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Dollar Traders Reevaluate Ahead Of A Busy Coming Week

Moving ahead at a slow yet unrelenting pace, the EURUSD put in a new two-year high in the London session at 1.3640 before reining in momentum and pulling back to 1.3585. A rebound in the carry trade helped boost USDCHF 55 points to 1.2090. On the same bump in sentiment, the Japanese yen gave back more of its big gains won over the past three sessions. In the overnight, USDJPY crossed back above 118.50 and worked its way back up to 119 as the US crowd took control. Finally, GBPUSD was won top prize for volatility among the majors. From a modest overnight range, the pair rallied 50 points to 2.0070 before taking a tumbling spike low to 1.9990.

The economic calendar was completely devoid of market-moving indicators Friday morning, leading fundamental and event-risk traders to make their trades off of exogenous factors. Risk aversion was clearly a factor that was affecting markets the world over. On Thursday, Chinese officials stoked fears of a global liquidity crunch when they delayed first quarter GDP and inflation data until local capital markets closed. Growth of 11.1 percent and an inflation rate at two-year highs, led the international investment community to expect rate hikes that could hold repercussions for equity and debt markets around the world – a testament to the interconnectivity of global markets. However, most of these fears were relieved when traders flooded back into Asian equities. The highs and lows of risk aversion had little direct effect on the dollar since its title as the world's reserve currency has slipped in the past few years. This change was clearly seen in the rebound in the preferred carry trades. Both USDJPY and USDCHF marked tame rebounds through the session.

Back in the US, dollar traders were taking in speeches from Treasury Secretary Henry Paulson and the Fed's Mishkin. Paulson's meeting was the more important one in terms of currency market impact. Speaking at a conference on China, the Treasury Secretary had to step carefully in light of the trade restrictions the US Commerce Department imposed on the Asian giant a few weeks ago and the subsequent words of discontent from Chinese officials the tax provoked. Going through his commentary, there was little in the way of disruption or a shift from the policy that he has cultivated since accepting the position in Washington. Mishkin on the other hand, doused the dollar somewhat. The Board of Governor member said in his speech on the US economy that he expects inflation to cool to 2.0 percent in the next few years.

Relief rallies in Asian equities spelled the same for the benchmark indices in the US. The momentum couldn't have come at a better time for bulls who are now pushing the market to record highs. By 14:45 GMT, the Dow was leading the pack with a 0.92 percent rally 12,926.47, just below the intraday high that marked a new record earlier in the morning. At the same time, the NASDAQ Composite was up 0.79 percent at 2,525.21 while the S&P 500 Index grew 0.74 percent to a new six-and-a-half year high 1,481.57. Amid the rally, a number of Dow components reported considerable moves on otherwise modestly better earnings numbers. Shares of Caterpillar surged $3.47 or 5.1 percent to $72.09 after first quarter earnings per share rose to $1.23. Also beating Wall Street's projections, American Express' earnings numbers pushed shares $1.50 or 2.6 percent higher to $66.55.

Treasuries were weighed down Friday morning as fears over a Chinese-led sell off in global equities were relieved by rallies. The ten-year note was only 4/32nds lower at 99-18 with a yield 2 basis points higher at 4.680 by 14:40 GMT. Thirty year bonds were 9/32nds off the open at 98-13 while yields rose 2 basis points to 4.851.

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Australian Dollar May Rally To New Highs As Rate Speculation Heats Up

Producer Price Index (QoQ) (1Q)
Previous: 0.2%
Expected: 0.6%

Producer Price Index (YoY) (1Q)
Previous: 3.5%
Expected: n/a

How Will The Markets React ?

Hawkish speculators will be looking for Australia's producer inflation numbers to snap their steady declines in the first quarter report Monday morning in Sydney. As of Friday evening, the market offered a consensus of a hotter 0.6 percent boost in prices paid to producers over the first three months of the year. At the same time, the more significant year-over-year measurement is still up in the air - engendering a heightened sense of event risk among the investment community. The annual inflation number is used by the Reserve Bank of Australia to set interest rates; therefore, guidance for its outcome comes at a premium. From the component breakdown of the previous quarter's inflation report, cooling energy prices had handily offset price growth in the building and auto sectors. For the first quarter, oil prices bottomed out mid-January at lows not seen since May of 2005. From that point though, energy costs rallied back through the end of March. For the auto and building group, the supplementary data is less clear. However, housing applications surged 10.6 percent in February, the most since August of 2003. What's more, consumers clearly eased their purse strings over the opening months of the year, possibly allowing producers to float higher costs down the supply chain. For another angle on Australian inflation, a strong correlation to New Zealand may prove useful. Though the New Zealand statistics bureau has not released its own producer price report, its consumer gauge accelerated 0.5 percent on the quarter but actually slowed from 2.6 to 2.5 percent year over year. Looking ahead to Monday morning's number, a strong PPI may not necessarily generate enough optimism to drive government yields and the kiwi dollar through resistance. However, it could very well build pressure behind a move as traders prepare themselves for the consumer price index due just 24 hours later.

