Currencies — LaidTrades

The Pound Got Pounded – June 8, 2010

Here’s an update on the guppy (GBPJPY). In my last post about the pair, I noted that it could find some resistance at the 61.8% Fibonacci retracement level that I marked on its old chart. It, however, suprpassed that price (135.00) and reached 136.00 before turning around. When I readjusted my swing high to April 26′s high, I noticed that the 136.00 price then fell in line with the 50% Fib of the new retracements. At present, the pair already broke below the 132.00 support. If it succesfully clears 131.00, it could very well revisit its 2010 low once more. Though, in my view, this level could be broken any time soon since the stochastics are still far from the oversold region. Otherwise, it could trade for awhile within a range before swinging in either direction.

Perhaps we all know now the reason behind the recent beating that the pound received. Well, for those who do not know, the sterling pound got pounded late Friday night when Hungarian officals commented on a possibility of a sovereign debt default. This news, to nobody’s suprise, sparked some risk aversion in the markets which was further intensified when the latest US NFP report printed a weaken than projected employment change.

For the coming days, in my view, the pound would be more sensitive to the developments in the euro zone rather than from the UK itself. Though, if the BOE’s decides to keep its asset purchase facility and interest rate unchanged, it could then add to the pound’s already weakend state. The Bank of England’s monetary policy decision, by the way, will be held on Thursday (June 10). So stay tune!

The Kiwi On Its Way Down? – June 8, 2010

In my post last Friday about the NZDUSD, I asked if the Kiwi’s recent surge against the greenback was about to turn sour. During the past couple of weeks. the NZDUSD had noticibly been rallying within a rising wedge formation. Technicals traders, however, deem this pattern as bearish since for them wedges just represent a correction in prices. I also noted last Friday that the pair was having a hard time in going past the 0.6850 resistance. The innevitable happened during Friday’s US session when the pair eventually broke down from the rising wedge pattern. Worse, the pair even gapped down to during the start of Monday’s trading as the Asian market priced-in the recent events that had happened in the US and Europe.

Presently, the pair is trading around 0.6600. A break below its 2010 low or the 0.6550 psychological support could send it all the way to 0.6200.

On the sentiment side, the announcement of the Hungarian officials regarding the possiblity of a sovereign debt default by Hungary sparked some fears that the debt crisis in the euro zone are already preading across the continent. This, of course, led to a broadbased selling of the higher yielding currencies like the NZD. On a separate report, the weaker-than-expected US non-farm employment change (431k vs. 5521k) also added to the market’s already weak confidence that further weighed on the non-dollar currencies.

Tomorrow’s possible rate hike by the Reserve Bank of NEw Zealand coulg, however, provide some temporary lift for the Kiwi. The central’s bank’s rate is seen to be raised to 2.75% from 2.50%. DEspite the coutry’s notable improvement in its jobless rate (from 7.1% to 6.0%), its retail sales account failed to meet its 1.2% growth projection during the last month with only a 0.5% gain. Nore also that its big brother, the RBA, halted its rate hikes this month due to a significant drop in housing. If the RBNZ does the same espcially given the market’s projection, the Kiwi could once again take another blow. A rate hike, on the on hand, could slow down the currency’s present decline.

A Bounce on the EURUSD? – June 7, 2010

As a result of last Friday’s sell-off, most of the European currencies gapped down during this week’s foreign exchange market opening. One of the most affected was the EURUSD pair (click here to see the previous post about it). Aside from worrying on the Greece financial crisis, the possible sovereign default by Hungary even worsened its market condition and especially the currency value. Fortunately, the Euro and most pairs were able to fill the gaps as they rallied today.

Chart-wise, the EURUSD is moving in a 7-month descending channel (yellow lines) in the daily chart. At the same time, there could be a bounce back up to the 121.00-122.00 resistance line (blue line) as the pair currently hit the descending channel’s support line (indicated by the red line). If the value fails to lift itself to resistance area, the Euro could further slip and drop to its 4-year support at 1.1630 (brown line).

