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US dollar recovery?

September 23, 2013 in Forex Fundamentals and News

With the German elections over, attention now focuses on the US debt ceiling. Chancellor Merkel did exceptionally well in the German elections with an estimated 42 per cent of the vote. However, the results leave Merkel’s Christian Democrats just short of an overall majority and a protracted period of coalition building lies ahead. The reaction in the markets has been fairly muted with both the Euro and the German Dax index slightly weaker this morning. Concerns that the new coalition will mean a move towards the left and issues such as a bank transaction tax could be introduced as well as an increase in the rate of tax for high earners.

Volatility in the markets will now be determined by how President Obama and Congress deal with the debt ceiling. Without a budget deal by October 1st 2013, a shutdown becomes a real possibility. National debt is now 73% of GDP in the US and the federal budget cannot continue to be sustained indefinitely at this level.

On Saturday President Obama said that he won’t negotiate with the Republicans over the debt ceiling, he accused them of threatening to plunge the US into default and back into recession.

However, even if a deal is agreed to raise the debt ceiling, it is likely that this will have to re-negotiated by mid-December.

We are in for a long period of volatility in both the equity and FX markets over the next few weeks. Economic data coming out of Europe is starting to show signs of recovery with Eurozone PMI figures released today much better than expected and both French and German PMI impressing. However, unemployment remains a major concern for much of the Eurozone –especially in Greece, Italy, Portugal and Spain. Geo-political concerns are still a major issue even if news is quiet on that front. The recent horrific terrorist attack in Kenya also demonstrates that global terrorism is still prevalent.

The recent weakness over the last couple of months in the US dollar against both the Euro and Sterling seems to ignore many of the factors listed above and a sudden reversal of the US dollar should not be ignored especially as the greenback remains the “safe haven” currency of the world.

Weaker than expected UK retail sales perhaps the catalyst to push Sterling lower?

September 19, 2013 in Forex Articles

After yesterday’s surge in Sterling after the decision by the Fed chairman not to taper, today’s release of weaker than expected retail sales figures has pushed Sterling lower albeit it is still above 1.61 USD.

UK retail sales fell unexpectedly by the most in 10 months which surprised the markets but nothing compared to what Ben Bernanke did (not) do yesterday.

Economic data has been much better than expected in the UK over the past few months and today’s unexpected data has put caution back into the UK economy. Over the past couple of months GDP data has come in at double the expected figure of 0.3% and PMI figures have been much better than expected thus boosting the UK economy. Today’s retail figures are indeed a surprise.

The strong data over the past couple of months has certainly put a spring in the step of Sterling as the currency has risen from 1.48 USD in early July to over 1.61 USD. With Sterling having risen so sharply in a short period of time, negative economic data like the weaker than expected retail sales figures today will be used as an excuse to weaken the pound after its spectacular run against US dollar.

While the outlook for the economy is improving, consumers may remain under pressure as inflation outpaces wage growth. In the three months through July, average weekly earnings grew an annual 1 per cent. Data earlier this week showed consumer-price growth was 2.7 per cent in July. The recent sharp rise in the price of oil will also add to upward pressure on inflation in the near term which will be detrimental to Sterling’s performance.

With German elections on Sunday as well as the continued threat of unrest in the Middle East, the FX markets are going to be volatile for some time and Sterling may see some selling pressure.

Today’s retail sales figures may give a viable excuse to sell the pound.

Main Highlights of The RBA Meeting’s Minutes

September 17, 2013 in Australia & New Zealand

Review of Economic conditions of the major trading partner – Overall Average


  • Overall growth of the major trading partners in the second quarter as been in line with the average of the last decade.
  • China: GDP Growth in the second quarter was close to the target of 7.6%. Demand for property continued to rice but at a slower pace. Strong growth in infrastructure management.
  • Japan: Economic activities were slower than expected during the second quarter but the overall growth has been relatively strong during the first 6 months of 2013.
  • U.S.: The pace of the economic expansion has been moderate. Housing market strengthened further and employment has been rising moderately since the beginning of the year.
  • Euro zone: After 6 quarters of negative growth the second quarter of 2013 saw a positive growth. Overall consumer and business sentiments improved slightly and unemployment levels have been steady.
  • Export prices: Spot prices for iron ore had increased, consistent with further growth in Chinese steel production. Crude oil and base metals prices had also risen over the past month.

