Yen Could Dominate in a Week of Central Banks and Key US Data

The Japanese yen was the biggest winner last week as seen with yen crosses topping the top movers chart. While most of the moves were done on Friday following the 170pts fall in Dow, such declines did have the significance of indicating that yen is regathering strength for medium term rally. As discussed before, most yen crosses should have topped out in Jul, except USD/JPY. The pair has been steady due to dollar’s strength but upside momentum was seen diminishing after making at high at 110.66. Outlook is mixed in the pair for the moment with possibility of a reversal. And if the last defense is taken down and USD/JPY does reverse, further massive buying could be seen in the yen which pushes other yen crosses further lower. This will probably be the main focus in September.

Dollar enjoyed a strong broad based rally in August, in particular against Aussie and Sterling. Though, the greenback consolidated against most currencies last week together with choppy consolidation in oil and gold. Dollar index was basically bounded in tight range of 76.55 and 77.61 last week. In particular, oil was lifted by the worry of Hurricane Gustav, however, such impact could temporary. Some more consolidate may be seen in the greenback in near term, with risk of pulling back further against euro and Aussie, but more medium term strength is still in favor after the hurricane passes.

Euro did have the biggest monthly fall since 1999 in Aug. Though, the common currency was the relatively steady currency against dollar and in general last week. While data from Eurozone were generally weak, the common currency was supported by comments from ECB Weber that the discussion of a rate cut is premature. Such comment could be echoed by ECB Trichet this week and may give the Euro a boost but after all, the case of a medium term reversal in EUR/USD will likely continue to develop, in particular if Euro continues to be dragged down in EUR/JPY cross.

Sterling remained the weakest one among the majors along with the Aussie. GBP/USD has already taken out important support at 1.83 level which added more credence to the case that multi year long term up trend that started in 2001 has reversed. GBP/JPY also showed further sign that medium term down trend from 251.09 is ready to resume. More importantly, the pound was starting to display resumed weakness in EUR/GBP and GBPCHF crosses, with EUR/GBP set to resume medium term up trend while GBP/CHF could also be resuming medium term down trend. Such weakness will likely continue and even accelerate in September.

Looking ahead, the week will start slightly with market holiday in US on Monday. However, volatility will continue to increase with a number of key events scheduled. Four central banks will meet this week including RBA, BoC, ECB and BoE. In addition, ISM manufacturing, Services as well as Non-Farm payroll from US will be released. Main focus will be on extension of strength in yen, weakness in Sterling, with uncertainty on whether dollar will resume rally.

Currency Heat Map Weekly View

FOMC minutes didn’t revealed much new information. Members generally agree that the economy will remain weak and are generally concerned the possibility that core inflation will moderate as growth slows. The next move from Fed is still likely a hike but the opinion on the timing is rather divided.

Housing data were generally better than expected. Existing home sales rebounded strongly by 3.1% to 5.0m annualized rate in Jul, above expectation of 4.9M. New home sales climbed 2.4% from downwardly revised 0.503m to 0.515m annualized rate in Jul. S&P/CS Composite-20 HPI showed -15.9% fall in Jun, above expectation of -16.2%.

Headline durables jumped 1.3% in Jul versus consensus of 0%. This is the third consecutive months of expansion. Ex-transport orders rose 0.7% versus consensus of -0.5% fall. Ex-defense orders also rose 2.8% versus expectation of 0.2%. The data argued that business spending and confidence are continuing to recover in the US. Conference board consumer confidence improved more than expected to 56.9 in Aug. Jobless claims dropped slightly but remains elevated at 425k.

Preliminary Q2 GDP annualized growth rate was revised higher from 1.9% to 3.3% versus expectation of 2.7%. Record exports and the smallest trade deficit in eight years were the biggest driver in the upward revision. Personal consumption was revised up to 1.7% versus expectation of 1.6%.

Person income dropped more than expected by -0.7% in Jul, spending rose 0.2%. Headline PCE jumped to 4.5% yoy, highest in 17 years while core PCE rose 2.4%. Chicago PMI improved to 57.9 in Aug, much stronger than expectation of 50.0. Finalized reading of Aug U of Michigan consumer sentiment came in better than expected at 63.0.