The Euro Breakdown – June 7, 2010

Now don’t tell me that I did not warn you. In my last post about the fiber or the EURUSD pair, I pointed to the likelihood of another breakdown. At that time, the pair was already consolidating into a descending triangle. And as I’ve said, this formation was bearish due to the fact that the sellers were more aggressive in pushing down the prices. The pair was also trading along a medium term downtrend.

Last Friday, the pattern’s support finally gave way and the price fell from an opening of 1.21786 to close 1.19678. That’s more than 200 pips! Now, the euro still has a lot of room to move lower against the greenback since it has not yet reached its minimum downside target which is just above 1.1600 (computed by projecting the height of the pattern from the point of breakout).

The news that triggered the breakdown in prices of the non-dollar currencies were the less-than-stellar US non-farm employment change for the month of May and a threat of a sovereign default by Hungary. In my blog last Friday, I was actually really worried about the outcome of the NFP report. I noted that if the employment change missed its target for the month, such could rock the markets since a strong figure was already anticipated hours ahead of the US session. In short, the market priced-in a robust growth in employment despite the weaker-than-expected ADP employment change. The official non-farm payrolls, however, only tallied 431,000 in May which short of the 521,000 projection.

Another event that further crushed the investors’ confidence was the news of a possible sovereign default by Hungary. Hungarian finance officials said that the country’s economic situation is ‘critical’ and that the possibility of a default is not too far fetched. This sparked some concerns among investors that the debt crisis which began in Greece may be spreading across the economic region.

On Monday, expect the EURUSD’s price to weaken as soon as the Asian session opens. Remember that the events that transpired (the weak NFP employment change and the default scare of Hungary) are not yet ‘priced-in’ in the Asian market. Hence, there is even a possibility that the non-dollar currencies like the euro may gap down to begin the week. Moreover, the anticipated 0.4% dip in the German factory orders in April after logging a gain of 5.0% in March could weigh down on the currency as well.

So again, the EURUSD could gap down to start this week’s session. Remember, you heard this first here at LaidTrades.com!

The Aussie Took a Bearish Turn – June 7, 2010

Last Friday, I asked the question in my blog whether to buy or sell the Australian dollar. There, I detailed the several bearish technical and fundamental signals that I saw. At that time, the AUDUSD pair had rallied all the way up to 0.8500 after marking a new 2010 low at 0.80669 last May 25. During the course of its rebound, however, I noticed that it was forming a rising wedge which was again a bearish pattern. Note also that the pair was having a hard time moving past 0.8500. At one point, it was able to reach 0.85514 but then it weakened soon afterward. Incidentally, this recent high was perfectly in line with the 38.2% Fibonacci retracement level of the latest down wave, making the 0.8500 region a tougher hurdle to scale. The unfortunate (well, at least for the Aussie bulls’ perspective) happened last Friday when the AUDUSD finally broke down from the rising wedge formation.

Now, with the stochastics far from being oversold, the Aussie still has a lot of space to cover below. A break of this year’s low at 0.80669 could send it somewhere above 0.7700 which is the minimum downside target given its breakdown from a massive double top formation last May 18.

The breakdown in the Australian dollar was due to the sovereign default scare by Hungary and the weak non-farm employment change in the US in May. Payrolls in the US only increased by 431,000 last month against the 521,000 projection. This result further intensified the fear that was brought about by Hungary. In a statement made by Hungarian official, they said the country’s fiscal difficulty was grave and that a default was very much a possibility. This, of course, led the investors to sell-off the higher yielding currencies like the AUD in exchange for the safer USD and JPY.

In my other post today, I noted that the non-dollar currencies or the higher yielding currencies could open up weak since the Asian market has yet to price in last Friday’s events. Given the gravity of the situation in Hungary and the weight of the NFP report, which by the way is the mother of all economic reports, the AUDUSD pair could even gap down to begin this week’s trading. In the mean time, on deck today is the May ANZ job advertisements. The account fell by 1.2% last month. Though, a little gain is seen this time around. However, an unexpected decline here could further dampen the investors’ confidence on the AUD. A rise, on the one hand, could slow down the currencies present slide.

