Risk markets attempted a recovery last week on some positive news as Germany and Finland approved expansion of the EFSF while Troika returned to Greece finally. However, strength of the recovery was far from impressive and lost momentum towards the end of the week. While major US and European stock indices managed to hold well above recent low, the CRB commodity index made a new low on Friday and closed below 300 level for first in almost a year. Dollar index’s retreat was rather shallow and was contained at 77.30 while Friday’s rally put the index back pressing recent high of 78.86. This could also be reflected in major dollar pairs which lost momentum. Commodity currencies also turned weak with Canadian dollar and New Zealand dollar making new record low against US dollar.

Markets are facing a number of even risks this week and it’s great opportunity for traders to watch the reactions, and thus, get a sense on the underlying sentiments. China manufacturing PMI was released on Saturday and has surprisingly rose to 51.2 in September. More importantly, this marked the second consecutive months of increase, though little. There have been much worries on hard landing in China. While PMI only showed little improvements in the outlook, at least, it’s not deteriorating and indicates that economic development is stabilizing.

EU finance ministers are not likely to approve the disbursements of next EUR 8b tranche of Greece bailout this week. However troika, the EU/IMF/ECB inspection team will complete an evaluation as early as on Monday and thus give the signal on whether Greece has done their austerity jobs satisfactorily. Also, as the Bundestag has now passed the bill for expanding the EFSF, there would possibly be some news on how the fund would be enlarged to a size that’s capable to contain Italy and Spain eventually.

While the surprised surge in inflation dented hope for a rate cut from ECB, the bank would nonetheless announce new stimulus measures in Trichet’s last meeting as President this week. The unconventional measures to be adopted would include resumption of the one-year refinancing operations and restart of covered-bonds purchase. These should be positive to the markets.

While these events might trigger some recovery in risk markets, we’d anticipate that the impact would be short-lived. We’re staying bearish in risks and bullish in dollar. The technical developments suggest that dollar is ready for another round of rally this week while stocks would likely revisit recent lows. Market sentiment would once again be proved to remain bearish if the above mentioned events fail to provided sustainable boost to risk markets. And, extension in decline in the CRB, if accompanied by a break of 10600 level in dow, and a sustained break of 79 in dollar index, should confirm the trend of risk selling in the first half of Q4.

The week ahead

In addition to the above events, Fed will also start the operation twist program on October. Fed will purchase a total of $44b of longer-mautrity treasuries and sell that same amount of short term debts. Four central banks will meet including RBA, ECB, BoE and BoJ. In addition, there will be key economic data release including Japanese Tankan, UK PMIs, US ISM indices and Non-farm payroll, Canadian job report. So, be prepared for a busy and volatile week.

• Monday: Japanese quarterly Tankan; Swiss retail sales, SVME PMI; Eurozone PMI manufacturing final; UK PMI manufacturing; US ISM manufacturing
• Tuesday: Australian building approvals, trade balance, RBA rate decision; UK construction PMI; Bernanke speech, US factory orders
• Wednesday: Australian retail sales; Eurozone PMI services final, retail sales; UK services PMI, GDP final; US ADP job, ISM services
• Thursday: BoE rate decision; ECB rate decisions; Canada building permits, Ivey PMI; US jobless claims
• Friday: BoJ rate decision; Swiss unemployment; UK PPI; Canada employment; US non-farm payrolls

Technical Highlights

Dollar index’s strong rally on Friday suggests that recent rise from 72.69 is ready to resume. Initial focus is on 78.86 resistance today and break there will confirm this bullish case and should send the index through 80 psychological level to 50% retracement of 88.70 to 72.69 at 80.69 next. Break of last week’s low of 77.30 will delay this case and bring more consolidations but we’ll stay bullish as long as 76.06 support holds.

The CRB commodity index extended recent down trend to close at 298.15. Near term outlook will remain bearish as long as last week’s high of 312.26 holds and further fall should be seen to 50% retracement of 200.15 to 370.70 at 285.43. The main focus would indeed be on whether the current decline would accelerate again. That’s crucial in determining whether CRB could draw support inside 247.25/293.75 zone and rebound.

S&P 500 stayed in recently established range last week but felt strong pressure well ahead of 55 weeks EMA at 1230.3. While the 38.2% retracement support at 1101.7 might provide some more support in near term, it shouldn’t last long. Friday’s fall puts initial focus this week on 1101.54 recent low. Break there will resume whole decline from 1370.58 and should send the index through 1010.91 support within October. In any case, we’ll stay bearish as long as 1258 head and shoulder resistance holds.

EUR/USD turned into brief recovery last week but such recovery was likely finished at 1.3689 already. Initial bias is mildly on the downside this week for 1.3362 first. Break will confirm resumption of recent decline and should target 161.8% projection of 1.4939 to 1.3969 from 1.4548 at 1.2979, which is close to 1.3 psychological level. On the upside, above 1.3689 will delay the bearish case and bring more consolidations. But recovery is, nonetheless, expected to be limited below 1.3936 resistance and bring another fall eventually.

In the bigger picture, current development indicates that medium term rise from 1.1875 has completed with three waves up to 1.4939 already. That also suggests that it’s merely part of the consolidation pattern that started back in 2008 at 1.6039. Further decline would now be seen to 1.2873 support first and break will target 1.1875 and below. On the upside, above 1.4548, resistance is needed to confirm completion of the fall from 1.4939 or we’ll stay bearish in EUR/USD.