Bonds -10- Year Australian Government Bonds

Yields on the benchmark 10-year government bond have rallied steadily since the beginning of March as a steady flow of strong economic indicators spurred speculation that another rate hike could be on the horizon to cool the economy. On the other hand, growth is only one half of the RBA's equation. Inflation - the more vital component to policy decisions - will offer its first official read for 2007 with the producer price index for the first quarter. While the factory-level inflation gauge will not likely ensure a shift in rates on its own, it will be useful in guiding last minute speculation for the consumer report. Handicapping the PPI number in bond price action, even a strong number would not likely drive yields above 6 percent. However, it would pull them right to the cusp to allow CPI the honor.




FX - AUD/USD


The Australian dollar continues to threaten 16.5 year highs just above .8400 as traders consider the possibility that the Reserve Bank of Australia will raise rates to 6.50 percent at their next monetary policy meeting. The release of the Producer Price Index is anticipated to rise 0.6 percent in the first quarter, indicating that inflation at the factory gate is starting to accelerate. As a result, markets may speculate that the increased costs have seeped into consumer prices as well, ramping up the risks for a hot CPI number the next day. This CPI figure could be make or break for the Australian dollar, as a strong release may easily bring the central bank to hike their benchmark. Accordingly, a sharp gain in the Producer Price Index would nudge the Australian dollar higher. On the other hand, signs that the release of consumer price readings will be tepid, which would subsequently diminish expectations that the RBA will leave rates at 6.25 percent, could start to drag AUDUSD lower.




Equities - ASX 200 Index


Australian equities closed 42.4 points higher at 6,207.50 as fears subsided that any move by the Chinese central bank to cool economic growth will impact commodity prices. BHP Billiton gained 23 cents to AU$29.85 while rival Rio Tinto gained 87 cents to AU$83.42. Banks gained as well, despite concerns that the Reserve Bank of Australia will raise interest rates, with ANZ up 31 cents to AU$31.21, while NAB gained 29 cents to AU$43.70 and Westpac increased 25 cents to AU$27.35. However, the ASX 200 could turn off the recent highs as the release of the Producer Price Index is anticipated to rise in the first quarter. With inflation at the factory gate slowly mounting, the increased costs may have seeped into consumer prices as well, increasing the risks for a hot CPI number the next day. This could be a make or break figure for many markets, including equities, as a strong release may easily bring the Reserve Bank of Australia to raise rates at their next policy meeting. On the other hand, tepid consumer price readings and subsequent expectations that the RBA will leave rates at 6.25 percent could bring the ASX 200 to rocket higher through 6,236.90.

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Euro and Dow Hit Record Highs: More to Come

• Euro and Dow Hit Record Highs: More to Come
• Yen: Carry Traders are Not Giving Up Just Yet
• Canada and New Zealand Not Expected to Raise Rates

Next Week:

US Dollar

Led by the US dollar, it has been a record setting week in the financial markets. Today, on a closing basis, the dollar sunk to an all-time low against the Euro (the 1.3667 EUR/USD high is an intraday record), a 26 year low this week against the British pound, a 25 year low against the New Zealand dollar and a 16 year low against the Australian dollar. We also saw the Dow Jones Industrial Average hit a record high with the index ending the week 60 points shy of 13,000. The weakness of the US dollar has made US stocks exceptional values for foreign investors at a time when earnings by US companies are solid. According to Thomson Financial, of the companies in the S&P500 that have already reported earnings, 61 percent have beaten expectations, 19 percent have matched forecasts while only 15 percent disappointed. If this trend of earning releases continues, it will reassure both foreign and domestic investors that the odds for a recession are extremely low. The bulk of the US data released this past week still indicates that the economy is stable with housing starts increasing and consumer spending rising. However the week ahead brings for us a potential turn in the currency markets especially since many of the currency pairs have become severely overbought. We are expecting durable goods, consumer confidence, existing and new home sales along with first quarter GDP. Most of these pieces of US data are expected to be dollar positive. Yet, the US data will not be the only catalysts for a turn since the main driver of market activity over the past few weeks has been yield. We have rate decisions from Canada, New Zealand and Japan along with inflation figures from Australia. If currency traders have any reason to question the timing of rate hikes, the records hit this past week could mark a top in both the currency and equity markets