To Short or Not to Short the Aussie – June 4, 2010

To short or not to short the Aussie? That is the question. Well, I would tell you my take on it in a bit but first, let me present to you the updated chart of the AUDUSD pair using its daily timeframe. Like what I have mentioned in my previous blog about it, the pair has recovered a bit after reaching a low of 0.80669 last May 25. Following its break down from a double top, the pair then turned around when it broke out to the upside of a bearish pennant or symmetrical triangle formation. The Aussie, however, appears to be losing its momentum against the greenback already. Not only that it failed to move above the psychological resistance and the 38.2% Fibonacci retracement level of the most recent down wave, it is now also forming a rising wedge, which we know is a bearish pattern. Moreover, the stochastics are also near the overbought territory, indicating a possible weakness in prices soon. A breakdown from the rising wedge could send the AUD/USD back at 0.8100 or at its 2010 low. On the sunny side, it could at least aim for 0.8700 if it is able to clear the 38.2% Fib and the double top’s former neckline.

On deck today at 12:30 pm GMT is the US’s non-farm payrolls (NFP) report. US firms are seen to have added 521,000 more workers in May, surpassing the 290,000 number registered in April. Now, the market is already anticipating some strong figures as evidenced by the gains in today’s US futures. Though, the ADP employment change report, which is usually used as an early indicator of the US’s actual numbers, tells a different story. Based on the ADP’s estimate, US firms added 55,000 jobs in May. This, however, is below the 68,000 consensus. The ADP gauge may not be always accurate but a weaker than expected payrolls report today could disappoint many which in turn could lead to a sell-off in the non-dollar currencies like the Aussie.

Is the Kiwi Rally Over? – June 4, 2010

Those who are long on the New Zealand dollar have had quite a relief these past couple of weeks due to the Kiwi’s turnaround. As you can see from its daily chart, the NZDUSD pair has rallied back after marking a new low this year at 0.65618. Looking at my last post regarding the NZD (click here to see my previous post on the same currency), I can see that NZDUSD’s price set-up is very much alike with the NZDJPY’s. In any case, several technical factors point to a likely bearish reversal of the pair. One is that it is currently trekking within a rising wedge pattern. A rising wedge is more or less seen as a bearish pattern as it just represents a temporary correction or a rally in prices. Notice also that the pair is currently having some difficulty moving past 0.6850. Not only was this mark a previous support but it also almost perfectly falls in line with the 38.2% Fibonacci retracement level that I drew. On top of that, conditions are already becoming overbought based on its stochastics. Given these, the pair would likely head down soon. If it does, it could fall back down to 0.6700 or back to its 2010 low. On the flip side, it could hit its next apparent resistance aside from the 50% Fib if and when it clears 0.6850.

The recent rally in the Kiwi was mainly due to the rebound in the US equities market in anticipation of a strong employment figures from today’s Non-farm payrolls (NFP) report. Some profit taking actions during the past several days may have also contributed to the recovery in prices. Currently, the USD and the JPY are weakening against the higher yielding currencies like the NZD on speculation that the US’s payrolls, in May could print some strong numbers, suggesting that the numero uno economy in the world is starting to loosen up. Still, there’s one major data in the form of the ADP non-farm employment estimate for the same period that indicates otherwise. Yesterday’s ADP employment change missed its 68,000 target with only 55,000. Now, if the actual government employment change number also comes in weaker than the projected 521,000, and with the upbeat expectations already priced in, we could be up for a big disappointment which could translate to a sharp drop in prices. By the way, the US’s employment report will be on tap today at 12:30 pm GMT. So stay tune!

