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GBP/USD Finding Support Near The Trend Line

January 31, 2013 in Chart Alert

The converging trend line channel is in place since July 2009. GBP/USD seems to be finding support at the lower support trend line. Please check the weekly chart as follows:

GBP/USD weekly chart

GBPUSD finding support - Weekly chart


US GDP – 4th Quarter 2012

January 30, 2013 in U.S.

Markets were taken aback by a shock contraction in the U.S. GDP during the fourth quarter of 2012. Gross Domestic Product (GDP) fell by 0.1% year-on-year against the consensus expectation of a growth of 1.1%.

Economists were concerned that the result represented the weakest rate of growth in the GDP since 2009, even though it was driven primarily by a huge cut-back on defence expenditure, inventory de-growth and the result of the Superstorm Sandy.

On a bright note, consumer spending rose by 2.2% and business investment bounced back within the context of slower inflation. Homebuilding grew 15.3%.

All taken, economists view the report as a matter of concern, but are encouraged that the basic fundamentals of the economy are on track to produce a pipeline of growth during 2013.


Meeting of the US Fed – 30 Jan 2013

January 30, 2013 in U.S.

As expected, the first FOMC meeting in 2013 kept up its commitment to the current program of quantitative easing and left interest rates unchanged at 0.25%.

The Committee’s review of economic data released since the previous meeting concluded that economic activity lost some momentum and the unemployment rate remained elevated even though there was improvement in household and business spending as well as the housing market. Inflation expectations over the long term “remained stable.”

The committee’s outlook for the future was clouded by perceived “downside risks to the economic outlook” even though the global financial markets appeared to be breathing easier now.  Inflation would likely remain below the key guidepost rate of 2% over the medium term.

The Committee decided that it would continue purchasing additional agency mortgage-backed securities worth $40 billion every month and longer-term Treasury securities of $45 billion per month.  This would help advance towards the economic objectives of maximum employment, price stability and a stronger economic recovery.

On interest rates, the Committee, as usual, decided to maintain the status quo low rates of 0-0.25% and would continue to do so as long as inflation remained above 6.5%, and inflation in the medium term (one or two years ahead) is projected no higher than 2.5% within the context of benign long term inflation.

The decisions were backed by all the members except Esther L George who remained concerned that long-term inflation could increase and that economic and financial imbalances could result from the high level of monetary stimulus.


GBPJPY Finding Support Near 22 Day EMA

January 29, 2013 in Chart Alert

GBP/JPY finding support near 22 day EMADuring last week GBP/JPY had broken the support pattern which has been in place for past 9 weeks. For past 9 weeks the currency pair had been continuously finding the support near 5-week EMA. The downward move, however, could not sustain and an immediate recovery to 142.24 had taken place. The point to be noted was that this high was again lower than the previous two peaks as was mentioned in this GBP/JPY post.

Current price action

GBP/JPY is currently finding support near 22-day EMA and a decisive break of this support may be critical for a retest of the recent 139.26 which is not only the recent support but also is now near the 55-day EMA support.

GBP/JPY and 38.2% retracement

The strong upward jump which had taken place during November 13, GBP/JPY retracement2012 and January 13, 2013 has it’s 38.2% retracement near 137.65.

Today’s Economic data

No important economic releases are scheduled from the U.K. today. The retail sales data for December 2012 from Japan is to be released at GMT 23:50. The year on year change of retail sales during November was 1.3%. The market consensus is that the December data will show 0.3% change in the retail sales as compared to the previous year’s December retail sales. The November data for large retailers’ sales had shown a rise of 0.9% as compared to November 2011 data. Any unexpected change in retail sales data may cause some volatile moves today but overall short-term trend seems to be for more downward consolidation for GBP/JPY.

GBP/JPY Breaks The Support Of 5-Week EMA After 9 Weeks

January 27, 2013 in Chart Alert

For past 9 weeks GBP/JPY had been finding support near the 5-week EMA level with every drop in the price level. The currency pair broke that trend last week after over two months.

