PLANET FOREX

Following four downtrending days attributed to a rising stock market and record setting gold prices, the Australian Dollar finally saw broad gains in Asian trading today. As reported at 4:41 pm in Sydney, versus the U.S. Dollar, the Australian Dollar rose to $.9193, a gain of .5% from Friday’s New York trade of $91.47. Against the Yen, the Australian Dollar traded at 81.70 Yen, a .5% rise and the first increase in six days. The New Zealand Dollar also rose against the greenback, trading at $.7269, a gain of .4%; versus the Japanese Yen it rose to 64.60 Yen.

Speculators continue to believe that, given the rebounding economy in Australia, the Australian Reserve Bank will have no choice but to raise key interest rates next week, for the third month in a row. The benchmark interest rate in Australia currently stands at 3.5% and in New Zealand, the rate is 2.5%. Both rates are among the highest of developing nations, attracting investors with their higher-yielding assets. In the United States, the benchmark rate remains at a historic low of zero and is expected to remain there until the economy sees a more sustained renewal.

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The Euro has actually managed to clear out our yearly target of 1.4500 and has now taken hold of the 1.4600 level and possibly looking for higher prices. Renewed optimism was reinforced by a string of positive Chinese data which showed clear signals of the global economic recovery. However, there still remain worries over the pace of recovery; something that can be seen expressed in the Yen pairs.

The Dollar by itself is under a questionable umbrella having to finance major budget deficits, as well as the skepticism over the quality to continue as the World’s reserve currency. As the recovery continues to gain traction, investors will have no choice but to continue shifting their risk averse portfolios for the search of higher yield. However, as mentioned by many Central Bankers the recovery may be slow and bumpy.

Ahead, the economic calendar will be rather light with no major news announcements. Traders will look at the latest preliminary consumer sentiment reading as well as the import prices data.

Looking at the 4hour chart, EUR/USD rose to an intraday high at 1.4627 where it found supply and encounters strong resistance points. Negative sentiment towards the USD continues to play a big role in the currency markets and the outlook remains bullish for the pair. It’s not a Euro strength story… rather a pessimistic outlook towards the USD.

“A continuation of stabilizing data will lift risk appetite which in turn will keep the pair well supported. China has reiterated once again that it will “absolutely” maintain its stimulative fiscal and monetary policies until a stable economic recovery is achieved.”

The bias in the near term is bullish with preferred strategy is to buy on dips. The bounce off the 1.4504 level suggests their is strong demand near that level where an entry order could be placed.

Initial resistance can be found at 1.4627, followed by stronger levels at 1.4720 and 1.4857. Next strong support comes in at 1.4544, where a break of such would target subsequent levels at 1.4504 followed by 1.4468. Wall street performance will be key in today’s trading.

Trading levels in play:

*Data is canceled if the consumer sentiment reading is below expectations. If so entry order could be moved lower to 1.4468 or 1.4425. Be cautious as Friday’s are known for retracements.

Limit Buy @ 1.4504 Targets: T1 1.4534 – T2 1.4700 Risk: 1.4460
* After 15 pips profit move stop to entry, take profit at will. Trade is canceled if it rebounds near entry and moves higher by 20 pips. Comments will follow if outlook changes.

The Pound continues to strengthen on renewed optimism over the economic recovery as well as gaining support after the BOE announcement did not include an expansion of QE measures. In addition, the GBP/USD is rising further as concerns over the Dollar intensify. Skepticism in the quality of the USD World’s reserve status and concerns in the U.S. having to finance major budget deficits has kept the Dollar under pressure.

Looking at the 4hour chart, GBP/USD spiked above the 1.6700 handle to reach a fresh 1 month high at 1.6740. The bias is bullish in the near term with preferred startegy to buy on dips. Wall Street performance will be monitored and key in the pair’s next move.

Above 1.6700, GBP/USD is encountering strong levels of resistance at the 1.6740 followed by 1.6809 and 1.6908. Initial support can be found at 1.6666, followed by stronger levels at 1.6580 and 1.6500.

Trading levels in play:

Limit Buy @ 1.6558 Targets: T1 1.6595 – T2 1.6835 Risk 1.6498.
* After 20 pips profit move stop to entry, take profit at will. Comments will follow if outlook changes

Previous session overview

The dollar remains under pressure if off earlier intraday lows Friday, after a flurry of strong economic numbers from China overnight gave a further lift to risk appetites.

The latest Chinese data on industrial production, retail sales and lending were all beyond expectations, developments which helped the Shanghai Composite Index to rally 2.0% and the price of gold to rise back to around the USD1,000 per ounce mark.

For foreign exchange, the news also contributed to fresh multi-month U.S. dollar lows against the euro and the yen, although a pre-weekend tendency toward position-squaring has limited the dollar’s losses and enabled it to recover modestly off its weakest levels of the day.

The yen’s gains have come despite some discouraging economic developments in Japan, as the country’s second- quarter GDP growth was downgraded to 0.6% from 0.9%, a factor that helped to ensure that the Nikkei Index lost 0.7% on the day.

Market expectation

EURUSD continues to orbit a narrow range around USD1.4600 area with flows described as light, traders suggest that many want to participate but are either waiting for the dip or waiting for the break. Overnight high area at USD1.4628 still said to hold supply after the push higher was rebuffed, stops positioned above. Bids back at USD1.4570 with stops positioned below. Euro last at USD1.4590.

USDJPY holds near JPY91.00 area as it maintains its rebound level after seeing European hour’s lows at JPY90.69 after a swath of stops were flushed on the break of JPY91.00. Rebound got an assist from vigorous dollar buying out of Tokyo, traders say, adding Japanese retail accounts to the earlier talk of semi-official buys off the low. Bids expected in the JPY90.75/80 area, further down to JPY90.60 with barrier strike noted at JPY90.50 and JPY90.25, stops positioned below each.

Currency watchers believe that the yen’s recent strength is less a product of fundamental developments than of factors like repatriation flows into Japan at the end of the fiscal half-year there, as well as due to persistent dollar weakness as a result of the ongoing portfolio asset shift.

In traders view, the USD is really working hard at bottoming; volatility has been high and official interest is actively buying. With sentiment and technical’s very oversold USD is primed for a strong rally; at least to correct the oversold condition. Look for profit-taking by the shorts to end the week, today’s US data may be the catalyst.

The U.S. Import Price Index increased 2.0% in August, the U.S. Bureau of Labor Statistics reported Friday. Data was above market consensus of 1.0% and the previous report in July of -0.7%

The increment in price was driven primarily by a 9.8% advance in fuel prices. Excluding fuel, prices for imports increased 0.4 % in August following a 0.2% decline the previous month.

Related Stories

“U.S. import prices spiked 2 percent in August as the cost of oil rose, the Labor Department said on Friday,” Reuters reported.

“The increase, twice what analysts polled by Reuters had expected, was the fifth rise in the last six months. It followed a July drop of 0.7 percent.”

Full Story – Via Reuters