Will the USDJPY Bears Soon Wake Up? – June 3, 2010

Here’s an update of the USDJPY pair or the gopher from my previous post. Notice that it has corrected after hitting a low just below 88.00 during the first week of May. With the stochastics almost in the overbought territory, will the pair turn around and move lower again? There is a significant resistance at the psychological 92.00 marker and at the 61.8% Fibonacci retracement level that I labeled in the canvas. Why? Well, 92.00 happened to be a neckline of a double top formation. Anyway, if it is able to move past and clear these resistances, then reaching its 2010 high just below 95.00 would not be too farfetched. On the other hand, it could decline to its next support levels at 90.00, 89.00, and 88.00 if selling carries on.

Fundamentally, the political instability in Japan has dented the JPY’s ‘safe haven’ status, causing it to weaken against most of the other major currencies. Yesterday, Japan Prime minister Yukio Hayotamo voluntarily left his position when he failed to fulfill his promise to remove a US military base off of Okinawa Island. Prior to yesterday, Social Democratic Party leader Mizuho Fukushima was fired when she did not sign the Hayotamo’s recommendation to just move the base to a different location, causing the former’s party to break its ties with the government. This of course led to a lot of protest even by the majority of the country’s citizens. In a month’s time, though, the prime minister’s seat will be filled. So with all these political turmoil already priced in by the market, the yen, in my view, could once again snatch its safe haven status. I mean, how worse could it be? The Prime Minister already resigned with the citizens voicing their concerns and what they want.

In my opinion, the tension in Japan’s political arena will soon abate. Having this, the problems everywhere else particularly the fiscal and debt difficulties of several countries in Europe could still cause some risk aversion. The ECB recently noted that it foresees a new wave of defaults that would hit some major commercial banks in the euro zone. Such scenario would likely lead to a sell-off in non-dollar currencies, benefiting the ones like the JPY and the USD. Between the two currencies, the Japanese yen has the lower interest of 0.10% compared to the 0.25% of the greenback. Such would then prompt the traders to cover their short yen positions and buy it more than the USD during times of risk aversion.

The Pound to Turn South Again? – June 3, 2010

Good day forex friends! On today’s chart spotlight is the daily time frame of the guppy (GBPJPY). As you can see, buyers have bought up the British pound after it had fallen to a low of 126.731 against the Japanese yen. The pair has since retraced after finding some support at 128.00 and at the bottom of the channel. At present, the pair is trading around 135.00 though in my view it could soon reverse and head back down. Why? Well, the 135.00 psychological resistance is almost in line with the 61.8% Fibonacci retracement level, making it a tougher hurdle to overcome. Moreover, the stochastics are indicating that conditions are almost overbought. This suggests that sellers could soon jump in to push the pair low. If and when the GBPJPY moves past the 135.00 level and the 61.8% Fib, it could continue moving north until it hits a wall at 139.00 or at the channel’s top. On the dimmer note, the pair could once again turn south back to 129.00 or even at the descending channel’s support if the pound selling resumes.

The GBPJPY pair has rebounded from its 2010 low thanks to some profit taking actions or short covers and the recent weakness in the JPY. The yen’s recent decline was due to the political turmoil in Japan. Just yesterday, Prime Minister Yukio Hayotama resign from his position after receiving a lot of criticisms from the government’s opposition and even its political ally, the Social Democratic Party, when the former unduly fired Mizuho Fukushima, the leader of the said party, when she disagreed with the former’s decision to move a US military base to a different location. The disagreement between the two led the Social Democratic Party to sever its allegiance with the government. Receiving a lot of pressure from majority of Japan’s citizen, the Prime Minister was then forced to resign. This has left the country searching for a new leader with a vision. Now, risk appetite in the Japanese market could soon return when the country places a new front-man in its government. Once this happens, the yen could then regain its appeal.

Outside Japan, the market’s sentiment remains bearish because of several factors like the ongoing debt crisis in Europe, threat of a Korean War 2.0, and the devastating oil spill in the US. These issues are dead proofs that the global market is still far from being stable. Until the stands up and recovers its footing, periodic weakness could still be felt among the non-dollar currencies like the pound which consequently benefits the safer ones like the JPY.