Data from Eurozone were mixed. Germany Ifo Business climate index dropped sharply from 97.5 to 94.8 in Aug, hitting a three year low. Expectation index also dropped sharply from 90 to 87.0. Gfk consumer confidence dropped more than expected to 1.5. Eurozone HICP flash moderated more than expected to 3.8% yoy in Aug. However, M3 money supply slowed less than expected to 9.3% yoy in Jul. Unemployment rate was unchanged at 7.3% in Jul.

UK data were generally disappointing. Nationwide house prices fell for the ninth month by -1.9% mom in Aug, dragging yoy rate to -10.5%. CBI distributive trades dropped to -46 in Aug. Though, Gfk consumer confidence unexpectedly improved from -39 to -36 in Aug.

Swiss KOF dropped more than expected to 0.68.

Japanese unemployment rate dropped from 4.1% to 4.0% in Jul. Retail sales jumped more than expected by 1.9%. Housing starts rise further to 19% yoy. Industrial production unexpected posted 0.9% mom gain in Jul, with yoy rate at 2.0%. Manufacturing PMI dropped less than expected to 46.9. More importantly, national CPI climbed to decades high of 2.3% yoy in Jul.

Canadian Jun GDP rose 0.1% mom. More importantly, Q2 GDP was weaker than expected by rising 0.3% only, below expectation of 0.7%. PPI rose 0.4% mom, 6.8% yoy in Jul.

(CEP News) - After years of double-digit house price appreciation in Canada, would-be buyers may finally get their good chance to jump into the market, experts say.Desjardins Group recently reported that its affordability index improved for a second straight quarter after flirting at the end of 2007 with levels of affordability - or perhaps more accurately, unaffordability - not seen since the late 1990s.

But now, price growth and home sales are slowing and in some markets, such as Calgary and Windsor, prices are even falling. In the first half of the year, average prices in Canada rose by 4.4% compared to growth of 10.0% for the same period last year.

Lower mortgage rates also helped buyers, the Desjardins report said, noting the rate posted for a one-year term fell to 6.30% by the end of June from 7.25% at the end of March. The five-year rate fell only slightly to 7.10% from 7.15% three months earlier, the Desjardins report said.

“I think the price drop in a few census metropolitan areas is a sign the market is finally slowing,” said H?l?ne B?gin, senior economist with Desjardins and one of the authors of the affordability index report.

B?gin said that both Calgary and Windsor have special factors prompting their declines such as the breakneck pace of price increases in Calgary and the impact of trouble in the auto sector in Windsor. But other Canadian markets are moving toward equilibrium, she said.

But while things have improved, the affordability index is still well below the historical average, she noted.

“It’s still very expensive to buy a house in Canada when we take into account the growth of incomes,” she said. By the end of 2008, B?gin said home prices should still be increasing but at a much slower pace, more in line with inflation at about 2.5-3%.

That could mean an easier time for first-time homebuyers saving up for a down payment, said Bob Dugan, chief economist at the Canada Mortgage and Housing Corporation (CMHC).

“With house prices growing at 10% a year, it’s hard to save up and not feel like you are falling behind the market,” said Dugan, who characterized the Canadian market as “rebalancing.” However, he said there is no danger of a collapse similar to that seen in the U.S.

Dugan said CMHC is forecasting home prices will appreciate by about 3.3% on average in 2008 and that they expect mortgage rates to remain stable through 2009 despite predictions by some economists that the overnight lending rate may rise as much as 100 basis points as the economy improves.

Dugan said mortgage rates are not directly linked to the Bank of Canada’s overnight rate, but are more influenced by the bond market.

While he said each would-be homebuyer must assess their own finances and ensure they have the wherewithal to not only purchase a house, but withstand potential financial shocks, Dugan said the current market may represent a good opportunity.

“To me it looks like a nice, stable environment that should make home ownership an attractive option to a lot of households,” Dugan said.

However, the best buying opportunities may lie a little farther down the road, said Scotiabank economist Derek Holt.

“We think the downside risks to Canadian growth are mounting and the pressures on inflation are ebbing gradually and that should give the Bank of Canada room to cut by half a point,” he said.