Domestic Economic Conditions of Australia – Mixed


  • It’s expected that the economic growth was slightly below the trend. National account are scheduled to be released the day after the Board meeting.
  • Household consumption growth appeared to have been below the average of recent years.
  • Overall business investment seems to have increased, especially in buildings and structures in the mining sector. In other areas the investments have been soft.
  • Exports growth remained relatively strong.
  • Mining profits had increased in the June quarter owing in part to higher prices for iron ore.
  • Non-mining profits had dipped in the quarter.
  • Businesses still appeared averse to taking on risks associated with new investment projects.
  • Iron ore exports had continued to grow strongly in the June quarter.
  • Coal export volumes were also higher than the past year but coal prices had declined. M
  • Rural exports remained at a high level, following generally good rainfall in recent years.
  • Indicators suggested that growth of household consumption in the June quarter had been below average.
  • The retail sales growth had been only modest in recent months.
  • Sales of motor vehicles to households declined in July, after a strong growth in the second quarter.
  • consumer sentiment had moved higher and were a little above long-run average levels.
  • Housing market improved because of the lower interest rates.
  • Labor market conditions remained somewhat subdued and employment had been little changed since earlier in the year, while the population had continued to expand, resulting in a decline in the employment-to-population ratio and a gradual rise in the unemployment rate.
  • There were further signs that wage growth had eased over the year.
  • The Australian banking system remained in a relatively sound position.


Sterling close to $1.60 – who would have thought that in July?

September 16, 2013 in Forex Analysis

Sterling touching distance of 1.60 USD does not leave much room for disappointment

The announcement late yesterday that Larry Summers has withdrawn from the race to be the new head of the US central bank caused much volatility in the markets in Asia with equity futures surging and the US dollar tumbling against a number of currencies. Larry Summers was amongst the front-runners to succeed Ben Bernanke as head of the Federal Reserve. News of his withdrawal pushed the US dollar sharply weaker and is now close to the psychological 1.60 USD level – almost unthinkable just two months ago.

When Mark Carney became the Governor in the Bank of England in July, Sterling was hovering below 1.50 USD and it was widely thought that his arrival would act as a catalyst in driving Sterling sharply lower with many analysts predicting that Sterling would in fact fall to 1.40 USD. Mark Carney had said that he wanted the UK economy to become more export oriented and therefore weakness in Sterling was likely to occur. However, two months later Sterling is above 1.595 USD and > 15 per cent above 1.40 USD.

After years of lagging behind most of the world’s major economies, economic data recently published shows the UK, for now, is a world-beater .The UK economy has shown better than expected strength recently with GDP figures 0.6% for the second quarter versus expectations of 0.3%.The Markit/CIPS Manufacturing Purchasing Managers’ Index (PMI) jumped to 57.2 last month from 54.8 in July, its fifth straight month of expansion and a two-and-a-half-year high. Perhaps this is why Sterling has been in demand against the US dollar.

Last month the Bank of England (BOE) said it would keep interest rates at a record 0.5 per cent until unemployment falls to 7 per cent, something the BOE only expects in late 2016.

The recent strength in Sterling has surprised many, including myself but Sterling seems to have factored in a lot of good news with the rate touching distance of the 1.60 USD level and leaves very little room for disappointment. From a purchasing power point of view, Sterling seems very toppy when comparing the price of goods and services with the U.S.

There is still the possibility of an attack on Syria by the U.S and its allies as well as general geo-political risk in the Middle East. The U.S currency is seen as a safe haven and buying will be ferocious if there is gunfire from the U.S.  It is hard to predict the future and always expect the unexpected, things can change and reverse very quickly and the US dollar is no exception.

Larry Summers’s Pulling Out of Federal reserves Pulls The U.S. Dollar Down

September 15, 2013 in Forex Fundamentals and News

Larry SummersU.S. Dollar fell sharply with the opening of Asian session on Monday 15th. The move took EUR/USD from 1.3295 to 1.3382 within 2 hours. GBP/USD went up from 1.5875 to 1.5951 and AUD/USD jumped from 0.9245 to 0.9394 before settling down a bit. The strong moves were surprising as most of the markets are still sleeping as even Japan is yet to wake up. And even when it wakes up it’s the national holiday today. But then a small news can always shake the market badly and Larry Summers’s  pulling out of the FED race came as a big news.

Larry Summers, who was the former U.S. Treasury Secretary and one of the front runners to succeed Ben Bernanke as the head of the Federal Reserve (the U.S. central bank), pulls out of the race.

The other main candidate in the race has been the current vice-chairman of the Federal Reserves, Janet Yellen.

