Thread: Broco

Currency Market Review 11/30/09 - 1/22/10.


EUR – growing potential waning

In the first three weeks of the year the single currency lost 1.2% against USD. EUR/USD decline is a consequence of US market weakness, which is a leading indicator of the economic recovery pace. World markets remained pessimistic in the third week of the current year. Asian markets are falling for over ten days, oil and metal prices go down. Company reports of many firms and banks for the fourth quarter of 2009 does not inspire market participants either.
Results and Current Situation
Technical picture of EUR trading in the last quarter of 2009 showed that market participants were not ready to buy EUR above1.47-1.48 area. As a result, the fourth quarter trend signaled January EUR/USD decline towards 1.4150-1.4250 area. Following the results of the last year we see, that buying of currencies dependant on raw materials export has brought AUD/USD and NZD/USD to the levels, above which growth could not be objectively justified . Last week AUD/USD could not break through the 0.92-0.93 area, which would open way towards 0.95 level, the market sank till 0.90 instead. NZD/USD has not passed 0.72-0.73 area and finished the week below 0.71 near 0.70.
In the end of the year GBP/USD had support of GBP buying for EUR, which was reflected in the EUR/GBP trend Nevertheless, last week EUR/GBP could not get hold above 1.62-1.63, this would propel the market toward the 1.65. The market closed at 1.61 USD/CAD has not fallen relative of the1.0300 level, which would signal further way down to 1.0200 and 1.0150. The market has grown above 1.0550 on oil market decline.
Still the tendency of major currencies decline had more to do with JPY appreciation, rather than with USD growth. The 1 quarter of the year is a traditional repatriation period of for the JPY. JPY has growth against all currencies in the market. For the week USD/JPY has fallen from 0.91 below 0.90, EUR/JPY sank from 130.50 till 127.00, and GBP/JPY from 147.60 below 145.00. AUD/JPY, NZD/JPY, and CAD/JPY also lowered.

Expectations, Prognosis

In the January 25-29 period currency market will remain pressured through JPY strengthening and doubts concerning EUR growth. Corporate reports will continue to play the role of an expectations factor on the market. In the beginning of the new trading week we can see some potential for EUR/USD recovery, still in second half of the week further decline is most probable.

Major currency pairs range:

EUR/USD – 1.3850-1.4188 potential decline
GBP/USD – 1.5888-1.6231 potential decline
USD/CHF – 1.0331-1.0688 potential decline
USD/JPY – 0.8831-0.9188 potential decline
AUD/USD – 0.8831-0.9131 potential decline
USD/CAD – 1.0450-1.0731 potential decline
Brent – 69.88-73.88, potential decline

EUR below 2008 closing level

In January currency market was focused on financial problems of European countries and their budget deficits on the first place. Late last week we have learnt that Standard & Poor's does not count British banks among the most low risks banking systems / Weakness of major American stock indexes and oil prices below $75 a barrel boosted USD growth by the end of the third week of January . US fourth quarter GDP data also contributed to dollar's advance. GDP has growth 5,7% against the third quarter of 2009 year on year, US Bureau of Economic Analysis, Department of Commerce reported. This numbers turned out much better, than analysts expected.
Results and Current Situation
In 2009 the major trend was appreciation of currencies dependant of raw materials export (AUD and NZD) and USD decline. This tendency has created a misleading picture of EUR strength. In fact AUD and NZD were also often bought for EUR. Absence of objective basis for EUR/USD growth in November resulted in market going below 1.50. Technical trend of the last quarter of 2009 - lowering from 1.4350 - sent EUR/USD towards the 2008 closing - 1.40. It was only owing to EUR/GBP cross rate trade against EUR, that GBP/USD held near the 1.6150 -1.6350 area in January . EUR/GBP decline dynamics did not reflect the USD growth, but was a EUR depreciation factor, this allowed GBP/USD to stay at 1.60 by the end of January trade.
Currencies dependant on raw materials export - AUD and NZD - declined from key levels. AUD closed below 0.90 at 0. 8835, аnd NZD finished the month at 0.70. Closing above 0.88 and 0.70 came as a result of EUR/AUD EUR/NZD cross rate lowering and gold sinking below 1100 an ounce. USD/CAD grew to 1.0705 on oil decline.
January EUR/USD closing shows, that for the period from the beginning of 2009 USD added 0,78%, from 1.3960 to 1.3850. USD appreciation is not yet big enough for EUR/USD to fall substantially in the first February week.

Expectations, Prognosis

In the February 1-5 period currency market will have a hard time choosing further direction. Market participant might wish to take profit on some long USD positions in the beginning of the month. Fourth quarter financial statements of banks and companies will become a major factor influencing trading decisions. Traders will pay special attention to JPY movements. In January USD/JPY kept moving downward and closed in 0.90 filter between 0.9012 and 0.9031.