In the long term picture, EUR/USD turned into a long term consolidation pattern since reaching 1.6039 in 2008. Such consolidation is still in progress and we’d expect range trading to continue for some time between 1.1639 and 1.6039.

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box

Although the greenback rallied across the board yesterday as the Federal Reserve looked less likely to announce QE3, the greenback failed to extend yesterday’s gain and retreated quite sharply versus most major currencies. In the past 2-3 trading days, the greenback started to rebound as more and more traders changed their view and bet on Fed Chairman Ben Bernanke may not signal addition bond-buying in today’s Jackson Hole Symposium, USD/JPY and USD/CHF surged to as high as 77.70 and 0.7989 respectively whilst EUR/USD and GBP/USD slipped to 1.4328 and 1.6260. Dollar retreated against the Japanese yen from a 2-week high of 77.70 (as indicated in our previous update that decent offers remain at 77.90-00). Market has been and is still yen long, with traders couldn’t push the yen much higher (this week’s high is 76.47) due to persistent bids from semi-official names and intervention fears, dealers are forced to cover their short ahead of today’s key event. Having said that, exporters are still determined to defend the level of 78’s with heavy offers still seen from 77.80 up to 78.00 and further out at 78.30-50 (large), however, they are unlikely to sell dollar aggressive in their usual month end transactions as they would prefer to wait for the Bernanke’s speech (due at 14:00GMT). Current retreat is threatening stops from short-term speculators placed at 76.80 but bids from them are still noted at 77.10 and sizeable stops remain at 76.40 with more buying interest seen around 76.50-60. The much anticipated resignation of Japanese Prime Minister Kan had little impact on the currency market and new leader of the ruling DPJ party will be selected on Monday, with former Foreign Minister Seiji Maehara, being the top-pick. However, the economic minister Yosano said that the government will also release a list of suggestions for the new administration on how to deal with the strong yen, so yen traders shall closely keep an eye on the development next Monday.

After tumbling yesterday to 1.4328 on several bad news, including Greek yields around record high, renewed eurozone debt crisis concerns plus rumors of a German downgrade, euro staged a stronger rebound among other major currencies. The single currency bounced on sign of a possible solution to the differences on the collateral for emergency loans after a report from FT which indicated a so-called ‘euro working group’ is examining a non-cash collateral arrangement. Through this arrangement Greece would put up either property or equity in state-owned enterprises as a guarantee against eurozone bailout loans. FT also reported that the euro area will discuss a new version of Finland’s collateral agreement with Greece. In addition 3 rating agencies cleared the rumors of a German downgrade as CNBC reported that S&P’s Moody’s and Fitch all affirmed their ratings on German government debt. Moreover, news that Spanish government said an agreement had been reached with the main opposition People’s Party over plans to preserve in its constitution limits on the public deficit, also supported euro. Last but not least, French President Nicolas Sarkozy said after meeting Chinese President Hu Jintao that Hu showed definitive confidence in the euro and the European economy also seen euro positive. As key of the day remains Fed’s annual economic conference in Jackson Hole, euro is likely to stay within recent established range of 1.4259-1.4517 ahead of Bernanke’s speech.

Meanwhile the Australian dollar benefited from upbeat comments from RBA Governor Glenn Stevens, in his semi-annual testimony before Parliament committee he said Australia was well positioned to tackle any further weakening of international conditions. He also stated that Australia’s mining boom along with low unemployment and strong banking system will assist the country to go through global uncertainties.

On the data front, before the Jackson Hole at 14:00GMT, key for the day will be UK Q2 GDP (08:30GMT), US Q2 GDP (12:30GMT) and Aug University of Michigan Confidence survey at 13:55GMT.

Daily Pivots: (S1) 76.97; (P) 77.33; (R1) 77.82; More.

USD/JPY’s recovery extends further to as high as 77.68 so far before retreating mildly. With 76.46 minor support intact, intraday bias is mildly on the upside for further rise. But after all, we’ll stay bearish as long as 80.23 and expect more downside ahead. Below 76.46 minor support will flip bias back to the downside. Break of 75.94 will confirm decline resumption and should target 100% projection of 81.46 to 76.28 from 80.23 at 75.05 next.

In the bigger picture, USD/JPY is still staying well inside the falling channel that started back in 2007 at 124.13. There is no indication of trend reversal yet even though medium term downside momentum is diminishing with bullish convergence condition in weekly MACD. Such down trend is still in favor to continue to 70 psychological level. In any case, break of 80.23 resistance is first needed to indicate completion of fall from 85.51. Secondly, break of 85.51 is needed to be the first signal of medium term reversal. Otherwise, we’ll stay cautiously bearish in the pair.

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box

Risk selloff intensified initially last week in response to S&P’s downgrade of US rating and the hollow statement G7 regarding the current market turmoil. Though, sentiments “stabilized” as the week went on, after Fed pledged to keep rates low until mid-2013. The attempt to extend the spotlight of European debt crisis to France was unsuccessful and that’s followed by banning of shorting financial stocks in France, Italy, Spain and Belgium. Also, Spanish and Italian yields dropped sharply after ECB buying. Major world equity indices recovered strongly from intra-week lows. However, we believe that the market sentiments were just “stabilized” rather than reversed. The European debt crisis won’t go way that easily. And global economies, including US, UK and Eurozone are poised to slow down on austerity measures, dragging down other parts of the world. So, risk assets will remain vulnerable to further selloff even though more consolidations would likely be seen before Bernanke’s Jackson Hole Speech on August 26.