President Obama’s remarks, after Larry Summers letter to him about his decision to pull out, added to the bearish sentiments.  Obama said in a statement: “Larry was a critical member of my team as we faced down the worst economic crisis since the Great Depression, and it was in no small part because of his expertise, wisdom, and leadership that we wrestled the economy back to growth and made the kind of progress we are seeing today.”


USD falls against the GBP

The U.S. dollar fell against the British pound sharply and GBP/USD rose and broke up some critical resistances. The break over the resistances indicate that the pair may target the next resistance zone of 1.6000 to 1.6015 and possibly higher as indicated in the weekly GBP/USD outlook, which was posted 2 days back.


EUR/USD and upcoming resistances

During the last week the pair had been in a sideways range for a good part of the week. Today’s jump made it break over that range but resistance is still expected in 1.3405 to 1.3452 resistance zone. The hurdle at 1.3452 may prove to be very strong but as we had mentioned in the weekly EUR/USD predictions that the fear of 1.3500 has been much less than the fear of 1.2500 and sooner or later a break over 1.3500 should take place, may be now is the time.

Do share your opinions in the comment box below to discuss the price actions further.

GBP/USD – What To Expect Part 2

September 13, 2013 in Chart Alert

GBP/USD moved exactly as we had predicted in our previous chart alert titled GBP/USD – What to Expect?. In fact it would be better to see that post first.

The pair moved up to 1.5885 which was just 8 pips below the lower range of the resistance zone mentioned in the last and above mentioned update.

This move brought GBP/USD almost at the trend line which was previously the support trend line but later had turned into a resistance trend line.

GBP/USD weekly chart for past 4 years

GBP/USD at the trend line resistance

Let’s see another weekly chart with retracement levels:

GBP/USD broke over the retracement resistance level

As clear by the above chart that a break over 1.5789 had represented a break over 61.8% retracement level of the move from 1.6381 to 1.4831. The pair had failed well ahead this level twice. This break surely indicates the bullish sentiments. However a caution is required considering the trend line resistance as indicated in the first chart.

What to Expect?

Resistance in the 1.5893 to 1.5940 zone is still expected. A break above this should target 1.6000 psychological zone but again a resistance will be expected in 1.6000 to 1.6015 zone.

Please share your opinions in the comment box below to discuss about the GBP/USD price action more.

The Euro seems rather high against the US Dollar

September 11, 2013 in Forex Fundamentals and News

The Euro has had a tremendous run from early July rising from 1.28 to the current level of 1.33. The currency has been boosted by better recovery prospects. European equities have recovered as the region ended its 18 month recession in the second quarter posting growth of 0.3 per cent.


There have been encouraging economic indicators  with better than expected GDP and PMI figures in recent weeks –in August, Germany was 53.5 but France, Greece, Italy and Spain were below 50 (which means contraction). One area of major concern still remains – unemployment above 50% amongst 18-30 year olds in Greece, Portugal and Spain shows very little sign of improving in the near-term. The overall job rate is more than 25% in Greece and Spain. This obviously does not bode well for the young of these countries with no job prospects and plenty of time on their hands. Unemployment will start  to fall but in the meantime civil unrest concerns remain.


The political situation in the Eurozone remains precarious with former Italian Prime Minister Berlusconi threatening to bring down the Italian government if the senate decide to ban him from parliament. The upcoming general elections in Germany on 22nd September remain uncertain. Greece remains on tenterhooks and Italy’s domestic economy is still very weak with public debt second only to Greece as a percentage of GDP. The peripheral countries – Greece, Portugal and Spain will remain in recession for some time with the powerhouses France and Germany only making headway.


The Euro has been remarkably strong recently with a little too much over confidence –the Euro at the current level of 1.33 seems over exuberant. There are many possible issues that could de-rail the economy over the coming weeks.


Add To Bullish USDJPY Position

September 11, 2013 in Forex Fundamentals and News

We wrote about USDJPY breaking higher from recent consolidation on 6 Sep 2013.

The price action now is confirming the move to higher levels. The down trend line from May (red downward sloping line) was broken and then tested as support. Prices bounced off the support and continued higher, confirming the move higher.

The underlying structure of the market is supportive of the move higher too. See monthly chart below. A saucer formation is formed, indicating prices are trending higher.

We also observe that the Dollar Index has good support and Nikkei is trading above the down trend line from May indicating a possible move higher. These also argue for a higher USDJPY.


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GBP/USD – What To Expect?