That would be good news for mortgage borrowers opting for a variable rate, he said, but agreed with Dugan that fixed rate mortgages offer up a trickier forecast picture more related to bonds and credit markets.

“The big hope is that funding pressures ease at some point in 2009 and that the spreads that get tacked on will be reined in a little bit,” he said. He said further price corrections will likely be seen in Alberta, but that British Columbia - one of Canada’s least affordable housing markets - will likely continue to enjoy a boost from the 2010 Olympics.

Holt also said price risks in Ontario and Quebec are not as great as they are in the West where appreciation has been so rapid, but he added that the threat of recession in Ontario is looming and could “take a lot of wind out of housing markets.”

One of the biggest factors influencing affordability in the next couple years will be income gains, which he said likely won’t be outstripped by housing price gains.

“Give it another year or two and I think you’ll gradually see better conditions for the buyer,” he said.

By Sean McKibbon,

Daily Pivots: (S1) 0.8569; (P) 0.8630; (R1) 0.8686

With an intraday low in place at 0.8493, intraday bias is mildly on the upside and further recovery could be seen to 0.8812 resistance. as discussed before, break there will confirm that a short term bottom is in place after meeting mentioned 0.8512 cluster support target. In such case, stronger rebound should be seen to 38.2% retracement of 0.9849 to 0.8493 at 0.9011 or above but upside should be limited by 61.8% retracement at 0.9331 and bring fall resumption. On the downside, sustained break of 0.8512 cluster support will indicate decline from 0.9849 has resumed and bring deeper decline to test long term trend line support and 0.80/81 level.

In the bigger picture, AUD/USD has completed a diagonal triangle pattern that started at 0.7675, with 0.9849 as a false break with bearish divergence conditions in daily and weekly MACD and RSI. Break of 55 weeks EMA reaffirmed that 0.9849 is an important top. Fall from 0.9849 has now dived into medium term support zone of 0.7675 and 0.8870, with 0.8008 key medium term support in between as expected. Firm break of 0.8512 cluster support (61.8% retracement of 0.7675 to 0.9849 at 0.8505) will put long term trend line support (0.4773 (01 low), 0.7015, now at 0.8105) into focus.

Daily Pivots: (S1) 1.8222; (P) 1.8311; (R1) 1.8384;

Cable continues to crawl lower to 1.8240 today but there is no decisive selling to get rid of 1.8303/34 support zone yet. Nevertheless, intraday bias remains on the downside as long as 1.8488 minor resistance holds. Sustained trading below 100% projection of 2.1161 to 1.9337 from 2.0158 at 1.8334 will encourage deeper fall to next target of 161.8% projection at 1.7207.

On the upside, above 1.8488 will turn intraday outlook neutral first. Also, further break of 1.8794 resistance will indicate that a short term low is finally in place, with bullish convergence condition in 4 hours MACD and RSI and bring stronger rebound. But upside should still be limited by 1.9337 support turned resistance and bring fall resumption.

In the bigger picture, medium term fall from 2.1161 (07 high) is still in progress. The developments so far are arguing that whole multi year up trend from 1.3680 (01 low) has also completed too. Those developments include strong break of the long term trend line and 55 months EMA, bearish divergence conditions and trend breaking in monthly MACD and RSI.

Focus is now on cluster support at 1.8303/34 (100% projection of 2.1161 to 1.9337 from 2.0158 at 1.8334 and 38.2% retracement of 1.3680 to 2.1161 at 1.8303). Sustained break of while which indicate that whole decline from 2.1161 is probably impulsive in nature and add more credence to the case of long term reversal. This will pave the way to next key support at 1.7047 first. On the upside, while strong rebound might be seen, a break of 2.0158 resistance is still needed to indicate fall from 2.1161 has completed. Otherwise, another fall should still be seen after correction.

Daily Pivots: (S1) 1.0908; (P) 1.0960; (R1) 1.1037;

USD/CHF’s outlook remains neutral for the moment as the pair continues to be bounded in tight range after failing to sustain above 1.0999/1028 resistance zone. On the upside, sustained trading above 1.0999/1028 resistance zone is needed to confirm recent rally has resumed for next key medium term resistance at 1.1596. On the downside, break of 1.0842 support will indicate that rise from 1.0010 has topped out with bearish divergence condition in 4 hours MACD and RSI and bring deeper correction before staging another rise.

