the yen’s support level continues to move lower, spelling further dollar weakness against the Asian currency on the FX market. Bloomberg reports on the Japanese yen forex trading forecast:

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Euro gains against US dollar in forex tradingThe euro is gaining against the US dollar in forex trading as the week commences. Euro zone inflation continues to rise, and this is supporting the currency on the FX market. As a result, the ECB will likely remain hawkish, and rate cuts will not be made til later in the year. Reuters reports on euro zone inflation:

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Loyalty to the US dollar remains in Gulf StatesLoyalty to the US dollar is preventing most of the Gulf Cooperation Council states from ending their dollar pegs. Many of them feel that it would put dollar-denominated assets at risk, prompting large losses.

Additionally, especially in Saudi Arabia, the most powerful of the Gulf States, the US has been applying pressure to keep the dollar pegs in place. Bloomberg reports on dollar pegs in Gulf States:

An end to Gulf States’ US dollar pegs would be a blow to the popularity of the US dollar in currency trading on the FX market, and could lead to changing how the price of oil is set — from dollars to demominating it in euros.

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• US Dollar Pegs and the Gulf States
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Incubation conditions are perfect…

Releases from Europe:
                                                Prior     Revised
Swiss SECO 2008 GDP Forecasts   +1.7%  +1.5%

February                                Forecast     Actual
French Producer Prices    (MoM)  +0.5%     +0.4%
French Producer Prices     (YoY)  +4.9%     +4.9%
Italian PPI                    (MoM)  +0.5%     +0.7%
Italian PPI                     (YoY)  +5.2%     +5.7%
Euro-zone M3                 (YoY)  11.5%     11.3%

No surprises from the European data releases so far this morning but there’s plenty to come albeit that nothing is likely to spring much of a surprise. Italian PPI was a touch firmer than forecasts which will keep Trichet vigilant but more emphasis will be placed on this week’s CPI numbers.

The Dollar consequently has remained within Friday’s ranges with the market beginning to give up hope that something will push the boundaries today.

The following economic releases are due today:

March
Euro-zone CPI (Est)                 (YoY)    +3.3%
Italian CPI (P)                       (MoM)    +0.3%
Italian CPI (P)                        (YoY)    +3.1%
Euro-zone Business Climate Indicator       0.70
Euro-zone Consumer Confidence            -12.0
Euro-zone Economic Confidence             100.0
Euro-zone Industrial Confidence                1.0
Euro-zone Services Confidence                10.0
U.S. Chicago PMI                                   46.5

The week has begun relatively quietly with subdued numbers from both Australia and Japan. The latter faces a stronger test tomorrow when the BOJ’s Tankan report is expected to show a substantial decline in corporate outlook as the combination of a stronger Yen and weaker demand threatens to force a hemorrhaging of the country’s export strength.

There are even one or two suggestions of softening in Europe also as the retail PMI’s provided a soggy outlook caused by consumer’s reactions to the threat of higher food and energy prices eating into their wealth.

Recessions are commonly a result of consumers protecting their wealth as they react to destabilizing factors around them. Right now we are seeing how higher credit spreads, tighter credit requirements and ballooning prices provide a spreading dis-ease. Indeed the symptoms are infectious.

The Fed and the U.S. administration have already reacted to this by cutting rates and forcing through fiscal and mortgage plans. The rest of the world has looked on and declared that they are not in the same boat.

Indeed, right now they are right. However, just 10 months ago the U.S. would have said the same. The onset of the symptoms has been more rapid than expected in the States.

While the ECB appears to remain aloof it is quite aware of the risks. It continues to inject liquidity when required and has pulled back sharply from a tightening in monetary policy. It may emit an air of confidence but its actions belay more caution.

If the rest of the world is going to catch the same dis-ease from the States it will come through the consumer. Oil prices and inflation provide the incubation conditions. Combined with persistent tight credit conditions, any lack of confidence in the consumer is going to stem the blood flow from industry.

We can’t say with any confidence that a collapse will occur. However, Japan is already very vulnerable with the strong Yen and reduced export demand. Any LBO failures in Europe and the result could be more devastating that SARS, bird flu and AIDS.

Note important support and resistance areas:

         USDJPY        EURUSD       USDCHF       GBPUSD
Res:  100.37-64    1.5901-07    1.0064-08    2.0028-48
Res:    99.80-15    1.5815-37    1.0005-23    1.9910-40

Spt:     98.81-30    1.5725-40    0.9910-15    1.9816-48
Spt:     98.37-54    1.5655-82    0.9846-79    1.9733-56

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Unclear – this is the message to take with you going into the second quarter. The shock of Bear Stearns disappearance into JP Morgan Chase is gone (unless you worked for Bear) and all eyes are now on Lehman and Oppenheimer. Foreign exchange is mixed in very choppy trading and anything except intraday jabbing could prove dangerous to your health. The dollar should remain under pressure, but it’s already so weak that its decline is not so easy to melt further.