Major currency pairs range:

EUR/USD – 1.3788-1.4095, attempts to grow, potential decline
GBP/USD – 1.3788-1.4095, attempts to grow, potential decline
USD/CHF – 1.0431-1.0712, attempts to decline, potential growth
USD/JPY – 0.8731-0.9188 attempts to grow, potential decline
AUD/USD – 8750-9088 attempts to grow, potential decline
USD/CAD – 1.0431-1.0712, attempts to decline, potential growth
Brent – 68.88-73.50 consolidation

4-months of the fiscal half year EUR trend points at 1.33
General background of the second February week was not in favour of the Single European currency. Negative tone was aggravated by weak EU macroeconomic staticstics and Greece's financial problems. Still the most important factor was the decion of China's central bank to raise the reserve ratio for Chinese banks by 50 basis points, which was announced on Friday.
Results and Current Situation
The ending of the second February week was in fact the result of the four months of fiscal half year period as well as the first half of the first 2010 quarter. Since the beginning of the fiscal half year period in October EUR has lost 6,45% against USD by session closing on Friday. 4-month EUR/USD decline comprised 9 figures or 950 points. EUR has lost considerably against currencies dependant of raw materials exports such as AUD and CAD (9% and 9.2%). Technically EUR/USD is moving in a well formed downward trend towards the area of 1.33-1.3350, which can be reached by the end of the 1st quarter of 2010 .
As results of the last week's trade show, EUR is held back from sinking below 1.35 only by 1.3650 area (1.3612-1.3688). In the meanwhile the week's trade of USD against JPY goes around 0.90 without a clear deriction. This fact shows that it is EUR depreciation that plays the key role in the market and not USD growth.
EUR/GBP cross rate decline below 0.8750 helped GBP/USD stay above 1.5650. GBP exchange rates have settled in the comfortable area between the 1.55 and 1.60 levels within a range of 1.57-1.58. This proves once again that the value of EUR is deminishing.
The idea, that the USD is ready to grow, but not yet growing is proved by the fact that AUD/USD climbed from 0.8650 to 0.8870 by the end of trade Friday. Persistant relative USD weakness is also sertified by the fact that by the week's end USD/CAD has declined from 1.07 to 1.05 levels.
Expectations, Prognosis
Within the period from 15 to 19 February curreny market trends will be dominated by Japanese currency purchases for EUR, GBP and raw materials currencies and general
EUR weakness. Federal Reserve rate increase has not become an active factor so far, although it was mentioned in the report by thу FRS President Ben Bernanke. Market participants will be assessing oil market in the range of 71,50-73,50 (Brent oil) and the possibility of prices breaking outside of this range. Apart from that traders will be watching Dow Jones Index dynamics around 10000, within the range of 9850-10150.
Major currency pairs range:
EUR/USD – 1.3350-1.3769, decline
GBP/USD – 1.3350-1.3769, decline
USD/CHF – 1.0669-1.0931, growth
USD/JPY – 0.8931-0.9096, consilidation
AUD/USD – 0.8712-0.8931, consilidation with potential decline
USD/CAD – 1.0431-1.0688, consilidation with potential growth
Brent – 71. 50-73.88, consilidation, potential decline

Buy USD before it gets expensive

Bank analysts are telling a bare faced lie about their intention to buy USD Quite to the contrary. Banks are buying EUR as long as it has a potential for further decline. Banks are suggesting that the whole market should break the laws of trading logics and buy the appreciating dollar. That is exactly why l banks have started to revise down their forecasts for EUR/USD in the end of the previous week. For example, in the end of the week considerations appeared on the market, that Fed may raise its discount rate and Peoples Bank of China may further tighten reservation conditions. Anticipation of such steps by the Fed and the PBC is enough for USD to grow and for EUR to weaken. Banks being the only professional market participants will chose the most profitable middle term instrument. What will the banks choose? EUR of course, and they will sell appreciating dollar to us and to the rest of the market. The market is ready to obey the rules of this game.
Results and Current Situation
The major indicator of the last week was the preparation for the fiscal half year end, as well as the end of the first 2010 quarter. By the end of the week banks were reassured that the financial crises is coming to its end and Fed is ready to start withdrawing cheap dollar from circulation. The period of dollar accumulation, spurred by anti-crisis measures, which started in the 2nd. quarter of 2009 is over soon. The time of commodity currencies buying for a high and obviously not particularly favorable price is also finishing. We are at the onset of the actual end-phase of the world financial crisis.
CAD, AUD, and NOK. CAD и AUD growth has slowed down considerably for the past week, whereas NOC lost 0.14% against USD. Still, commodity currencies continued to grow against EUR. AUD/USD closed at 0. 9151 on Friday, March 19th. and the week before, March 12th. - at 0.9155 USD/CAD closed at 1.0162, and the week before at 1.0179; USD/NOK grew from 5.83 to 5.90.
EUR EUR/USD trade finished at 1.3530. For the week EUR lost 0,2% against USD.
GBP British pound finished 1.1% lower. The trade closed at 1.5015 Friday.
JPY USD/JPY did not change noticeably, staying within 90.12- 90.69 area. Trade finished at 90.51 Friday.
For the past week conversion operations on the market and the major currencies liquidity have diminished.
Expectations, Prognosis
For the starting week the number of customer orders to buy USD prevails on the market. Most probably more CAD и AUD longs will be closed. Trading volume is likely to lessen, which can cause contradictory movements within 50-100 points range.
Major currency pairs range:
EUR/USD – 1,3412-1,3588, consolidation
GBP/USD – 1,4931-1,5088, consolidation
USD/CHF – 1,0569-1,0669, consolidation
USD/JPY – 90,12-90,88, consolidation
AUD/USD – 9088-9188, consolidation, decline
USD/CAD –1,0131-1,0269, consolidation, possible growth
Brent – 80,31-78,69, possible decline
Broco Group chief analyst Vladislav Gurov

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