EUR/CAD: The Weak Versus Strong – June 2, 2010

Here’s an update of the EURCAD pair that I presented a couple of weeks ago (click here to see my previous post). As you can see, the pair has still been on a downtrend. Though for a time, it appeared that it would break out of its slump as it rose and even moved above the descending channel’s resistance. After marking a new low of 1.26483, the pair surged to a high of 1.34756 before crashing again. That spike in prices happened to just be nothing more than a correction as the sellers once again took control of the driving seat and pushed the euro down as soon as it reached the 1.3400 area against the Canadian dollar. At present, the pair is trading somewhere around 1.2700. In my view, it could move listless for awhile near this level before making its move down south again. In any case, a break of this year’s low could send it at least at 1.2400.

The euro and the Loonie are like the New Jersey Nets and the Los Angeles Lakers in the NBA. For those who are basketball fans, we all know that the Nets are the worse team this season while the Lakers, of course, are the defending champs. In the foreign exchange market, the euro has been hugging the first place position for the worse performing currency of the year. This 2010, though, has been the breakout season for the CAD as it managed to move ahead from its peers. We all know the cause of the euro’s tragic decline – the ongoing debt crisis that started in Greece and spread in the other EU-member nations like Portugal, Spain, and Italy. Canada, on the one side, has been nothing but spectacular as it printed some stellar GDP growth during the first quarter of the year. Its recent retail sales and CPI numbers likewise outperformed the market’s estimates. These eventually led to a recent hike by the Bank of Canada which raised their rates from 0.25% to 0.50%.

Like what I’ve said, Canada’s been doing pretty well as evidenced in its latest CPI and retail sales accounts. The euro zone, on the other hand, is still being hampered by the weak fiscal position of the majority of its members like Greece. With all the ongoing concerns surrounding the region, sentiment remains bearish for the euro. And until the market clearly sees some signs of good things to come, the euro would still slide.

CADJPY’s Symmetrical Triangle – June 2, 2010

The CADJPY currency pair looks to be forming a symmetrical triangle formation in the hourly. If the pair break’s above the triangle’s resistance, its price could reach the next significant level at 88.67. On the other hand, a breakdown from the pattern could send it down to the support at 85.83. Still, the pair has a higher chance of breaking to the upside since the pattern is coming off an uptrend. In any case, to be a little conservative, I would wait for a breakout in either direction before opening a position. A straddle strategy would work better in this kind of situation where I would sell the Japanese yen in exchange of the Canadian dollar if the pair breaks up. Conversely, I would sell Loonie for the JPY if and when the pair breaks down.

Euro Bulls, Watch Out! – June 2, 2010

The EURUSD pair or what is commonly known as the fiber among financial geeks is threatening to dip once again. As you can see in its daily chart, the pair has been consolidating into a descending triangle. This formation has a bearish bias since the sellers are more aggressive in pushing the price down. This scene is actually represented by the triangle’s downward sloping resistance. Eventually, the sellers could overwhelm the buyers which in turn could cause a breakdown in prices. If and when the pair falls below the formation’s support and this year’s low at 1.21113, it’s minimum downside target (gauged by projecting the height of the triangle from the point of breakout) would be somewhere around 1.1650. On the brighter note, the pair could continue just range or even retrace if the triangle’s support holds.

There are several issues going around the globe that are presently weighing down on the euro. For one, concerns regarding the euro zone’s weak fiscal condition remain. In fact, the European Central Bank (ECB) even foresees a wave of new defaults that would hurt the banks in the coming year or so adds to the market’s fear. Then there is the threat of war between the North and South Korea. Risk aversion could also spring from Japan as its present government faces some strong opposition from the Social Democratic Party and majority of its citizens. Earlier today, it was reported that Japan’s prime minister already stepped down from his position. Back stateside, the US is also facing a grave environmental disaster due to a terrible oil spill near the Gulf of Mexico. Given all these problems, risk aversion is surely on track. Such would continue to place a lot of selling pressure on the non-dollar currencies like the EUR.