The Fed delivered a much more dovish policy statement in August as the path of recovery has been ‘considerably slower than expected’. As a prelude to additional easing, the central bank pledged for the first time that interest rates will stay at exceptionally low levels at least until mid-2013 and reinvestment of maturing proceeds will be maintained. Wall Street rebounded after the report as investors looked forward for additional stimulus in coming meetings. More in Fed Keeps Interest Rates Low Until 2013, Maintains Reinvestment Policy. Meanwhile, markets will be eagerly waiting for Bernanke’s speech in the Jackson Hole meeting. Bernanke announced QE2 at Jackson Hole last year and there are rumors that he will also announcement something that moves market this year. That might include additional bond purchases of over $1T, targeting at long term securities like 10 year and 30 year bonds to push funds back to risk assets. In addition, Fed might remove the interest payments given to excess bank reserves at the central bank. We’ll wait and see what Bernanke finally delivers.

In the currency markets, the biggest shock was the reversal in Swiss Franc’s strength after SNB official talked about temporary peg to Euro. SNB Vice Chairman Thomas Jordan was quoted saying “any temporary measures to influence the exchange rate are permissible under our mandate as long as these are consistent with long-term price stability,” and that could include a temporary peg to Euro. SNB’s move of cutting rates, adding liquidity to the markets are so far very ineffective. Meanwhile, SNB officials should be aware of the fact that outright intervention in the markets in 2009/10 caused substantial losses with little impact and almost triggered Chairman Philipp Hildebrand to step down. While we should still have a long distance from pegging Swiss Franc with Euro, the SNB might have strong determination to defend EUR/CHF from breaching parity. A wide range of tools could still be used and as Jordan hinted, that might include creating negative interest rate environment for non-resident Swiss Franc deposits. There is also call for tax on foreign deposits.

While the Swiss franc pulled back sharply, the Japanese yen was the strongest currency last week on safe haven flows. Though, we saw some hesitation to push the Japanese yen further lower towards the end of the week, partly due to recovery in stocks. Japan’s Finance Minister Yoshihiko Noda declined to comment on the effectiveness of the unilateral intervention on August 4. But he warned that Japan would consider various options to curb yen’s strength if excessive yen rises persist.

The BOE lowered its economic forecasts amid global economic turmoil. In the latest quarterly inflation report, policymakers stated that the biggest risk came from sovereign crisis in the Eurozone. Risks to growth are skewed to the downside as slowdown in growth may turn out to be more persistent than previously expected. The BOE retained the view that inflation will return to a little below target in the medium-term. The BOE left the Bank rate unchanged at 0.5% and the asset purchase program at 200B pound at the meeting last week. Yet, it reiterated the flexibility to add or remove stimulus measures when conditions warrant. More in BoE Trimmed Growth and Inflation Forecasts.

Technical Highlights

S&P 500 dived to as low as 1101.54 last week before drawing support from 38.2% retracement of 666.79 to 1370.58 at 1101.73 and recovered. A short term bottom is in place. However, note firstly that price actions from 1101.54 are so far corrective which suggests it’s merely consolidations. Also, please be reminded that S&P 500 completed a medium term head and shoulder reversal pattern earlier (ls: 1344.07, h: 1370.58, rs: 1339.62). The trend line from 666.79 was also firmly broken. So, we’d believe that whole up trend from 666.79 was over. Hence, upside of the current consolidation should be limited by neck line resistance at around 1260 level and bring fall resumption. S&P 500 should eventually break through 1101.54 towards 1010.91 key support and below.

Dollar index continued to engage in range trading around 55 days EMA last week. Near term outlook remains neutral. The dollar index might continue stay in range of 74/77 for a while but the current development is still favoring more downside. Break of 74.18 will likely send the index through 72.69 towards 70.70 record low.

GBP/CHF basically followed other swiss crosses, diving to new record low of 1.1464 initially then rebounded strongly. A short term bottom is in place after brief break of long term target of 161.8% projection of 2.4965 to 1.5112 from 1.8113 at 1.2024. More rise would likely be seen initially this week. But at this point, we’d expect strong resistance from 1.3038 cluster resistance (38.2% retracement of 1.5691 to 1.1464 at 1.3079) to limit upside. We’d expect some sideway consolidation above 1.1464 before the long term down trend finally resumes to parity.

Australian dollar has been extremely weak in the past two weeks, just as other commodity currencies. EUR/AUD’s rebound from 1.2927 extended to as high as 1.4261 but failed 1.4341 resistance and retreated. AUD/USD is at a junction as it’s just hold above a medium term retracement level. And Aussie’s fate would very much depends on whether AUD/USD would have another deep fall and on whether EUR/AUD would take out 1.4341 resistance. Decisive break of 1.4341 will complete a double bottom reversal pattern (1.2926, 1.2927) and would signal completion of the down trend from 2.1127 and medium term reversal. But before that, we’ll stay neutral in cross first.

The Week Ahead

Risk sentiments should remain stable this week and stocks, as well as commodity currencies might extend recovery. But upside potential should be relatively limited and markets would like like stay in range for a while. Dollar, Euro and Sterling would likely stay in range against each other, going nowhere though the pound is vulnerable to some weakness considering the even risks. Swiss France and Japanese yen might try to regain some strength towards the end of the week.

