subject: Latest Forex outlook & Recommendations [print this page] Latest Forex outlook & Recommendations Latest Forex outlook & Recommendations
Tuesday, Mar 01, 2011
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EUR/USD:Fed Chairman Ben Bernanke will likely indicate the course of monetary policy at today's Senate Banking Committee testimony. Given NY Fed President William Dudley's statement that the US central bank is still far from its dual mandate of maximum sustainable employment and price stability, market participants expect Bernanke to suggest a continuation of the present QE measures. Thus, according to some commentators, traders would also expect the US dollar to weaken further, as the Fed's easing program runs contrary to other central banks' present stance. In contrast, arguments for a return to US dollar strength tend to depend on a more convoluted chain of events, e.g., higher oil prices will tip inflation, leading to tighter monetary policy and weakening growth in the emerging markets. Then Germany's exports would fall, leaving it up to the eurozone to make up for the economic slowdown. To facilitate this, the ECB would have to ease monetary policy and as a result the dollar would rise. Someday the dollar might simply rise from long-term demand. We learned yesterday that China holds 30 percent more US Treasuries than was previously thought. Nevertheless, neither scenario argues for purchasing dollars immediately. The probability of a desired outcome decreases with every additional variable in a chain reaction. Day traders will likely attempt to sell the euro ahead of the year-high at 1.3865, but we remain in a euro-bullish strategy to target 1.4030, with a risk-limit at 1.3660
USD/JPY:Of all the luck, Japanese importers reportedly bought the dollar on high' and helped it rally 60-pips in overnight trading. The good luck for short-term traders is that they were probably on the right side of the rally; at least that's what the TFX margin data suggests. At the end of last week long positions in the USD/JPY hit a record-high $2.94bn, because they probably overestimated the US dollar's safe haven status following the events unfolding in the Middle East. The entry price levels of those engagements likely lie above the current market price, and all the short-term traders can do about it is sit and wait and cheer small moves that go their way. Stranded positions wait at 82.55 and at 83.20 (neutrality point), but the risk still extends to 81.20 and, below there, even to 80.60.
GBP/USD:Admittedly, the news pertaining to the pound was thin yesterday, but in contrast to the rest of the financial community cable traders chose to focus on the political scenario evolving between North and South Korea. At least the tension argued in favor of a heightening risk-aversion, but the pound nevertheless rallied on the back of a small short squeeze. There still is a potential for gains to 1.6340 and even to 1.6500, as long as the support at 1.6160 remains in place.