The Loonie Tunes – June 1, 2010

Here is a daily chart of the USDCAD pair. Notice that it has been on a short term uptrend after it bottomed back in April 21. Though, it appears that it has recently encountered some resistance around the 1.0700 area, causing it to turn and to dip for the last several days. With the stochastics far from the oversold region, the USD/CAD pair still has a lot of room to move lower. In case it does, the 1.0300 and 1.0250 supports including the uptrend line that I drew should prevent it from declining any further. A break of these levels could send the Canadian dollar back to USD-parity. On the flip side, if USD buying continues, it could once again reach 1.0700 or even its 2010 high at 1.08548.

The Loonie has gained some favor during the last several days due to Canada’s robust economic figures like what I mentioned in my latest blog. The country’s annualized 1Q gross domestic product, for one, had exceeded the 5.9% estimate with a 6.1% growth. Both the headline and core CPI of Canada in April came in better than expected at 0.3% Retail sales for March likewise came in strong with the headline figure growing by 2.1% against the 0.2% estimate and the core account also expanding by 1.7% versus the 0.5% forecast. These numbers suggest that the Bank of Canada could indeed raise its interest rate to 0.50% from 0.25% today at 1:00 pm GMT. An interest rate hike would likely send the Loonie higher. A pause, on the other hand, could push the USDCAD back up again.

GBPJPY Breaking Down? – June 1, 2010

The GBPJPY looks to be breaking below (indicated by the red circle) the support line of the uptrend in the 1-hour chart. Though as of now, the uptrend support appears to be keeping the pair from falling further. If the guppy slides below 131.50, the pair could head all the way down to 130.50 which is a previous resistance-turned-support. On the positive side, a bounce from 131.50 could propel the pair up to the triangle resistance just above 132.50. In my view, it has a higher chance of breaking up than breaking down given its present uptrend. If and when it breaks out to the upside, it could aim for 135.00 which its minimum upside judging by the height of the triangle.

The Loonie Has Overtaken the Aussie – June 1, 2010

On today’s canvas is the daily chart of the AUDCAD pair. As you can see, the pair has been on the down trek after breaking the 0.9200 support. It also has just broken a rising wedge formation after it hit some resistance at the 38.2% Fibonacci retracement level of the most recent down wave. Now, if traders continue to buy the Canadian dollar and sell the Australian dollar and the pair falls below 0.8700 and its 2010 low at 0.86512, it could head all the way to 0.8300. Using the Elliot Wave Theory or Analysis (EWT or EWA), wave 3 of the 5-wave cycle could be in the making. Wave 1 would be the pair’s initial descent while wave 2 would be its correction which is represented by the rising wedge formation.

During the past couple of weeks, it is evident that the Loonie has indeed overtaken the Aussie for the Best Performing Currency of 2010. Today’s breakdown in the pair was due to Canada’s stellar first quarter GDP figure. The annualized 1Q gross domestic product of the US’s neighbor up north surpassed the market’s 5.9% forecast with a 6.1% growth, suggesting that the Bank of Canada could once and for all raise its rates from 0.25% to 0.50%. Other data supporting a possible rate hike are the better-than-expected Canadian inflation figures and retail sales. Both the headline and core CPI of Canada came in at 0.3% for the month of April which is a tad higher than the 0.2% consensus. Retail sales for March also overshadowed the market’s estimate. The headline figure has grown by 2.1% against the 0.2% estimate while the core version of the account also has grown by 1.7% versus the 0.5% forecast.

Australia’s present economic situation, on the other hand, does not appear as strong as Canada’s. The country’s retail sales only grew by 0.3% in March which is way below the 0.8% projection. Home loans continued to slide for a sixth straight month in a row with a 3.4% dip in March. Business investments, which are directly linked to the country’s overall GDP, also unexpectedly fell by 0.2% during the first quarter of the year. Remember that the Reserve Bank of Australia (RBA) had been very aggressive in hiking their interest rates during their last monetary decisions. The above data, however, suggests that the central bank could refrain from doing so again to better stimulate and improve the economic activity in the country. A pause in the rate hike, though, could be bearish for the AUD.