• Monday: Japan GDP; US Empire State Manufacturing, TIC capital flow, NAHB housing market index
• Tuesday: RBA minutes; German GDP, Eurozone GDP; UK CPI; US new residential construction, industrial production; New Zealand PPI
• Wednesday: UK employment, BoE minutes; Eurozone CPI; UK PPI
• Thursday: Japan trade balance; UK retail sales; US CPI, jobless claims, existing home sales, Philly Fed survey
• Friday: German PPI; UK public sector net borrowing; Canada CPI

USD/CHF dived to new record low of 0.7065 last week but staged a strong rebound since then as the Swiss Franc pulled back sharply after SNB comments. At short term bottomed is formed at 0.7065 and we’d expect more consolidations above this level for a while. Further rebound is expected initially this week to 0.7801 resistance and above. Though, we’d expect upside to be limited below 0.8081 resistance and bring another fall to extend the consolidations. Below 0.7548 minor support will flip bias back to the downside for retesting 0.7065 first.

In the bigger picture, while the rebound from 0.7065 was strong, there is no indication of trend reversal yet. We’ll stay bearish as long as 0.8275 support turned resistance holds. Current down trend from 1.1730 is still expected to extend through 0.7 psychological level. Though, that would come after some more consolidations above 0.7065 first. Meanwhile, sustained trading above 0.8275 will indicate that such fall from 1.1740 has finished and open up the possibility of rebound back to 0.9634 support turned resistance.

In the longer term picture, long term down trend from 2000 high of 1.8305 is still in progress. There are various interpretation of the price actions. But after all, USD/CHF should be resuming the set of impulsive fall from 1.8305 to 1.1288. The current down trend might now be targeting next projection level of 100% projection of 1.8305 to 1.1288 from 1.3283 at 0.6266.

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box

The greenback finally staged a rebound after falling to 76.29 yesterday (just few ticks above historical low of 76.25 made in March) on speculation that Japanese officials will take action in the forex market to curb yen’s rally, the Japanese currency also slipped versus the euro after Japan’s MOF Yoshihiko Noda warned that the country’s currency is overvalued and he is watching forex market especially carefully. Investors believed that Japanese officials are concerned that yen’s strength will hurt exporter and damage the economy recovery from disaster earthquake and tsunami in March. Although the Finance Minister declined to comment on Nikkei article about MOF is getting ready to intervene in the FX market, he did say that he was discussing currency policy with several parties. More board members from Bank of Japan were expressing worries over the strong yen in the past week than before, Hidetoshi Kamezaki said the central bank would need to act proactively should the rally in yen pose a threat to economic recovery in the county, board members will have meeting later this week. growth and prices. Bank policy makers will meet this week. The greenback rose from yesterday’s low of 76.29 to as high as 77.85 earlier today, stops at 77.20 and 77.70 were tripped on the way up, security houses were seen buying the pair, however, still heard heavy offers from 78.00 up to 78.20 with stops placed above latter level. On the downside, bids are starting to appear in the region of 77.00-20 with sizeable stops remain at 76.20-25 and 76.00 with decent bids ahead of these levels.

It seemed that investors are already losing faith in eurozone Greek bailout plan and found that the package may not be enough to stop contagion to other eurozone nation such as Italy, if the third biggest economy in eurozone is actually in trouble, the rescue fund will not have enough money to pay for Rome. Recent surge in the purchase of credit default swaps showed that more and more investors consider Italy is having trouble with a gross volume of almost $306 billion, highest among other countries, followed by Brazil ($179 billion) and Spain ($176 billion which suggested that Spain is also in trouble). Traders are now focusing on 10-year Italian and Spanish yields which currently at 6.053% and 6.271% respectively, further rise in bond yields will definitely hurt the single currency. Euro tumbled yesterday from 1.4454 to as low as 1.4185 and although the pair recovered in part due to the rebound in EUR/JPY, offers from European sovereign names are expected to appear from 1.4280 up to 1.4300 and further out at 1.4350. On the downside, bids from Asian and Middle East names are reported at 1.4180-90 with some stops seen below 1.4180 and 1.4150 (large).

The British pound also fell sharply yesterday in tandem with euro after the release of much weaker-than-expected UK PMI manufacturing index which came in at 2-year low and also below the pivotal 50 level, although cable recovered also due to cross-buying against Japanese yen, offers are tipped from 1.6330 up to 1.6350 and further out at 1.6390-00. On the downside, bids from Asian names are noted at 1.6240-50 with stops planted below yesterday’s low of 1.6238. Some traders are watching UK construction PMI number due at 8.30GMT but the impact should not be as big as the manufacturing number released yesterday.

The Swiss franc rallied to another record high against the greenback yesterday at 0.7733 on fears that even with the US congressional leaders reaching an agreement to raise the debt ceiling, rating agencies may still downgrade the US top credit rating. Option barrier at 0.7800 was triggered and stops below 0.7780 was tripped, however, the pair quickly bounced to as high as 0.7857 before retreating. At the moment, we heard bids at 0.7780 and 0.7740-50 with more stops seen below 0.7733 and 0.7700 whilst on the upside, offers are seen from 0.7930 up to 0.7950.

Elsewhere, despite rebounding to 1.1008, aussie slipped to day’s low beneath 1.0900 after Reserve Bank of Australia left rates unchanged at 4.75% as expected. Stops below 1.0900 were triggered but more stops are reported below 1.0880 and 1.0850 but sizeable stops only emerging below 1.0800 and 1.0750 with offers tipped at 1.0980-1.1000 (related to large option expiry at 1.1000).

Daily Pivots: (S1) 76.29; (P) 77.17; (R1) 78.04; More.