Euro

The lack of concern that Eurozone Finance Ministers have for the current level of the Euro sent the EUR/USD to a record high on a closing basis. Despite the potential drag that the strong currency has on the export sector and overall growth, the Finance Ministers were more focused on the beneficiary impact that a rising currency has on inflation. They felt that barring any unexpected contraction in global growth, the economy would be able to handle a stronger currency. Although economic data has been solid with French consumer spending doubling expectations this morning, we remain skeptical about how much longer the Eurozone can grow at its current pace as we remember that the peak in late 2004 / early 2005 was triggered by a series of back to back disappointments in Eurozone data. Until we see these disappointments however, the Euro could continue to rise. Part of this will be contingent upon the German IFO report next week. The rally in the Euro has been driven by the market's expectation that the ECB will raise interest rates as early as next month. Should the IFO report disappoint, the ECB may delay a rate hike until June, which could trigger a near term top in the EUR/USD. Aside from the IFO we are also expecting consumer price releases from Germany, Eurozone current account, industrial orders, and retail PMI. French elections are this weekend as well. Results will start coming out Sunday night. A victory by Sarkozy could be short term bearish for the Euro. Read more about this in our special report, What Could the April 22 French Election Mean to the Euro . Meanwhile Switzerland reported slightly stronger producer prices in the month of March. Even though the monthly pace of growth remained unchanged, the annual pace rose from 2.2 percent to 2.4 percent. In the week ahead, we are expecting the UBS Consumption Index and KoF leading indicators.


British Pound

After hitting a 26 year high on Wednesday, the British pound has been struggling to hold above the psychologically important 2.0 level. For the first time this week, we had disappointing UK economic data. Retail sales fell short of expectations, with consumer spending rising by only 0.3 percent in the month of March. Even though, sales in the month of February were revised higher, this inkling of weakness was enough to tempt GBP/USD bulls to take profits ahead of the weekend. Overall the UK economy remains strong and we do not believe that the latest piece of UK data will alter the Bank of England's plans to tighten monetary policy again this year. Bank of England Governor King was on the wires this morning confirming that the central bank is “absolutely determined” to bring inflation back down to 2 percent. He went on to say that they will stop until they see a peak in consumer prices - comments from a central banker do not get much more hawkish than that. The UK calendar is just as busy next week as it has been this past week. We are expecting more housing data, money supply, CBI industrial trends and the first release of first quarter GDP.


Japanese Yen

Even though the Japanese Yen crosses were the most volatile currency pairs over the past few days, they essentially ended the week unchanged. Sharp intraday reversals indicate that carry traders are not ready to give up, but at the same time, any one who wants to be long probably already is. The Yen pairs and to some degree the Dow as well, is once again moving in lockstep with the Chinese stock market. The Shanghai stock market recovered overnight and we saw the same type of recovery in both the Dow and USD/JPY. Yen traders should keep an eye on China for any fresh attempts to cool the economy. The Yen should remain the market's focus in the week ahead with trade balance, CPI, unemployment, personal income, household spending, industrial production, and retail sales data due for release. The Bank of Japan also has a rate decision scheduled, but no changes are expected.


Commodity Dollars : AUD, NZD, CAD

The rebound in the commodity currencies today is clear evidence that the market is still hungry for yield. Australian economic data was mixed with leading indicators rising in the month of February, but import prices falling 1.7 percent in the first quarter. New Zealand also reported a 1.0 percent drop in visitors in the month of March. Canada on the other hand continues to perform strongly. Retail sales jumped 0.1 percent in February, which compares to the market's forecast for a 0.2 percent drop. Looking ahead, the marquee events on the calendar next week are the Australian inflation figures, and the Bank of Canada and Reserve Bank of Australia interest rate decisions. No changes are expected from either central bank, but the market is looking for hawkish comments.