Past 3 weeks highs have been as follows:

Week of  January 7th: 144.42

Week of  January 17th: 144.81

Week of  January 21st: 144.24

The resistance is clearly indicating that the psychological resistance of 145.00 is in the picture. With a fall to 139.26, during last week GBP JPY had broken the trend of past 9 weeks as it had dropped below the support of 5-week EMA. The currency pair recovered strongly to 144.24 but the break of pattern brings in the possibilities of further consolidation.

Overall the economic data from Japan has been weak and on the other hand the recent economic releases go in the favor of GBP as clear from the last week’s economic releases as follows:

Recent economic releases from the U.K. and Japan


  • Rightmove House Price Index: The year on year change 2.4% against the previous 1.4%.
  • Public Section Net Borrowing: GBP 13.208 billion, negative as compared to the consensus of GBP 13.000 billion but better than the previous 14.266 billion British pounds.
  • Claimant Count: The claimant count change numbers in December were -12.1K and quite positive as compared to the forecasts (0.0K) as well as the previous -8.9K. The claimant count rate remained same at 4.8%.
  • Average Earnings including bonus (3 months/year): 1.5% and though same as the consensus but was less than the previous 1.8%.
  • ILO Unemployment Rate (3 months): 7.7% and better than the consensus and previous 7.8%.
  • BBA Mortgage Approvals: 33.6K and though less than the consensus of 34.1K but were same as the previous release.
  • Gross Domestic Product (prelim): Year on year change in Q4 was same as the previous quarter’s 0.0% and was less than the expected 0.2%. The quarter on quarter change was -0.3% and negative as compared to the forecasts (-0.1%) as well as the previous 0.9%.


  • Interest rate was kept same at 0.1%.
  • All Industry Activity Index (MoM): -0.3% and same as the consensus but less than the previous 0.2%.
  • Leading Economic Index: 92.1 against the previous 92.8.
  • Exports/Imports and Merchandise Trade Balance: Year on year change in the exports in December was -5.8% and quite negative as compared to the forecasts (-4.2%) as well as the previous -4.1%. Imports increased by 1.9% on year on year basis against the consensus of 1.5% and previous 0.9%. The merchandise trade balance in December was JPY  -641.5 billions against the consensus of JPY -534.0 billion but was better than the previous -953.4 billion Japanese yen.
  • Consumer Price Index: Year on year change in the national CPI was -0.1% and was better than the consensus and previous -0.2% but this was 7th drop in the CPI in past 8 months. The national CPI ex-food & energy dropped by -0.6% which was higher than the consensus of -0.5% but same as the previous release.

Considering this the only factor which seems to be going against the pair seems to be the fear of 145.00.

AUD/USD Testing The Key 200-Day Moving Average Support

January 27, 2013 in Chart Alert

AUD/USD testing 200 day moving average supportAfter going as high as 1.0598, AUD/USD had failed to break over the 1.0600 to test the previous strong resistance of 1.0624 and had fallen strongly. The subsequent effort of recovery had failed at 1.0580 and the next upward jump failed 2 pips below that i.e. at 1.0578. The strong fall from 1.0578  tried to break below the key support of 200 day moving average but found immediate support. This was similar to what had happened during end of December 2012.

The current price action of AUD/USD is just above 200-day moving average which is at 1.0412.

USD/CHF Finds Resistance Ahead Of 200 Day Moving Average

January 27, 2013 in Chart Alert

USDCHF found resistance ahead of 200 day moving averageUSD/CHF had broken over December 7, 2012’s high of 0.9383 which had proved to be a strong resistance during last month. The currency pair’s rise to as high as 0.9389 had indicated some neat-term bullish sentiments and possibilities of testing the psychological 0.9500 level at the first glance. However the fall came much before that and also ahead of the key resistance of 200-day moving average which is near 0.9430.

The previous rise of USD/CHF had also found a very strong resistance at 200-day moving average during November 9 to November 13, 2012. The recent fall took place before testing that level and indicates the sentiments going back to bearish side. The price action also broke the support of 55-day EMA though the weekly closing was at that level.


Resistance trend line turning into support

USD/CHF trend lines

There was an additional short term resistance trend line was emerging. The recent upward move had broken over that resistance but the downward move seems to be finding support near that trend line. Will this previous resistance trend line will turn into a support trend line or not is to be seen.


