By mercaForex

The USD closed out January strongly against most of the currencies particularly the EUR and GBP. The startling fact was that the gains were made as the Advance GDP, the Chicago PMI, and the Consumer Sentiment reading all came in with better than anticipated numbers. The GDP outcome was 5.7% compared to the estimated gain of 4.5%. Skeptics, however, are still questioning just how much the GDP would have improved without government stimulus and what will happen when government spending dries up. Wall Street which was producing a mixed day of trading on Friday did falter as it began to close and this in turn strengthened the USD momentum. The month of January will be remembered as another good month for the USD and a month of declines for Wall Street.

Today the ISM Manufacturing PMI data will be released and is expected to improve. Investors however may be paying more attention to President Obama, who will again walk up to the podium. The President is scheduled to present the U.S. budget for 2010 and announce – as ‘optimistically’ as he can – that the federal government will sustain a record deficit this year. Obama is also going to speak about the budget for 2011 and will likely address austerity measures – meaning that he will highlight ways in which the government believes it will save money next year. This is a particularly big week of data and may go a long way in reinforcing the belief that the U.S. is finding better results or has merely found stability. Investors are still expressing doubts about the jobless situation and starting on Wednesday, employment numbers will begin to rain down. Tomorrow Pending Home Sales figures will be released. Last week proved a week of consolidation until the market seemingly could withstand the pressure no longer and this week will be an opportunity to reaffirm caution or a chance to express optimism. The jobless story in the States looks as if it will be a significant factor in the days to come.

The EUR experienced a downward slope again on Friday as a compelling mixture of caution and concerns continue to plague the European currency. International equity markets have not been able to shake off the notion from skeptical investors that the major economies will continue to face a tough road full of challenges. Friday’s data from Europe provided an unclear window. Today will be a quiet day of data with only the Manufacturing PMI from Europe being brought forth and the result is estimated to match the previous reading of 52.0. Tomorrow German Retail Sales will be presented and are expected to show an improvement. The crux for the EUR however appears to be a considerable amount of pressure coming from doubts that have not subsided regarding the Sovereign debt issues that are shadowing Greece. It is being reported that the European Union will issue an ultimatum to Greece on Wednesday regarding the manner in which it handles its budget crisis and it is not clear if the two sides – Greece and the E.U. – agree. The EUR has now declined two months straight against the USD and traders have plenty on their plates to consider.

The Sterling had a difficult path on Friday in the wake of the gains being made by the USD against most currencies. The Nationwide HPI was released on Friday and did show an improvement with a gain of 1.2%, which was above the forecast of 0.4%. Today the Manufacturing PMI will be released and will give investors additional insight into the way the economy is progressing. The Construction PMI is scheduled for tomorrow and the Halifax HPI is tentatively on the calendar. Even if the U.K. data is better than expected, it has been shown the past few sessions that dollar centric sentiment has been the main force behind the movements of the GBP. The Sterling is within the lower realm of its range against the greenback and like the EUR has faced a two month downward trend that raises many questions.

In the midst of the strong move towards risk adverse trading on Friday, the USD/JPY pair proved a stable place. The range of the JPY against the USD was consolidated and highlighted that investors remain cautious within the broad marketplace. Gold proved of interest also, as it did not get significantly weaker even as the greenback powered ahead. Gold is around 1083.00 USD and its tight range may be signaling a sudden turn.

Forex Technical Analysis

The Gold 10 Minute Chart displays some very interesting trading behavior as of late for Gold. Since about 6:00 am this morning up until now, the commodity has been trading between the ranges of $1,076 and $1,079.75. This is remarkable as it shows that Gold has moved nearly $4 in about 2 hours. Therefore, from this I feel that there are still many opportunities to profit from Gold. What’s more, as the holiday season is officially over now and trading volume has got back to normal, forex traders are flocking to Gold en masse. It can be said that to some extent, the commodity has been oversold recently. The last 6 candles on the chart does show some consolidation of the commodity. In fact, from the lowest level of the trading range that I discussed earlier to the highest level, I feel that this reveals a price correction for Gold in the short-term. If fx traders continue to go bearish on this commodity in the coming trading hours, we could see it rise to test the $1,081.20 resistance level. If it does end up hitting this resistance price, then the next support target is $1,081.74. The support levels lie at $1,076.07, $1,077.53 and $1,078.14, and the most recent resistance levels are $1,081.20, $1,081.74 and $1,082.41.

The Silver 1 Hour Chart illustrates bullish momentum building up from last night, just after 18:00 to shortly after midnight. In this short time period alone, the commodity climbed by over 200 pips according to the chart. However, since this peak, the price of Silver dived to as low as the support level of $16.195. With the current market price of the commodity at $16.125, I am of the view that the wick of the last candle of the chart signals that there is more bearish momentum for the pair in the coming hours. As a result, as many fx traders continue to go bullish on the Dollar, this may continue to negatively affect the price of Silver. Therefore, don’t be surprised if Silver touches the support levels of $16.057 or even $16.041 in the coming hours of trading. The current support levels lie at $15.987, $16.041 and $16.057, and the most recent resistance levels are at $16.195, $16.273 and $16.337.

The EUR/USD currency cross continues to be very popular amongst both large financial institutions and professional forex traders. In recent weeks, a number of large financial institutions tipped the pair to go through a prolonged bearish run. Well what can I say! The pair is currently experiencing a prolonged bearish run! If we look at the bigger picture, we saw the Dollar strengthen against both Gold and Silver more recently. But this doesn’t explain everything. Well the area shaded in yellow on the EUR/USD 1 Hour Chart illustrates that for the past 5 trading days alone the pair has plummeted considerably. By taking some of the fundamentals into account, this gives us a greater understanding of this price trend. With the Chairman of the U.S. Federal Reserve Ben Bernanke being reelected to a second term in office and toxic debt piling up in the periphery of the Euro-Zone, the Euro’s strength has paid the price. Moreover, many economists are seriously speaking of a number of countries abandoning the European single currency in the near future! I feel that at least in the short-medium term, the pair’s bearish behavior is likely to continue. The latest support level is $1.3875, and the latest resistance level is $1.4194.

The GBP/USD pair still promises to show some very unique trading behavior for all of us that follow the forex market. According, to the GBP/USD 8 Hour Chart, the area shaded in blue shows a strong bullish candle followed by a strong bearish candle. Shortly following this last candle, we see the area shaded in yellow. This area points out that the past 4 candles on the chart have been notably bearish. Thus the bears are clearly on top of the bulls. We can correlate the GBP/USD cross with the EUR/USD cross, as both of these pairs signal that the USD is gaining strength on all fronts! Additionally, I think that the bearish wick on the latest candle on the chart indicates that there is still a reasonable amount of bearishness left in the pair for at least the short-term. For that reason, I feel that betting against the latest trend could be extremely risky! If this trend does indeed continue, then we may see the pair trading at the $1.5900 level sooner rather than later. The latest support levels are $1.5896 and $1.5915, and the latest resistance levels are $1.6151 and $1.6179.

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