USD/JPY dips to as low as 76.28, just inch above mentioned 76.71 will target 100% projection of 85.51 to 79.56 from 82.22 at 76.27 and recovers. Intraday bias is turned neutral again for some more sideway consolidations. But after all, near term outlook will remain bearish as long as 78.46 resistance holds and further decline is still expected ahead. Below 76.28 will target a test on 75.98 low. Nevertheless, sustained break of 78.46 will indicate short term bottoming and should bring strong rebound back into 79.56/82.22 resistance zone instead.

In the bigger picture, note that USD/JPY’s rebound from 75.98 low was held by medium term long term falling trend line as well as the 55 weeks EMA. Thus, down trend from 124.13 could still be in progress. Current fall from 85.51 might now extend through 75.98 towards 70 psychological level. In any case, break of 82.22 resistance is first needed to indicate completion of fall from 85.51. Secondly, break of 85.51 is needed to revive the case that USD/JPY’s down trend has finished. Otherwise, we’ll stay cautiously bearish in the pair.

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box

The single currency continued to edge higher as investors gained confidence that EU leaders are getting closer to reach an agreement on settling Europe’s debt crisis. German Chancellor Angela Merkel changed her tone as she said Thursday’s special summit of EU leaders will agree on a new Greek bailout package, Merkel will have a dinner meeting with French President Nicolas Sarkozy later today (around 15:GMT) in Berlin which hope to help reaching a resolution on Thursday when she travels to Brussels for the emergency meeting. Growing optimism on Thursday’s summit to form a concrete Greek bailout plan has given the single currency a boost. Traders said a report from Bloomberg also seen contributing to euro’s rise, the report indicated EU officials would consider allowing the eurozone’s rescue fund to be used to recapitalize the banks and also to buy government bonds, euro rebounded to an intra-day high of 1.4329, some stops above 1.4220 were triggered, however, traders seemed still reluctant to take big positions ahead of the announcement of the meeting results and offers are still noted from 1.4230 up to 1.4250 and further out at 1.4280-90. On the downside, bids are tipped at 1.4120-30 with some stops placed below 1.4100 but more buying interest is likely to emerge around 1.4050-60 with stops remain below 1.4050 and 1.4000 (large).

Although cable slipped briefly in London morning to 1.6069 on pre-release dovish expectations, the currency pair quickly rebounded from there after the release of Bank of England MPC policy meeting minutes, the result turned out to be not as dovish as many people had expected, Weale and Dale remained the only two committee member voted for hike and there was no specific reference on further asset purchases. Stops are reported at 1.6160 and 1.6180 with offers ahead of both levels and more selling interest is seen in the region of 1.6180-1.6200 with stops building up above there.

Lack of real action from Japan’s officials caused the USD/JPY to slip in European session, U.S. funds were seen selling the pair and some traders also find it more comfortable to hold yen and Swiss franc long positions ahead of Thursday’s EU summit. Some stops at 78.80 were triggered but sizeable bids from Asian CBs are still noted in the region of 78.50-78.80 with big stops still planted below 78.40, on the upside, offers from same names are reported from 79.10 up to 79.30 and further out at 79.50-60 with sizeable stops remain above 79.65/70. Swissy dropped to an intra-day low of 0.8187 but bids are still noted at 0.8160-70 with stops only emerging below 0.8150.

Elsewhere, the Loonie rose again today to a 2 ½ month high of 0.9457 against the greenback after yesterday’s hawkish statement from Bank of Canada and in part due to rising oil prices. M&A demand were still seen supporting the Canadian dollar after Chinese oil producer CNOOC Ltd said it would acquire Canada’s Opti Canada Inc., however, bids from CTA accounts are reported around 0.9440-50 with stops placed below 0.9440 and further out at 0.9400.

Daily Pivots: (S1) 1.4074; (P) 1.4145 (R1) 1.4223; More.

Intraday bias in EUR/USD remains neutral as it’s staying in tight range of 1.4014/4282. Above 1.4282 will extend the rebound from 1.3837. Further break of 1.4577 will indicate that EUR/USD’s correction from 1.4939 has completed and will bring stronger rise to 1.4939 and above. Nevertheless, before that, EUR/USD could still have another fall. Below 1.4014 will flip bias to the downside towards medium term trend line (now at 1.3781) where we’re expecting strong support.

In the bigger picture, EUR/USD is still trading above medium term trend line support from 1.1875 (now at 1.3781) and thus, rise from there should still be in progress. We’d continue to favor the bullish case that correction from 1.6039 has completed with three waves down to 1.1875 already and. Above 1.4939 will target 1.5143 resistance first. Break will affirm the bullish case of long term up trend resumption for another high above 1.6039. However, sustained trading below the mentioned trend line support will indicate that there should at least be one more medium term decline, possibly for below 1.1875, before correction from 1.6039 completes.

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box

U.S. job market turned out to be much weaker than most economists’ forecast, U.S. Labor Department reported that June non-farm payrolls only increased by 18K, well below market consensus of 89K (some analysts even raised their expectation in view of the strong ADP private job data), previous month’s figure also revised down from 54K to 25K. This is the smallest increase of job numbers since September 2010 and the 9.2% unemployment rate also worse than analysts’ forecast of 9.1%, hit the highest level in 2011, suggesting recovery in U.S. economy is not as strong as previously expected by most investors.

The single currency fell throughout the European session in part due to market talk of a possible downgrade for a Belgian bank and rising concerns ahead of the upcoming eurozone ‘stress test’ results, euro dropped to as low as 1.4205 before staging a strong rebound on the weaker-than-expected U.S. NFP data, large Asian CB was noted active buying all the way from low 1.4200 to above 1.4300, we heard that the Asian name is also holding a huge 1.40-1.47 double no touch. At the moment, mixture of offers and stops is tipped at 1.4380 and 1.4400 with option expires reported at 1.4330-40. However, risk aversion flows may limit euro’s upside as DJI fell over 100 points in opening, hence further choppy consolidation may take place in the near future.