What’s Up With the Kiwi These Days? – May 31, 2010

So what’s up with the Kiwi (NZD) nowadays? Well, as you can see from the chart, the New Zealand dollar appears to have been doing well lately. After dipping to a low of 58.674 against the Japanese yen, it has been able to pull itself up and keep its head above water. Presently, the NZDJPY pair is trading just below 62.50. It looks, though, that is already starting to lose some of its upward momentum. It’s also formation what seems to be a rising wedge formation which by the way is a bearish chart pattern. Anyway, a break above 62.50 could send the pair to 64.00 which is exactly where the 50% Fibonacci retracement level is. If the yen continues to weaken and the 50% fib gets broken, the pair could aim for the resistance somewhere around 65.50. On the flip side, a breakdown from the rising wedge formation could nullify its recent gains and send it back down to its previous low at 58.674.

As mentioned in my latest blog, the yen weakened today because of the recent political turmoil in Japan. This morning, Japan’s Social Democratic Party, which is fronted by Mizuho Fukushima, quits its ties with the present government when she got fired after not endorsing the government’s plan to move the US’s base to another island. For the last several months or so, the Japanese yen, together with the dollar, has been the currency of choice whenever there is risk aversion in the market. This recent political disorder in Japan, tough, threatens the currency’s ‘safe haven’ status.

In any, I still think that many investors would still favor then though maybe to a lesser degree against the higher yielding currencies like the NZD if and when fear makes a comeback. Remember that the whole Greek drama is still not over. In the East, the two Korean nations also started with their own telenovela.

The US dollar (USD) Versus the Japanese yen (JPY) – May 31, 2010

Here’s a different look on the gopher (USDJPY). Check out my previous post on the same currency pair here. Anyway, notice that the pair has just broken above its short term uptrend line. Now the pair could continue moving higher, though, it could hit some resistance at the 92.00 level. If it’s able to move past 92.00, it could once more aim for its 2010 high which is just below 95.00. On the other hand, if selling resumes and the pair falls below 91.00, sliding towards the 90.00 would be very likely.

The Japanese yen (JPY) woke up on the wrong side of the bed today as it weakened against most of the other currency majors to start the week. A herd of traders sold off the yen when a survey in Japan showed that majority of its citizens want their present Prime Minister, Yukio Hayotama, to step down from office. The Prime Minister had earlier fired Mizuho Fukushima, leader of the Social democratic Party, when she refused to sign the Prime Minister’s agreement to move the US base to a different location. This prompted the party to sever its ties with the incumbent government. These recent events in the Land of the Rising Sun sparked some speculations that the yen could lose its ‘safe-haven’ nature due to the political turmoil in the country. Of course, no one would want to buy the yen if Japan’s government is unstable.

In my opinion, the present government should at least try to reconcile with Social Democratic Party to prevent the political turmoil from getting worse. This, of course, is easier said than done especially regarding politics. The worse that could happen is that the Prime Minister gets forced to resign. If this happens, the yen would almost certainly get a hit. Though, in my view, the chances of this occurring are minimal. Still, Japan has a lot of things on its hands given its present battle with deflation and now politics.

The British Pound’s Rally – May 28, 2010

The Cable’s recent price action is very much similar to the AUDJPY’s (check it out here). As you can see, the GBPUSD broke out to the upside from a bearish pennant pattern or a symmetrical triangle instead of breaking down. At present, the pair is trading between the triangle’s resistance and the 1.4600 marker. If and when it moves past this level, the pair could spring all the way up until is hits a wall at 1.4800. 1.4800 could now switch its role into a wall as it already acted as a support before. Over the medium term, the pair could still be on its way south since its present downtrend is still intact. The recent rally in the pound could only be just a temporary correction. Until the downtrend gets broken and a reversal pattern shows up, I would still remain bearish on the GBP over the medium to long term.

Like what I’ve said in my last post, the recent rally in the non-dollar currencies was due to China’s ‘vote of confidence’ on the euro when it dismissed the rumors that it was reviewing its holdings of European assets. There was a great deal of risk taking during the US session yesterday which pushed the DJIA to close with a 2.85% gain. The market’s upbeat sentiment also spilled over today’s trading in the Asian and European markets.