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دولار - فرنك
بيع
الاسباب موضحه بالتشارت

1- ترند هابط على الدايلى


2- ديفرجنز

3-مقاومه حد علوى للقناه الصاعده+ 38 فيبو+ متوسط 200على الساعه و 55على الاربع ساعات

4- تشبع شراء فى ترند هابط

نقطه الدخول 1.2100-1.2110
هدف اول الحد السفلى للقناه متوافق مع ترند مكسور
هدف تانى بعد كسر الحد السفلى 1.200
ممكن يكون الدخول فى حاله عدم الوصول الى 1.2100 الدخول بعد الكسر عند 1.250 والهدف 50 عند 1.2000
تحياتى للجميع سليل عائله دعبس

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Do Candlestick Charts Work on Forex Charts

The limitations of candlestick patterns in Forex

The quick answer is both "Yes" and "No".

Candlestick charting was first developed by Japanese rice traders and can be traced back several hundred years in the 18th century. According to Steve Nison, candlestick charting first appeared sometime after 1850. Much of the credit for candlestick development and charting goes to a legendary rice trader named Homma from the town of Sakata. It is likely that his original ideas were modified and refined over many years of trading eventually resulting in the system of candlestick charting that is used today.

In general Candlestick charting developed in the futures and stock markets and thus many of the patterns or techniques are suited more to these markets. Many still claim that Candlestick charting can be applied to the Forex market but there are limitations when the technique is used in Forex charts.

Why is this the case?

Well, the most obvious difference between futures and stock markets compared to the cash Forex market is the fact that the former two are session based and only trade for specific time periods during the day. The cash Forex market on the other hand is a 24 hour market and runs for just over 5 days beginning in New Zealand on Sunday evening and runs through to New York close on Friday.

The impact of this difference has a marked impact on the range of Candlestick patterns that can be applied to the Forex market. A large number of Candlestick patterns are based on the relationship of the prior bar's closing price and the new bar's opening price. In the futures and stock market these are frequently totally different as prices gap over a closing period in particular. It is even possible for these markets to see a day's range gap up higher on one day and then gap down lower the next to leave no overlap of the bars.

This just does not happen in the Forex market. The most that does occur is that Monday's open is different from Friday's close and can cause a gap. It doesn't occur that frequently though.

From that perspective it will mean that many Candlestick patterns just simply do not occur in Forex.

So what are the patterns that can be seen in Forex?

A simple response is "all those patterns that are not based on prices gapping."

A list of these are:

Reversal Patterns:

• Hammer & Hanging Man
• Bullish & Bearish Engulfing
• Bullish & Bearish Harami
• Bullish & Bearish Harami Cross
• Inverted Hammer & Shooting Star
• Three White Soldiers & Three Black Crows
• Advance Block
• Three Inside Up and Three Inside Down
• Three Stars in the South
• Stick Sandwich

Continuation Patterns:

• Rising Three Methods & Falling Three Methods
• Bullish & Bearish Three Line Strike

Ian Copsey
Global Forex Trading

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Currency Speculations

Australian Dollar Upfront -Revisited

by Mihai Nichisoiu



The way some of the Australian Dollar cross pairs have been moving in latest days was somewhat more 'erratic' than I had expected - but at the same time I know one of the biggest mistakes for a trader is to consider the future course of the market must automatically follow some pre-established technical or fundamental set of principles.

If at least half of the elite hedge-fund managers most probably suffer from the Icarus syndrome, my greatest concern is that at some point I may begin to think that, based on certain, re-ocurring technical or fundamental factors, I already know what, where and when action will happen. This is why I am becoming nowadays increasingly more apprehensive about saying I use technical analysis, and increasingly more comfortable saying I only use charts.

The Australian Dollar cross pairs continue to attract my observing interest to a very significant extent (the GBP/AUD in particular). The current image in these pairs strongly resembles what I had been eyeing immediately prior to introducing my January 22 letter to clients with a bullish call on the EUR/AUD.

As a note of curiosity, a strong similarity could have been noted during the latest weeks, in the shape of price action, daily chart wise, between the AUD/JPY and the AUD/CHF. A similarity which I think will continue as long as the carry-trade remains the market's prevalent theme.

