Euro Outlook
Yesterday, currency-markets were quiet as traders were anxious ahead of the fomc meeting, and trading remained hectic… as expected, the fed trimmed interest rates by 50 basis points and hinted to the need for further cuts to heal the u.s. economy… the dollar fell to an all-time low against the swiss franc reaching 1.0815, and the euro benefitted due to interest-rates differentials testing a high of 1.4905 against the dollar… on the charts, the medium-term trend remains positive and initial target remains 1.4925/65 that should hold at first attempt, with its break calling for 1.5095 open…. the first objective should be seen in the next 48 hours, and a corrective downmove may follow ideally to 1.4825/15, prior to a new rally, most probably above 1.5000…. only an hourly close below 1.4765 can jeopardize the euro-bullish medium-term trend and imply for a correction, normally to 1.4730/00, possibly lower to 1.4665… below this latter will call for a revisit of 1.4595, not favoured at this stage… the long-term trend will remain euro-bullish as long as 1.4365 is not decisively broken on a daily closing basis, and initial objective is 1.5490…
Morning forex report
The Fed cut rates by 50bp on Wed. and left the door open for more rate cuts as needed as they maintained a worried outlook on the economy. This is 125bp off the funds rate in a little over a week, wow! The coupon curve (2yr/10yr) is as steep as you like which should help banks make $$ (borrow short, lend long) but 1) stocks will probably continue to trade flat to lower as the ‘CDO/subprime black holes’ continue to appear and 2) money may remain tight in a credit crunch for a while not just because banks are wary of who they lend to, but because banks are shoring up their capital base as well just in case. And slashed rates will do little to address this for now. Q4 GDP came out at 0.6%, positive which will disappoint recession fans. For the USD? Lower rates are not helping the USD, and the risk is that the USD sells off through $1.50 for $1.57/1.60, Cable up to $2.01 and the CHF is hammering on new USD lows already. On the charts the USD bear trend is clear, and while bottom fishing will attract, right now gauging the effect of the latest rate cut to see if the FX market starts to look forward to a recovery in the US economy. The new lows in the USD/CHF would suggest that the FX market is not looking for a USD bounce any time soon, sustained breach of falling line support at 1.08 would leave 1.05/1.00 to play for, ay caramba! USD/YEN? Mixed, still like 108 for 112/114, see if 105.70/105 keep 101/100 out of play… The interesting thing now is will the ECB start to really feel the heat with the EUR knocking towards $1.50?
Evening forex report
The USD is a bit soggier in London morning trade, and chances are that unless the Q4 GDP number surprises on the upside, the USD will remain on a backfoot going into the Fed meeting. The risk has to be that the Fed move – 25bp, 50bp or nothing – is taken badly by the market and the USD falls out of bed. While possible, and the trend risk is in that direction, for choice leaning to USD bottom fishing ahead of the 1.4865/1.4920 zone in the EUR/USD, still aiming for 1.43 below this. Risk is at the 1.50 zone, with breaks leaving 1.57/1.60 to play for on a break. Cable is above 1.99 and while medium term targets at 1.80 are making this a tempting sell, favoring waiting for $2.01 still before selling, with 1.9880/40 now offering support and levels to sell on if broken. The yen has been quiet flat on the USD, with 163 open on the EURX charts on a pullback. Still looking for USD/YEN to perk up to 112/114 in time, 108 key first. The swing factors will be GDP and the Fed today, then onto payrolls on Friday
Morning forex report
The focus is well and truly on the Fed today, with coin tosses on whether it will be a 25 bp or 50 bp rate cut. Watch the GDP data ahead of this, a negative number for Q4 would make the market (and the Fed who probably have the number already, no?) think that recession risk (2 quarters of negative growth) has gone up a notch, 50bp here we go. An ok positive number would shift this view, interesting session ahead? On the charts the uptick in the EUR/USD is putting the topping play in some trouble, not dashed aside yet but… Still, if upticks fail to work through $1.48 on a sustained basis and remain shy of $1.50 then the case for a pullback to $1.43 will remain alive, key for any real breakdown/top. True, this could be a bull flag forming, and if the 1.50 zone is cleared quick targets will be near $1.57, $1.60 open just above this. Fun and games time? Hmm… Still leaning to limited USD downside from here on the view that the slowdown in the economy won’t be as bad as many fear, but the chart view is flat at best. The USD/YEN continues to mark time below 108, but for choice dips towards 106.70/40 area should find USD buyers ahead of 106/105.70. Still like upticks through 108 in time, with 112/114 in the sights above this. Cable is up again, still thinking that $2.01 may be touched here before Cable is a big sell, should see EUR/GBP tumble below 0.74 if GBP does catch a bid, still like 0.7280/40 in time…
Evening forex report
Stocks are up, the carry trade is back… well… Choppy trading so far in the London morning session with the EUR/USD ticking a touch higher, while the CAD is on a tear again. The latter is a puzzle, but if one takes the ‘better USD’ approach then the CAD will benefit if the US recession is shallow or non-existent, and if the US economy weakens further, the CAD yield offers a pickup in any event… hmmm… Chances are that the super-CAD is being stop loss driven just now, not the start of another run at 0.90. Watch for bounces today, if 1.00 is regained then a case for 1.0030 and then 1.0070/1.0130 should be seen. Data today will focus on durable goods in the US, whippy as you like at the best of time so roll the dice. Looking ahead and its all about the Fed, 25bp or 50bp is the bet, see if the text offers any silver lining or if its all dark clouds for the Fed. Cable has been threatening to break higher all morning, favoring a push through 1.99 to $2.01 here, sell there if seen with risk layered up to $2.04 for $1.80? Seemed like a good idea at $1.93+ a few sessions ago, see if $2.01 is approached and if still seems like a good idea then?
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