In the bigger picture, the case that whole medium term down trend from 1.3283 has completed continues to build up with weekly MACD and RSI breaking their own down trend. Nevertheless, focus remains on the mentioned cluster resistance at 1.0999/1028 (100% projection of 0.9634 to 1.0623 from 1.0010 at 1.0999, 38.2% retracement of 1.3283 to 0.9634 at 1.1028). Sustained break of this resistance zone will indicate that whole rise from 0.9634 is possibly impulsive in nature and should target next cluster resistance at 1.1596 (161.8% projection of 0.9634 to 1.0623 from 1.0010 at 1.1610). On the downside, a break below 1.0010 support is needed to confirm rise from 0.9634 has finished. Otherwise, further rally is still in favor after pullback.

Daily Pivots: (S1) 108.93; (P) 109.33; (R1) 109.87;

USD/JPY continues to be bounded in choppy sideway trading below 109.92 today. Outlook remains neutral for the moment. Correction from 110.66 might still be in progress and break of 108.70 minor support will put favor to this case and bring deeper fall to 108.13 and below. Also, note, though still early, the possibility of a short term head and shoulder top (110.4 110.66, 110.27). Break of 108.13 will indicate recent up trend has possibly reversed and and much deeper decline should the be seen to test medium term rising trendline support (now at 106.69). On the upside, break of 109.92 minor resistance will indicate that rise from 108.13 has likely resumed for 110.66. Break will confirm that recent rally has resumed for next target of 61.8% projection of 95.77 to 108.58 from 103.76 at 111.68.

In the bigger picture, USD/JPY has made a medium term bottom after down trend from 124.13 has just met 76.4% retracement of 79.75 to 147.68 at 95.78. Rebound from 95.77 is still in progress and should be targeting 61.8% projection of 95.77 to 108.58 from 103.76 at 111.68 first. Break will bring further rise to 61.8% retracement of 124.13 to 95.77 at 113.30.

However, considering bearish divergence condition in daily MACD, break of 106.04 support and sustained trading below the trend line support (99.57, 103.75, now at 106.69) will argue that whole medium term rebound from 95.77 has completed. Focus will then be turned back to 103.76 support and break will confirm this case and turn outlook bearish again.

Daily Pivots: (S1) 199.68; (P) 200.41; (R1) 201.02;

GBP/JPY’s down trend is still in progress and breaches mentioned 199.78 support today. At this point, further decline is still expected as long as 202.28 minor resistance holds. As discussed before, break of 199.78 is now encouraging deeper fall to test 192.60 medium term bottom. ON the upside, though, above 202.28 will indicate that a short term bottom is possibly in place and bring rebound towards 206.51 resistance before staging another fall.

In the bigger picture, medium term rebound from 192.60 has completed at 215.87 after being limited below 100% projection of 192.60 to 208.99 from 199.78 at 216.17 as well as 55 weeks EMA, on bearish divergence condition in daily MACD. The three wave structure of rise from 192.60 to 215.87 is consistent with the view that it’s merely a correction to the the medium term down trend from 241.35. Break of 199.78 support confirms this case and bring retest of 192.60 low. On the upside, above 210.54 structure resistance is needed to indicate fall from 215.87 has completed. Otherwise, another decline is still expected even in case of strong rebound.

Expecting the AUD/CHF to Go Bearish

Traders are certain Reserve Bank of Australia policy makers will lower their interest rate by a quarter-percentage point when they meet in September the 2nd

AUD: The Australian dollar is a favorite target of carry trades, in which investors get funds in a country with low borrowing costs and invest in one with higher rates, earning the spread between the two. The risk is that currency market moves erase those profits. Traders are certain Reserve Bank of Australia policy makers will lower their interest rate by a quarter-percentage point when they meet in September the 2nd, according to interest-rate futures trading on the Sydney Futures Exchange. When the dollar is going up and commodities are coming off, that’s a problem for the Australian dollar as it depends on the price of gold due to the fact that it is one of its major exports.