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Forex Weekly Review and Outlook

Focus Turning to US Growth Data after a Record Breaking Week

Sterling stole the show last week by riding on strong inflation data and speculation of two more rate hike and rose to 26 years high against dollar. The Japanese yen had a roller coaster week on G7 and risk aversion, making new record low against Euro and multi year low against Aussie but ended the week almost flat only. Dollar remained weak across the board, in particular after tame core inflation while Euro rode on dollar's broad based weakness and edged further closer to its 04 high. After an eventful week with lots of themes affecting the market, focus will now turn to growth data from US, in particular Q1 GDP.





The most important economic data released from US last week was the CPI inflation data which saw headline CPI accelerated to 2.8% yoy in Mar. However, core CPI's down trend resumed by falling further to 2.5%. Note that core CPI peaked last Sep at 2.9% and dropped to 2.6% in Nov and Dec. Subsequent rebound to 2.7% in Jan and Feb caused much concern among Fed members that inflation won't moderate as they expected. Recall that the FOMC members are uncertain towards the risks of growth and inflation and hence the language of the last FOMC statement was changed from "additional firming" to "future policy adjustments" to reflect the possibility of both a raise and a cut. Further moderation in core CPI will certainly solve one side of the puzzle and put the focus on the other side, i.e. growth.

Other data from the US were mixed with headline retail sales and ex-auto sales rising more than expected by 0.7% and 0.8% respectively in Mar. Feb's data was also revised up to 0.5% and 0.4% respectively. TIC capital flow also came in higher than expected at $94.5b in Feb. Housing starts rose slightly from 1.52m in Mar, thanks to downward revision of Feb's data from 1.525m to 1.506m. However, industrial production missed expectation by dropping -0.2% and Philly Fed index also came in below consensus at 0.2.

Data from Eurozone were generally solid, in particular with Germany ZEW economic sentiment improving remarkably to 16.5 in Apr, beating all market expectations. Mar Eurozone HICP was revised higher to 0.7%. Feb trade deficit narrowed more than expected to -1.8b. Though, German HICP and PPI both missed expectation.

The Japanese yen has a roller coaster ride last week. Yen initially weakened across the board, in particular against high yield commodity currencies as carry trade is back in play after G7 didn't comment specifically on yen's weakness. EUR/JPY also made new record high after Dutch Central Bank Governor Nout Wellink who said in an interview that "a strong euro is in the interest of Europe" which seems to be an endorsement of Euro's strength against dollar and yen. However, the yen fought back on risk aversion buying. China's stronger than expected GDP and CPI data prompted speculation that PBoC will raise rate to cool the economy and triggered sell off in China stock market. Yen was additionally supported by speculation that BoJ will raise interest rates again in May, in particular after strong data which showed Japan's tertiary sector index increased by 1.0% mom in Feb, much better than forecast of -0.4% drop. Though, risk aversion buying quickly faded as stock markets stabilized towards the end of the week.

Sterling was boosted higher early in the week after stronger than expected PPI inflation which saw PPI input accelerated to 0.7% yoy and PPI output accelerated to 2.7% yoy and suggests that pipeline price pressures remains stronger and are on the rebound. Sterling's rally was further fueled by surprisingly strong CPI data which accelerated further to 3.1% yoy rate. GBP/USD soared to new 26 years high of 2.0132, breaking 92 high of 2.0106. One must note that this is the first time CPI broke the 1% band from BOE's 2% target since the bank was made independent a decade ago. By the Bank of England Act, BoE Governor King is required to write an open letter to Chancellor Brown to explain the deviation in CPI.

In his letter, King said that part of the CPI's rise to 3.1% was due to unexpectedly sharp increase in domestic energy prices and rise in food prices caused by a weather-induced global reduction in supply. Also, some of the risks identified by the MPC have started to materialize and those include rebound in spending, continuing rapid growth of money and credit as well as increased capacity pressured.

Also, King downplayed the significant in last week's data as he emphasized that the MPC will continue to "look through the short-term volatility in inflation" which resulted from "fluctuations in domestic energy prices". "At first sight, news seems unlikely to alter the broad picture painted in the February report". He indeed expects CPI to fall back within a matter of months and fall to a little below the 2% target by the end of this year, before settling around the target during the following year.