Although Swissy rose briefly to an intra-day high of 0.8523, the currency pair hit a wall of offers just ahead of previous resistance at 0.8525 and tumbled on dollar’s selloff across the board on weak U.S. NFP, stops at 0.8400 were triggered and bids are reported at 0.8380 and 0.8360 with stops building up below latter level and further out at 0.8300. On the upside, offers are lined up from 0.8500 up to 0.8530 with stop placed above 0.8530 and bigger stops are located at 0.8550.

Cable also rallied in U.S. morning after NFP as the figures improved UK status of economic conditions among U.S. UK and eurozone. Some stop hunting activities in EUR/GBP also helped supporting sterling, offers at 1.6020-30 were absorbed and stops at 1.6050 were triggered, a mixture of offers and stops at 1.6090-00 is now in focus but more selling interest is likely to emerge around 1.6120-30.

The greenback tumbled against the Japanese yen after rising to a 1-month high of 81.49, bids at 81.00 were filled as traders rushed to offload their long dollar positions, stops at 80.70 were triggered and more stops are tipped at 80.50 and 80.00 (option-related). On the upside, a large option is noted at 81.00 (to be expired on Monday) and stops are building up above 81.50.

Eurozone and Greece news dominated headlines last week but it was Swiss Franc that shone over the week, making new record highs against both Dollar, Euro and Sterling. Greece Prime Minister Papandreou passed the confidence vote by a thin margin and will face parliamentary vote on the new austerity package this week before finally getting EU approval on the fifth bailout fund payment will be approved on July 3. Everybody in the markets is expecting the the Greece funding to be approved eventually but remained cautiously as this is still far from certainty. Meanwhile, worries on contagion never go away as Moody’s turned focus to Italy and said it’s considering downgrading a group of Italian banks. The debt crisis in Eurozone continued to weigh on market sentiments.

On the other hand, investors are clearly dissatisfied with Fed’s outlook and the lack of talk on QE3. After the FOMC meeting, Fed Chairman Bernanke signaled that there will be no QE3 after expected completion of QE2 in June. Tone of the accompanying statement was less optimistic than the last one as the Fed noted that recovery is continuing “somewhat more slowly than the Committee had expected.” Fed also lowered GDP projection and raised unemployment projection. More in Fed On Hold and Less Optimistic, Dollar Mildly Firmer as Bernanke Hints No QE3. Economic data from US were generally soft and affirmed the view of slowdown in general.

Sterling was also one of the weakest currency after the dovish BoE minutes. Vote split of the June meeting changed from 6-3 to 7-1 in favor of no change after arch-hawk Sentance left the committee and was replaced by Broadbent, who joined the doves camp. Dale and Weale were the only hawk left, who voted for 25bps hike. The minutes were overall quite dovish as members’ focus moved away from inflation threat to the fragile economic recovery. The minutes suggested that a near term hike is highly unlikely and BoE would instead keep rates unchanged until next year. Indeed, the note that the risk of undershooting the 2% inflation target over the next few years has increased. Meanwhile, some members thought “it was possible that further asset purchases might become warranted if the downside risks to medium-term inflation materialized.”

Stocks and more notably, commodities, were generally lower after a volatile week. DOW finished the recovery from 11862 and dipped sharply since then. Technically, DOW is held below the falling 55 days EMA, thus, keeping the outlook bearish. We’d expect correction from 12890 to resume in near term, probably early this week to 38.2% retracement at 11639 and possibly further to below 11555.48 support. Such development would likely provide some support to the greenback.

The CRB commodities index also resumed the whole fall from 370.70 and reached as low as 326.88 last week. Crude oil breached 90 level and remained weak. Meanwhile, gold is back pressing 1500 level and should have reversed the near term trend. Broad based weakness in commodities should send the CRB index through 323.54 retracement level, possibly to 100% projection of 370.7 to 332.92 from 352.05 at 314. And the development should also provide support to dollar.

However, the tricky part of intermarket outlook is that dollar index is not having decisive strength yet as it’s still kept below 76.36 resistance and doesn’t sustain above medium term falling trend line from 88.70 yet. We’ll continue to stay neutral. Note that break of 76.36 resistance should confirm medium term reversal on bullish convergence condition in daily MACD. And, in such case, we should see further rally in the dollar index through 77.17 projection target and possibly to 38.2% retracement of 88.70 to 72.69 at 78.80 at least.

So far, EUR/USD has been holding firmly above 1.4 level in spite of all the volatile price actions. And that’s the major factor that’s restricting dollar index’s rise. On the other hand, if the above risk-off movements realize, swiss franc will likely continue to be the main beneficiary. GBP/CHF made another record low at 1.3271 last week and the downtrend is accelerating as seen in the falling, negative, weekly MACD. Near term outlook remains bearish as long as 1.3614 resistance holds and the down trend should extend to next medium term target of 61.8% projection of 2.4965 to 1.5112 from 1.8113 at 1.2024.

The Week Ahead

Greece’s parliamentary vote on the austerity measures will definitely be a major focus of the week. In addition, as markets are clearly in a risk-off mode currently, much volatility would be triggered by the growth data this week, in particular the PMI data from China, Swiss, UK and the US ISM manufacturing. Another key event would be UK inflation report hearings where analysts would scrutinize the words from BoE policy makes to affirm the view that the bank would stand pat for the rest of this year.