September 10, 2013 in Forex Analysis

The week started with positive note for both GBP/USD and EUR/USD. The strong positive correlation between these two currency pairs had gone haywire recently when EUR/USD fell while GBP/USD started moving up. This was expected to come to normal as we had indicated during the beginning of the last week.

This week started with a positive Sentix Investor Confidence report for Euro. The report indicated that the investors’ confidence rose in August to 6.5 from previous -4.9 while the consensus were for -2.8. Positive sentiments from Euro zone reflect in the strengths of both the euro as well as the British pound.

The claimant count data to be released from the U.K. on Wednesday is also expected to be positive. The change in the claimant count in in July indicated that there was a drop in the claimant count by 29.2K and the consensus are for further drop by 22K in August. Even though the expected drop is less than the July data but it would be a drop nevertheless.

Let’s see what the price action is indicating about the possible moves for GBP/USD?

GBP/USD price action during past 4 years

GBP/USD resistance trend line

The above weekly chart of GBP/USD is showing the price action for almost past 4 years. The price action had been in a triangle formation till the second week of February 2013. The support had been coming at the lower trend line. Since GBP/USD had broken below that support, the previous support line seems to have become the resistance trend line. This fact was also mentioned in some old chart alerts including  this GBP/USD chart alert posted 3 months back.

Now let’s have a close view of the above chart.

GBP/USD close view

GBP/USD closer view

The double bottoms shows above do not represent the ideal double bottom chart pattern but they indicate the failure of a drop below that support zone. Considering this fact and also the recent strong jump, there are good possibilities for further upward gains. We do expect a good resistance near 1.5751 but if the pair manages a break over 1.5751 then it should target the resistance zone of 1.5893 to 1.5940.

The possible trading strategies could be to have limit order for a long position near 1.5620 with a stop -loss at 1.5570 and another limit order near 1.5520 with a stop-loss just below 1.5460.

Caution: Please note that the U.S. Congress vote on the military action against Syria is scheduled for tomorrow i.e. September 11th and that may cause some unexpected volatility in the market.

 Please share your opinions in the comment box below this post to discuss this further.

USDCHF is facing channel support

September 10, 2013 in Forex Analysis

USDCHF is facing the support of the lower line of the price channel on 4-hour chart, a clear break below the channel support will indicate that the uptrend from 0.9147 had completed at 0.9455 already, then the following downward movement could bring price to 0.8500 zone. On the upside, as long as the channel support holds, the fall from 0.9455 would possibly be consolidation of the uptrend, one more rise to 0.9550 area to complete the upward movement is still possible.


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Will the sound of gunfire reverse the US dollar’s fortunes?

September 9, 2013 in Forex Articles

The USD has weakened again over the last few days which is surprising as the geo-political risk in the Middle East has gained momentum. The likelihood of an attack on Syria increases day by day yet the US dollar seems unmoved. President Barack Obama is expected to address the US on Tuesday evening from the Oval Office, laying out the case for action against Syria, surely this should be a positive move for the US dollar, as the greenback is still known as “the currency to hold in a crisis or during a war” but the FX markets seem to be ignoring this surprisingly at the moment. Sterling is approaching the $1.57 level  and the Euro is trading close to $1.32.  Last Friday, the lower than expected US non –farm payroll figures which came in at 169,000 against consensus expectations of 177,000 acted as the catalyst in pushing the US dollar down. With European economic data beginning to show signs of growth and greater recovery potential than the US, perhaps this is one of the reasons why the Euro has strengthened. An improvement in macro-economic data for the euro zone’s periphery has also offered investors hope that the region is slowly emerging from the crisis, but there is still political instability in the region as well as possible moves by the Federal Reserve to taper its asset purchases later this month. This could derail a return to growth just when green shoots are appearing. However, from a purchasing power point of view both the Euro and Sterling are extremely over-valued against the US dollar and a 5% correction is not beyond the realms of possibility in the next few weeks. Perhaps the sound of gunfire will reverse this recent trend for the US dollar?

EURUSD’s downward movement extends to 1.3105

September 9, 2013 in Forex Analysis

EURUSD’s downward movement from 1.3451 extends to as low as 1.3105. Resistance is at the upper line of the price channel on 4-hour chart, as long as the channel resistance holds, the downtrend could be expected to resume, and further decline to 1.3000 area is still possible. On the other side, a clear break above the channel resistance will indicate that the downtrend from 1.3451 is complete, then another rise towards 1.3500 could be seen.


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