However, the markets may have another view. Firstly, markets have now priced in a May hike as a done deal. Secondly, markets also expect that one or even two more rate hike beyond May is needed to really bring CPI back to BoE's target rate of 2%. Focus will now turn to BoE's Inflation Report to be released on May 16 and May's MPC meeting minutes where full analysis of the current inflation outlook will be included. Attention will be on how BoE will adjust the inflation forecast and thus provide more solid information on how much more tightening is needed from BoE.

Data from the UK were solid with Claimant Count dropped more than expected by -9.2k. ILO unemployment rate remained unchanged at 5.5% in Feb. More importantly, average earnings growth accelerated much more than expected to 4.6% in Feb, beating expectation of 4.3% and being the fastest growth since Mar 04, indicating that wage inflation pressure remained high. Retail sales in UK rose less than expected by 0.3% mom in Mar but the yoy rate was boosted higher to 4.8% by strong revision in Feb's growth from 4.9% to 5.1%. BoE meeting minutes revealed that April's decision to keep rate unchanged at 5.25% was decided by a 7 to 2 vote with Tim Besley and Andrew Sentence voted to raise rate by 25bps. This voting is slightly more hawkish than consensus expectation which expected one would vote for a cut. Though, Sterling reacted little to these data as GBP/USD retreated mildly towards the end of the week on profit taking after making the new 26 year high.

Canadian dollar extended rally against the greenback after solid data from Canada. CPI increased 0.8% mom, 2.3% yoy comparing to expectation of 0.7% and 2.2% in Mar. Core inflation increased 0.3% mom, 2.3% yoy, remaining above BoC's target of 2%. Wholesale trade in Canadian rose 0.8% mom, better than expectation of 0.1%. Headline retail sales beats expectation by growing 0.1% mom while ex-auto sales impressively growth 1.0% comparing to consensus of 0.2%. There is no pressing need for BoC to cut rates. New Zealand CPI was a touch below expectation and increased 0.5% qoq, 2.5% yoy in Q1. But it has little impact on the expectation of a near term rate hike from RBNZ, probably in June, and Kiwi was also supported by carry trades.

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The Week Ahead

Focus will be turning back to growth data from the US this week. Last week's moderation of core CPI is easing the FOMC members' "predominant' concern that inflation wont' moderate as expected, thus slightly reducing the odd of a raise. Continuous moderation will solve one side of the equation of "uncertainty in outlook of growth and inflation". If growth data remained solid, fine, FOMC will be on hold. However, deterioration in growth data will likely restart the speculation that the next move from Fed will be a cut. Dollar is already facing much pressure as ECB, BoE and RBA are all expected to continue tightening as Fed remains on hold. Further pressure will be seen in dollar if market starts to speculate for a cut.

Having said that, Q1 GDP data from US on Friday will be very crucial to dollar's trend. Of course, Fed's preferred gauge of inflation, the core PCE deflator, will be closely watched to see whether it agrees with the core CPI data too. On Wednesday, Durable Goods Orders will also be eyed to see whether capital spending continues to slow down. Other important data from US include Chicago Fed survey, Conference Board Consumer Confidence, Existing Home Sales and New Home Sales, Fed's Beige Book.


From Eurozone, result of French election will be the first feature of the week but Germany Ifo business climate will be the main focus. The index defied expectation, reversed a two months declined and improved to 107.7 in Mar and is expected to remain steady in Apr.

While there are speculations of a May hike from BoJ, the key will remain on whether the Japanese economy continues to show improvements. Hence, this week's data including CPI inflation, household spending, industrial production and retail sales in Japan will be important to provide solid case for the hike, or hold.


For the commodities, Q1 CPI data to be released from Australia this week. It is believed that RBA has postponed an Apr hike and wait for the Q1 inflation report to confirm the need first. Hence, this inflation data will be closely watched to validate the speculation of a May hike from RBA. Meanwhile, both BoC and RBNZ will meet this week for rate decision. BoC is widely expected to keep rates unchanged at 4.25%. RBNZ is also expected to keep rates unchanged at 7.5% but may signal another hike in June

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EUR/USD

EUR/USD's up trend continued last week by breaking to new two high of 1.3636, just 32 pts below 04 high of 1.3668. The development is inline with our view that medium term up trend from 1.1639 is still in progress for 1.3668. However, upside momentum is seen diminishing as seen in the bearish divergence condition in 4 hours MACD and RSI. Hence, a short term top should be around the corner. But a break of 1.3558 minor support will encourage pull back towards short term rising channel support (now at 1.3435). Otherwise further rally should still be seen.