• Monday: New Zealand trade balance; US personal spending and income
• Tuesday: Japan retail sales; Swiss UBS consumption indicator; German Gfk consumer sentiment, Prelim CPI; UK current account; GDP final, inflation report hearings; US S&P Case-Shiller house price; consumer confidence
• Wednesday: Japan industrial production; Swiss KOF leading indicator; Canadian CPI; US pending home sales;
• Thursday:UK nationwide house price; German unemployment, Eurozone M3, CPI flash; Canada GDP; US jobless claims, Chicago PMI
• Friday: Japan CPI, quarterly tank an; China PMI; Swiss SVME PMI; UK PMI manufacturing; Eurozone unemployment; US ISM manufacturing

EUR/CHF dropped to new record low at 1.1802 last week and met mentioned target of 100% projection of 1.3833 to 1.2399 from 1.3243 at 1.1809. Initial bias remains on the downside this week and sustained trading below 1.18 should pave the way to long term projection target at 1.1516. On the upside, above 1.1968 minor resistance will turn bias neutral and bring consolidations. But sustained trading above near term falling channel (now at 1.2103) is needed to be the first signal of short term bottoming or we’ll stay bearish.

In the bigger picture, whole down trend from 1.6827 (2007 high) is still in progress and in any case, medium term outlook will remain bearish as long as 1.3243 resistance holds. The current down trend should now target 138.2% projection of 1.8234 to 1.4391 from 1.6827 at 1.1516.

In the long term picture, fall from 1.6827 should be resuming whole down trend from 1993 high of 1.8234. The is some side of re-acceleration as seen in weekly MACD and break of 138.2% projection of 1.8234 to 1.4391 from 1.6827 at 1.1516 will target 161.8% projection at 1.0609.

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box

Euro attempted a recovery last week as the drama on Greece continued. There were talks of "reprofiling" or "soft restructuring" of Greece debt as well ECB’s opposition to such an idea. However, the common currency failed to sustain gain and was sold off sharply on Friday on fresh downgrade in

EUR/USD resumes recent rally and is back above 1.47 level after Fed holds rates unchanged at 0-0.25% today and noted the current outlook “warrant exceptionally low levels for the federal funds rate for an extended period.” Fed also indicated that it will complete the $600b QE2 program by the end of the current quarter. On growth, the FOMC statement noted “moderate pace” in recovery and gradual improvement in labor market conditions be noted that ” unemployment rate remains elevated”. On inflation, Fed played down the significant of the surge in commodity prices since last summer and noted that as “transitory”. Underlying inflation is viewed as “subdued” with “longer-term inflation expectations” stable. The statement overall suggests that Fed is in no hurry to remove policy stimulus and will continue to lag behind ECB in rate hikes.

Later in the press conference, Fed Chairman further sends the greenback lower by indicating that there is no specific timeframe for beginning tightening monetary policy. Bernanke mentioned that the “Extended period suggests it would be a couple of meetings probably before action” and he doesn’t know “how quickly response will be required.” Regarding the quantitative easing program, Bernanke indicates that the Fed will “continue to reinvest maturing securities” after QE2 ends in June and the “amount of monetary policy easing should remain constant going forward”. The steps for exiting stimulus will very likely starts with stopping ” reinvesting all or part of the securities which are maturing.”

Fed also released it’s latest projections. Growth forecast for 2011 was revised down from 3.4-3.9% to 3.1-3.3%. Unemployment forecast was also lowered from 8.8-9.0% to 8.4-8.7%. PCE Inflation for 2011 is projected to be 2.1-2.8%, sharply up from January’s projection of 1.3-1.7%. Core PCE inflation projection was also revise to 1.3-1.6%, up from prior projection of 1.0-1.3%.

Dollar index extends recent decline and drops to as low as 73.45 so far today. It’s heading towards 61.8% projection of 88.70 to 75.63 from 81.31 at 73.27, 100% projection of 89.62 to 74.19 from 88.70 at 73.27. This 73.27 level will be closely watched on possibly of rebound. But based on accelerating downside momentum, it seems not likely. Sustained trading below 73 will pave the way to a new all time low below 70.70 made in 2008. In any case, near term outlook will remain bearish as long as 74.34 resistance holds.

Forex Signals.com | Full Text Feed | Amazon Affiliate

The Japanese yen was broadly sold off last week as it’s back becoming the favored carry trade funding currency in the current risk seeking environment. Stocks was back above pre-Japan disaster higher with DOW breaking 12931 resistance on solid economic data. Canadian dollar was the strongest gainer last week as crude oil jumped through recent resistance of 106.95. Australian dollar was also strong and made new record high against US dollar. Among European majors, Euro remained the strongest one as supported by rate expectations. Swiss Franc was weak as it’s seen as another candidate for funding carry trades. Meanwhile, Sterling was mixed on relatively uncertain rate outlook.

Data from US was solid. Non-farm payroll showed larger than expected expansion by 216k in March while February’s figure was revised slightly higher to 194k.In addition, unemployment rate dropped from 8.9% to 8.8%, hitting a two year low. Dollar attempted a rebound in the middle of the week on some hawkish comments from Fed officials. However, the greenback finally dropped against after comments from New York Fed Dudley, who has a permanent voting seat on the Fed’s policy-setting panel, unlike other regional Fed officials who hold voting seats on a rotating basis. Dudley warned that Fed was “still very far away” from achieving it’s dual mandate of price stability and full employment and there is no reason to reverse course yet.