CHF: The Swiss franc is commonly used for carry trades as the base interest rate stands at 2.25%. Today the Swiss consumption Indicator came out for July which was worse than last month. Many economists have been expecting a slowdown in exports and the financial sector

Technical

The momentum and the RSI are in a major bearish trend but we see some divergence in the minor trend as the momentum broke the zero line and pointing upward. The MACD is after a bearish cross when the fast line has broken the zero line. The break of the zero line proves a strong signal for a further downward trend. The prices are trading above the parabolic SAR and broke the 20 and 50 MA lines but the 50 days MA is still pointing down. The Bollinger bands are close indicating a possible expanded move of the prices after drifting a bit sideways in the last few months.

AUD/CHF the overall trend is in a bearish direction

AUD/CHF is trading in a range over the past couple of months

AUD/CHF over the past few days the pair has been trading sideways

By Finotec Group Inc.
http://www.finotec.com/

EUR/USD

Weekly :

Last week sees a test of main fib. support and Euro reqched late 2007 levels. Expected trading range for coming weeks extends from 1.4440 to 1.5090. To the upside, this week opened at 1.4783, just above 1.4760 minor support. Sustained upside move above weekly open will allow price to test again last week high at 1.4910 (1st objective). Once there, only a break above 1.4930 resistance will let price fill the gap, allowing a run to 1.5010 (2nd objective). To the downside, a fall below 1.4690 minor support may let prices fall towards 1.4640 main support (1st objective). A break below this level opens the door to 1.4445 multi-month trenline (2nd objective), where a rebound is expexted. If not, continuous fall towards 1.4335 fib. Level may be seen.

EURUSD Weekly

Daily :

Last days sees a consolidation of recent fall, price trapped in a symetrical triangle. Expected trading range for coming weeks extends from 1.4620 to 1.4980. To the upside, a daily close above 1.4810 minor support is needed to expect a test of the 1.4875 - 1.4905 reisistance zone and triangle high (1st objective). Only a sustained break and daily close above this resistance zone will allow Euro to perform a corrective upmove towards 1.4975 (2nd objective). Next upside objective will then be 1.5080. To the downside, a strong support zone extedns from 1.4650 to 1.4700. Break below 1.4695 triangle low means a 2nd bottom-test is likely, and a breka below 1.4650 support (1st objective) will lead to a fall towards 1.4530 minor support (2nd objective), ahead of 1.4440 main support.

EURUSD Daily

4-Hours :

Last week price action can be resumed as consolidative since Euro price action has been delimited by a 300 pips range extending from 1.4650 to 1.4910, establishing range limits witch should be monitored carefully. To the upside, while still inside consolidation channel, immediate bias remain nuetral to positive. A test of 1.4855 cluster support may be seen (1st objective), and a break above it will allow a run towards 1.4910 minor support. Break above this level targets 1.4980, extending up to 1.5080 (2nd objective). Price reaction at these levels must be monitored in order to determine if correction is over. To the downside, failure above 1.4850 and/or break below 1.47 means fall has resumed. Break of 1.4650 support will confirm bearish expectations for a tst of -23.6% fib. extenstion at 1.4525 (1st objective), ahead of 1.4460 support (2nd objective).

EURUSD 4-Hours

GBP/USD

Weekly :

Last week sees a rejection from broken trendline to a bearish stance consolidation. Expected trading range for coming weeks extends from 1.8320 to 1.88. To the upside, price must trade above 1.85 weekly open to expect a positive consolidation towards 1.8630 first (1st objective), ahead of 1.8740/90 cluster resistance zone (2nd objective), correponding to a fib. level and multi-month broken trendline. Obly a break above this resistance zone will let price run towards 1.88990 - 1.8910 main resistance. To the downside, price may consolidate between 1.8420 and 1.8510, but a break below 1.8420 will argue in favor of fall resumption. Minor support stands at 1.8320 (1st objective), ahead of 1.8170 main support (2nd objective)

GBPUSD Weekly

Daily :

As Euro did, last days sees a swingy consolidation below the 1.88 handle. Expected trading range for coming days extends from 1.84 to 1.8790. To the upside, rejection from 1.84 argue in favor of a consolidation higher, price must trade above 1.85 week open to reach first support zone at 1.8600/15 (1st objective). Once there, rejection lower is likely, but sustained break above 1.86 will lead to a stronger consolidation towards 1.8710, and then 1.8770 last week high (2nd objective). Break above, even if unlikely, targets 1.8875 broken channel. To the downside, consolidation between 1.84 and 1.85 may be likely this week, but a break below 1.84 will be clearly negative tageting 1.8180 support, witch is the main objective, wicth must be monitored..