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Dollar remains within Friday’s ranges as the week begins

Releases from Australia:

February                                Forecast         Actual
HIA New Home Sales     (MoM)                      - 5.3%
Private Sector Credit      (MoM)    +1.1%        +0.7%
Private Sector Credit       (YoY)    16.2%         15.5%

March
TD Securities Inflation   (MoM)  +0.3% (prior)  +0.4%
TD Securities Inflation    (YoY)  +4.1% (prior)  +3.8%

Australians appear to be reacting to the RBA’s repeated rate hikes as private sector credit failed to live up to consensus forecast and home sales begin to decline. The only release that will concern them is the continuing high inflation rate but even that saw the year-on-year figure edge back lower to +3.8%.

Overall the numbers are more likely to encourage the RBA ahead of tomorrow’s rate decision and should provide them with sufficient reason to keep rates on hold.

Releases from Japan:

February                                     Forecast         Actual
Industrial Production        (MoM)     - 2.0%         - 1.2%
Industrial Production         (YoY)     +2.9%          +4.2%
Labor Cash Earnings          (YoY)     +0.6%         +1.3%
Vehicle Production             (YoY)                        +9.0%
Housing Starts                  (YoY)     - 1.0%         - 5.0% 
Annualized Housing Starts  (YoY)   1.20mn        1.15mn
Construction Orders           (YoY)   -5.7% (prior)   18.4%

March
Nomura/JMMA Manufacturing PMI     50.8 (prior)      49.5

Japan’s industrial production is edging lower though not as fast as expected. Never-the-less the Nomura/JMMA manufacturing PMI declined for the first time in 5 months by slipping below the 50 boom/bust level to hit 49.5. Notably new orders declined to 47.9 – that’s a 2nd consecutive month of losses.

What will now be concerning is the sharper than expected rise in inflation. While earnings have been pretty stable to soft the 1.3% rise in earnings will not make the BOJ’s job any easier. Vehicle production was strong but housing starts are beginning to cave in under softening house prices.

Next major impact will come from the BOJ’s Tankan Report tomorrow which is expected to show some rather distressing declines in outlook. METI may well retain their assessment of industrial production as a “flat trend” but a growing number of businesses are beginning to feel the strain, especially for exporters whose prices will be looking 20% more expensive than 7-8 months ago.

The following economic releases are due today:

February
French Producer Prices            (MoM)    +0.5%
French Producer Prices             (YoY)    +4.9%
Italian PPI                            (MoM)    +0.5%
Italian PPI                             (YoY)    +5.2%
Euro-zone M3                         (YoY)    11.5%

March
Swiss SECO 2008 Economic Forecasts
Euro-zone CPI (Est)                 (YoY)    +3.3%
Italian CPI (P)                       (MoM)    +0.3%
Italian CPI (P)                        (YoY)    +3.1%
Euro-zone Business Climate Indicator       0.70
Euro-zone Consumer Confidence            -12.0
Euro-zone Economic Confidence             100.0
Euro-zone Industrial Confidence                1.0
Euro-zone Services Confidence                10.0
U.S. Chicago PMI                                   46.5

Friday maintained the rather erratic moves which continue to provide a basically confused outlook. The two currencies that did come through well were the Pound and Aussie which both saw losses but even there the result is a little inconclusive.

Today I want to take things a little cautiously still but if I have any preference in outlook it is for a higher Dollar. Whatever happens I do feel that a pullback is likely. The only thing to look out for in the meantime is the potential for one further spike lower before that pullback.

Centering a view around the Euro the two scenarios are quite straightforward. Either we are in the middle of a Wave –v- higher which would imply an initial move to around the 1.5901 high but this would require a pullback, perhaps around 50% before it can push through more strongly above 1.5901. Alternatively we may be seeing some sort of complex correction. This could be a flat (and thus a retest of 1.5901) or a larger sideways consolidation that would imply a deeper pullback directly.

Dollar-Yen has staged a solid pullback higher after Friday’s erratic moves and the risk here is still for a move just back above 101.03 again. Good resistance is seen around 101.23-34 that needs to hold to retain a medium term dip below 95.71 again.

Note important support and resistance areas:

         USDJPY        EURUSD       USDCHF       GBPUSD
Res:  101.23-34    1.5901-07    1.0064-08    2.0028-48
Res:  100.37-64    1.5815-37    1.0005-23    1.9940-78

Spt:     99.30-50    1.5725-40    0.9930-47    1.9816-56
Spt:     98.54-81    1.5655-82    0.9846-79    1.9733-56

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