USD/JPY’s Bullish Moves Continue But With A Loss In The Momentum

January 27, 2013 in Chart Alert

USDJPY loss of momentumUSD/JPY had broken above the critical psychological level of 90.00 quite smoothly. Even though after the first break when the currency pair had gone as high as 90.24, there was a strong fall to 88.06 but the equally strong recovery had taken it to as high as 91.19.

On one hand the bullish sentiments are intact but recently there has been a loss of the momentum. From December 13, 2012 to January 5, 2013 the pair has been mainly finding support near the 5-day EMA but for past 3 weeks that trend has changed and there are frequent breaks of that support. The new trend of support has moved towards 22-day EMA.

There has been a resistance trend line coming into picture and the current USD/JPY price action is approaching that resistance line.

EUR/USD Breaks The Barrier Of 1.3400

January 25, 2013 in Chart Alert

EUR/USD breaks over 1.3404After briefly touching 1.3404 on January 13th, EUR/USD could not sustain the upward gains and fallen strongly. The pair had gone into a very volatile sideways mode since then but each attempt of breaking over 1.3400 has been failing since then. The previous strong resistance level was 1.3385 and a break over that had clearly indicated that further upwards gains could be expected as indicated on January 12th’s EUR/USD chart update.


EUR/USD’s break of resistances

EUR/USD - Next resistance

The next important resistance is now at 1.3486. That is very critical as it is just below the psychological level of 1.3486. Not only that but as we had mentioned in the above mentioned alert, 1.3486 also has a prior history of acting as a strong resistance. In case EUR/USD breaks over that resistance then the market would be watching for a test of 1.3590 which represents the 61.8% retracement of the downward move from 1.4549 of August 29, 2011 to 1.2042 of July 24, 2012.

EUR/USD and 61.8% retracement

EUR/USD Weekly chart - 618 retracement


Japan Consumer Prices Drop – A Threat To Bank Of Japan’s Price Stability Target

January 25, 2013 in Japan

Jpanese YenToday’s Consumer price index data released by Statistics Bureau, Tokyo showed a drop in the prices again in Japan during December 2012. The national consumer price index dropped by -1.0% against the same during December 2011. November had seen an year on year change of -2.0% and the market consensus were for a same drop during December as compared to the corresponding month of 2011. Though the drop of -1.0% was better than the previous month and also the market expectations but this was the seventh time during past 8 months when Japan saw the prices drop.

Today’s CPI reports of year on year change

Today’s CPI Releases



Previous Month

National Consumer Price Index (YoY) -December




National CPI Ex Food, Energy (YoY) -December




National CPI Ex-Fresh Food (YoY) -December




Tokyo Consumer Price Index (YoY)  January -preliminary data



Tokyo CPI ex Food, Energy (YoY)  January -preliminary data



Tokyo CPI ex Fresh Food (YoY) January -preliminary data




Drop in prices questions the practicality of Bank of Japan’s plans to control the deflation

On January 22nd the Bank of Japan had kept the interest rates same at 0.1% while the policy statement had mentioned that in order to achieve better stability in the prices BoJ has setup an inflation target of 2% on year on year basis. In the same policy meeting BoJ had announced an open-ended asset purchasing method In order to pursue aggressive and targeted monetary easing.

The continuous drop in the consumer prices put a question mark on the inflation target set by BoJ. Unless and until BoJ takes fast steps for an aggressive monetary easing, the targets seem to be farfetched.  On the other hand any drastic steps to weaken the Japanese yen may result in a currency war if other central banks start taking steps to counteract Japan’s initiatives.

Japanese yen weakened against the U.S. dollar further today and USD/JPY went as high as 90.68 during the Asian trading session before the pair went into a sideways mode.

Is Global Manufacturing Back in Fashion? Maybe, Say Better PMIs.

January 25, 2013 in Economy

According to latest PMI data released by Markit for economies around the globe, a recovery in manufacturing is gradually taking hold.

China, Eurozone and the United States together account for 47% of the world’s real GDP (Source: IMF).  Here’s a look at the latest manufacturing PMI surveys for each of these geographies.