GBPUSD Daily

4-Hours :

Last week consolidative price action finnaly ended by a downside channel break., followed by a rebound on 1.84 trendline early this week. To the upside, pullback above 1.8550/75 means price is back in the consolidation channel. Sustained trading at these levels may allow the pound to recover further towards 1.8640 and 1.8710 (1st objective). Break of 1.8710 targets 1.8790 cluster support (2nd objective). Even if unlikely, a break higher must be monitored.. To the downside, rejection of 1.8550/75 and/or break below 1.84 will meet weekly and daily objectives.

GBPUSD 4-Hours

USD/JPY

Weekly :

Last week sees a consolidation in recent trading range, weekly close candlestick is hammer (reversal possibility). Expected trading range for coming weeks extends from 107.90 to 111.60. To the upside, this week opened at 110.05 below wedge high, lying at 110.35.. A break above 110.35 is needed to keep the bullish stance intact, and only a break above this level will allow prices to rise further towards 110.70 highs ahead of -23.6 fib. projection at 111.50 (1st objective). Above, 138.2% FE at 112.00 may hold price (2nd objective). If outperformed, next target will be 161.8% FE at 113.25. To the downside, 109.70/90 minor supprot zone remain fragile and break lower will give a downside consolidation towards 108.60/80 main support. A rebound is expected here, but if not, break below 108.60 will turn the bias neutral to negative for a test of 107.80 support (2nd objective).

USDJPY Weekly

Daily :

Swingy and consolidative price action has been seen last days. Price still in a falling wedge. Expected trading range for coming days extends from 108.40 to 110.90. To the upside, a strong support zone extends from 110.30 to 110.60. While above 109.10, the bias remain positive. A clear and sustained break and/or daily close above this level is needed to expect a bullish run towards 23.6% fib. projection at 112.10 (1st objective), ahead of cluster support in the 113.90 - 114.00 zone (2nd objective). To the downside, break below 109.10 targets next cluster support zone at 108.05/30 (1st objective). Only a wedge downside break below 108.00 will let us think recent rise is over. Then, a test of the 107.10/40 supprot zone may follow (2nd objective).

USDJPY Daily

4-Hours :

Swings in the 108 - 110 trading range has been seen so far. To the upside, break of 110.20/40 resistances will allow prices to challenge yearly highs at 110.64, then able to run towards daily objectives. To the downside, 109.20, 108.80 and 108.20 and strong support where a rebound can be seen. Break of 108.30 targets 107.75 trnedline, ahead of daily downside objectives.

USDJPY 4-Hours

by : WFXAdvisor

Daily Pivots: (S1) 1.0424; (P) 1.0459; (R1) 1.0493;

No change in USD/CAD’s outlook. Further decline is still in favor as long as 1.0593 resistance holds. Though, downside of the correction from 1.0727 is expected to be contained above 1.0273 cluster support (61.8% retracement of 0.9974 to 1.0727 at 1.0262) and bring rally resumption. oN the upside, break of 1.0593 minor resistance will flip intraday back to the upside for 1.0727 high. Break will indicate recent rally has resumed for 1.0791/98 cluster resistance.

In the bigger picture, medium term rise from 0.9056 is still in progress towards mentioned cluster resistance at 1.0791/98 (61.8% retracement of 1.1874 to 0.9056 at 1.0798, 61.8% projection of 0.9056 to 1.0378 from 0.9974 at 1.0791) first. Sustained break of 1.0791/98 will argue that rise from 0.9056 is probably more than just a correction in the long term down trend and will set the stage to test key long term resistance at 1.1874. On the downside, a break below 0.9974 support is needed to confirm that rise from 0.9056 has completed. Otherwise, further rally is still expected even in case of a deep pull back.