Still, Europe’s actual debt situation is not really changed with China’s stance. China merely said indirectly that it was leaving its European portfolio untouched at the moment. That does not make the fiscal situation of Greece and the other EU-member countries any better at all. Given this, we could still see a negative turn in prices once the maturities of the countries’ debt get due. If any country in the EU experiences some difficulty in financing and repaying their debt, this could surely cause another panic in the market which would lead the investors to leave the anti-dollars like the euro and the pound for the safety of the yen and the greenback.

Are the Aussie Bulls Back? – May 28, 2010

Contrary to my initial assessment on the AUD/JPY during one of my previous posts here, the pair, instead of breaking down, has broken up from a bearish pennant or a symmetrical triangle formation. As you can see, the pair already cleared its 38.2% Fibonacci retracement level and at the 77.00 mark. It, however, could still encounter some resistance at the 50% and 61.8% Fib and the 79.00 psychological handle. Should the Aussie buying continues, it could reach for the 85.00 marker against the Japanese yen. On the flip side, if the AUD bears take control, the pair could once again fall back to its previous low of 71.892.

The rally in the higher yielding currencies like the Australian dollar was supported mainly by China’s ‘vote of confidence’ on the euro zone despite the regions ongoing battle with debt. China, in a report yesterday, denied that it was reviewing its positions in European assets. China’s denial sparked some risk taking in the markets which spilled over to the US trading session. The Dow Jones Industrial Average (^DJI) rose and closed with a 2.85% gain. The upbeat tone yesterday likewise continued in today’s trading in the Asia and Europe.

This positive sentiment on the market, however, could just be temporary as the news regarding China’s ‘support’ does not change the fiscal difficulties in the euro zone. Greece, alongside Portugal, Italy, and Spain, still has some debt problems to solve. Given this, it could just be a matter of time where we see another European debt drama episode that could send a lot of investors packing again. If and when this happens, the anti-dollar currencies like the euro and the Aussie could take a huge hit once more.

A Closer Look on the Euro – May 27, 2010

Let’s zoom closer over the 3-hour time frame of the fiber (EURUSD). Notice that the pair was able to rally after dipping to a low of 1.2154 earlier today. Since then, it has traded strong and has even reached a high of 1.23426. Thanks to the previous support around the 1.2150 area and the oversold condition at that time, the pair was able to avoid another slide. At present, the euro could still move higher against the greenback since the stochastics are from the overbought region. It, however, could bump into some resistance at 1.2435 and at the previous 1.2222 low. The next significant level that it could reach in the event that the pair breaches the two mentioned marks is 1.2600. On the other hand, the fiber could just move sideways before declining once more. In case it does, 1.2150 should give it enough lift in the mean time.

Apparently, today’s euro rally was due to China’s hawkish position on the country’s European investments. In a statement made earlier today, Chinese officials said that the rumors that the country is currently evaluating its holdings in Europe are ‘baseless.’ China holds a significant amount of European assets in reserves. Due to the debt crisis in the euro zone, some people are led to suggest that the world’s second biggest economy is considering to liquidate some of their positions. Today’s statement, though, hints that the country will not sell EURs at least in the near term. In the occasion that China sells a big percentage of their position, it would signify a big loss of confidence in the currency which would consequently devaluate it further. Of course, the country does not want the euro to decline some more because such would also decrease the valuations of their assets.

Today, the US’s first quarter GDP growth is expected to be revised upward from 3.2% to 3.5%. The better than projected retail sales figures during the first 3 months of the year proposes the likelihood of an upgrade in expansion. Note that about 70% of the US’s total output is from domestic consumption which is commonly gauged by the retail sales account. If the preliminary GDP comes in at least as expected, investors could find another reason take some more risk by buying up the anti-dollar currencies like the EUR. A weaker number, on the other hand, could cause the euro and the other non-dollar currencies to weaken.