Euro soared against other European majors and yen and remained firm against dollar last week. Stronger than expected inflation data affirmed the case for ECB to raise rates in April and increased the possibility for more rate hikes down the road this year. Eurozone flash CPI rose from 2.4% to 2.6% yoy in March, the highest level since October 2008 when CPI was at 3.2% yoy. This was also the consecutive fourth months that inflation stayed above ECB’s 2% target. ECB is widely expected to raise rates by 25bps from historical level of 1% next week after Trichet used the famous word “vigilance” to signal rate hike in March meeting. The inflation data argues that more rate hikes are needed this year to bring inflation down to ECB’s target, with some speculation that ECB will raise rates once every quarter.

Technical development in the Japan yen worths noting. The yen consolidated for a while after the selloff following G7 coordinated intervention. Yen’s selloff resumed last week with yen crosses taken out key resistance levels. AUD/JPY and EUR/JPY led the way by breaking 84.6 and 115.96 resistance respectively. USD/JPY, GBP/JPY and CAD/JPY then followed. Japan Finance ministry said in a report that a total of JPY 692b was spent on forex market intervention between Feb 25 and Mar 29. It’s believed that most of it was spent on the G7 coordinated intervention after Mar 18. Note that the amount was much less than the amount JPY 2.12T used in September on a unilateral intervention by BoJ. The data triggered some analysts to believe that the first joint intervention by G7 in more than 10 years was efficient enough to reverse Yen’s course.

Technical Highlights

The rally in AUD/JPY after pre-intervention low of 74.40 was very impressive. The cross is set to take on 88.04 key resistance this week, as well as 61.8% retracement of 107.86 to 55.11 at 87.70. Current development argues that price actions from 88.04 are in form of a three wave consolidation pattern that’s finished at 74.48. Sustained break of 88.04 will confirm resumption of the medium term rise from 55.11 and should target 61.8% projection of 55.11 to 88.04 from 74.48 at 94.83 and above. We’d stay bullish as long as 84.46 resistance turned support holds.

The rally in CAD/JPY was also impressive and the break of 85.58 resistance last week suggests that choppy fall from 94.46 has completed with three waves down to 77.13 already. Rise fro 77.13 might be resuming whole medium term rebound from 2008 low of 68.38. We’d stay cautiously bullish in CAD?JPY as low as 85.58 resistance turned support holds and expect a test on 94.46 ahead. Break will target 100% projection of 68.38 to 94.46 from 77.13 at 103.21.

Dollar index’s rebound from 75.25 extended further to 76.61 last week but failed to sustain gain. After all, the bearish outlook remains unchanged. While some more consolidation could be seen, upside is expected to be limited by 76.88 support turned resistance and bring fall resumption. Below 75.66 will flip bias back to the downside for 75.25. Break will confirm down trend resumption for 74.19 support first and then 61.8% projection of 88.70 to 75.63 from 81.13 at 73.23.

The Week Ahead

Four central banks will meet this week. ECB is widely expected to raise rates by 25bps this week after Trichet’s signal in March. There are speculations that BoJ would announce additional easing measures this week and that would probably depend on the updated Tankan data to be released on Monday, which takes into account post disaster impacts. BoE and RBA are both expected to stand pat this week. Meanwhile Fed will also release March meeting minutes. More in

• RBA To Say On Hold For A Fourth Meeting
• ECB To Begin Tightening In April
• BOE On Hold While Seeing Heightened Inflationary Pressure In Near-Term

• Monday: Eurozone Sentix investor confidence; UK construction PMI; BoC business outlook survey
• Tuesday: RBA rate decision, Australia trade balance; UK services PMI; Eurozone retail sales, services PMI final; US ISM non-manufacturing, FOMC minutes
• Wednesday: Australia home loans; Swiss CPI; UK manufacturing and industrial production, NIESR GDP estimate; Eurozone GDP final, German factory orders; Canada Ivey PMI
• Thursday: Australia employment; BoJ rate decision; BoE rate decision; ECB rate decision; Canada building permits; US jobless claims
• Friday: Swiss unemployment rate; German trade balance; UK PPI; Canada employment, housing starts; US wholesale inventories

EUR/JPY rose sharply to as high as 119.78 last week and the strong break of 115.96 resistance indicate that the medium term trend has revised. Initial bias will remain on the upside this week for 100% projection of 106.57 to 115.53 from 113.54 at 122.50 next. On the downside, below 118.21 minor support suggest that a temporary top is formed and turn bias neutral to bring consolidations. But downside should be contained above 115.53 resistance turned support and bring another rise.

In the bigger picture, the strong break of 115.96 resistance, as well as the 55 weeks EMA is taken as the first signal that medium term correction from 2008 high of 169.96 has completed with three waves down to 105.42 already. Sustained trading above mentioned 38.2% retracement of 139.21 to 105.42 at 118.33 affirms this case Focus now turns to 139.21 key resistance level for confirmation (which is close to 50% retracement of 169.96 to 105.42 at 137.69). On the downside, break of 113.54 support is needed to invalidate this view. Otherwise, outlook will remain bullish.

In the long term picture, up trend from 88.96 (00 low) has completed at 169.96 and made a long term top there. Based on the five wave structure of the rise from 88.96 to 169.96, we’re favoring that fall from 169.96 is corrective in nature. It should develop into a three wave correction with first wave completed at 112.10, second wave completed at 139.21. The third wave might be finished at 105.42 already. Sustained break of 139.21 resistance should pave the way to retest 169.96 high next.

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box

Forex Signals.com | Full Text Feeds | Amazon Plugins