China: Flash Manufacturing PMI hits 2-Year High…Again

The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) for January shows that operating conditions in manufacturing have improved at the fastest pace since the last two years. This was the fifth month on the trot that the index touched the highest level in a two-year time span.

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: “Despite the still tepid external demand, the domestic-driven restocking process is likely to add steam to China’s on-going recovery in the coming months.”

Germany: Flash Manufacturing PMI hits 11-Month High

Germany’s Flash Manufacturing PMI for January reported at 48.8 compared to 46.0 in December, touching an 11-month high.

Tim Moore, Senior Economist at Markit said:  “Germany’s private sector has kicked back into gear in January, as output rose at a pace that would deliver a swift recovery in GDP from the ground lost during the final quarter of 2012.”

Eurozone: Flash Manufacturing PMI hits 10-month High

The Eurozone’s Flash Manufacturing PMI for January reported at 47.5 compared to 46.1 in December, nudging a 10-month high. Chris Williamson, Chief Economist at Markit said:  “The January flash PMI data suggest that the Eurozone economic downturn has eased at the start of 2013…Trends also remained worryingly divergent within the single currency area, creating tensions for policymakers. While Germany is reporting a strengthening upturn, France is seeing the steepest downturn since early-2009.” [In France, the Flash Manufacturing PMI fell to 42.9 in January from 44.6 in December.] It appears that German growth is keeping the Eurozone recovery afloat, as declines in productive activity appear to be tapering off.

U.S.A: Flash Manufacturing PMI hits 22-month High

U.S. Flash Manufacturing PMI reported at 56.1 compared to 54.0 in December, scaling a 22-month high. The growth was propelled by improving exports, but more so by strengthening domestic demand. Chris Williamson, Chief Economist at Markit said: “The U.S. manufacturing sector started 2013 on a strong footing. Prospects also look good for the upturn to be sustained in coming months, meaning both growth of GDP and non-farm payroll are likely to accelerate in the first quarter.”


It can be seen in the graph that Manufacturing PMI in the US and China have already recovered enough so as to cross up into positive territory beyond the equilibrium line of 50.

However, the Eurozone is still a laggard, though here too, a semblance of recovery is taking root – judging from the uptick in the graph.

Spain Unemployment Hits Record High – Euro Movement Remains Indecisive

January 24, 2013 in Forex Fundamentals and News

SpainThe unemployment data released today by National Statistics Institute in Madrid showed that Spain’s unemployment jumped up to 26.02% in the 4th quarter of 2012. This is a record high at least since 1976. This casts dark shadows on the outlook of the country which had seen a very controlled unemployment during 2001 to 2008 when the average unemployment rate was close to 10%. Prior to this the jobless rate had gone very high during July 94 when it had hit the level of 24.22% but was controlled before reaching 25% level.


Spanish unemployment level – historical view

Historical unemployment rate of Spain

Spain has been implementing aggressive austerity measures to balance the budget. The fifth round of spending cuts of 2012 had started in the 4th quarter of 2012. The measures include increase in the sales tax, cuts in unemployment benefits, public sector jobs and wages. The effect of the same was expected to result in the further recession and rise in the unemployment.

According to Eurostat total number of unemployed people in Euro area were 18.82 million in November 2012. With the number of unemployed people rising to 6 million, Spain has become the home of one third unemployed workforce of the Eurozone.

EUR/USD remain indecisiveEUR/USD remains directionless

Euro’s movement against the U.S. dollar remains indecisive as it has been since the markets opened this week. After the markets opened on Monday, EUR/USD moved in tight ranges between 1.3300 to 1.3332 for over 30 hours of trading. A break of that range resulted in quite volatile moves which have been failing to show any clarity of direction. Since then the currency pair had gone to a high of 1.3371 before a fall to 1.3266. The subsequent rise saw it touching 1.3354 before another fall to 1.3264. The indecisiveness did not end there as the pair again rose to 1.3347 before falling again to 1.3286 and then jumping again to 1.3342. The only consistence is that the highs are getting lower and that is indicating an underlying bearish mood in the overall indecisiveness.