In the bigger picture, medium term up trend from 1.1639 is treated is interpreted as having first move completed with three waves up to 1.2978, subsequent sideway consolidation completed at 1.2483. Rise from 1.2483 is treated as resumption of the whole up trend from 1.1639 and is set to retest 1.3668. With such interpretation we'd expect risk of medium term reversal to increase significantly as EUR/USD enter into resistance zone between 1.3668 and 100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822. Hence, focus will then be on reversal signal.

On the downside break of 1.3406/10 support will indicate that the rise from 1.2865 has completed and deeper decline should then be seen to 55 days EMA (now at 1.3301). More importantly, this will be the first warning that the rise rally from 1.2483 has completed, and thus, so is the whole up trend from 1.1639. Focus will then be back to medium term rising channel support (now at 1.2935).

In the longer term picture, it's still early to conclude whether medium term rally from 1.1639 represents resumption of multi-year up trend from 0.8223 or just part of a large scale consolidation that started at 1.3668. But, the three wave corrective nature of the rise from 1.1639 to 1.2978 suggest that this whole rally from 1.1639 will be corrective in nature, thus, favoring the latter case. And therefore, as discussed above, focus will be on reversal signal when EUR/USD enter into resistance zone of 1.3668 (04 high) and 100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822. But sustained break of this resistance zone will path the way towards 95 high of 1.4523.

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GBP/USD

Cable's rise from 1.9183 extended further last week and rose sharply to as high as 2.0132, making new 26 years high. However, retreat from 2.0132 has dragged 4 hours MACD below signal line, suggesting a short term top is already formed at 2.0132. Hence further pull back is in favor towards 1.9877 support. as long as cable stays below 2.0095 minor resistance. Break will put short term rising channel support (now at 1.9780) in focus. On the upside, above 2.0095 minor resistance will indicate correction from 2.0132 has completed and bring retest of this high.

In the bigger picture, we'd like to point of that risk of medium term reversal is increasing. Firstly, the whole up trend from 1.7047 is not clearly impulsive. One interpretation is that rally from 1.7047 ended with three waves up to 1.9024. Subsequent correction ended at 1.8090. Rally from 1.8090 has already met mentioned target of 100% projection of 1.7047 to 1.9024 from 1.8090 at 2.0067. Secondly, regardless of the larger trend, rise from 1.8090 can be interpreted as being a five wave sequence with first wave ended at 1.9142, second at 1.8517, third at 1.9913 and fourth at 1.9183. The channeling property supports this interpretation too. In such case, the fifth wave rally from 1.9183 has also met target of 61.8% projection of 1.8517 to 1.9913 from 1.9183 at 2.0046 too. With bearish divergence condition remains in weekly RSI and Daily MACD and key 2.0106 resistance (92 high) not decisively taken out, cable could be forming a top at the current price level.

On the downside, break of 1.9723/26 support will warn that the rise from 1.9183 has completed and put rising channel support (now at 1.9402) back into focus. Firm break of the channel support will indicate that the whole rally from 1.8090 has completed and add much credence to the case that an important medium term is already formed and put focus to 1.9183 low. However, a strong break of mentioned 2.0106 resistance will dampen the above interpretation and indicates that underlying bullishness in cable is much stronger then we thought. Further medium term rally should then be seen towards 61.8% projection of 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05 low) at 2.0677.

In the longer term picture, the break above 1.9554 resistance (04 high) is favoring the case that long term up trend from 1.3680 has resumed after correction from 1.9554 was supported by 55 months EMA. However the structure of the medium term rise from 1.7047 is not clearly supporting this yet. And, we're still skeptical on it. The structure of the fall after finishing the current up trend from 1.7047 should reveal more information. But a strong break of mentioned 2.0106 resistance indicate add much favor to the case that multi year up trend from 1.3680 has resumed and hence should bring rally to next target of 61.8% projection first.

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USD/CHF

USD/CHF weakened to 1.2001 last week but failed to stay firmly below mentioned 1.2029 cluster support (78.6% retracement of 1..1878 to 1.2571 at 1.2026) yet and rebounded towards the end of the week. Though, it's not very convincing, the fall from 1.2282 is tentatively treated as resumption of decline from 1.2571 first since daily MACD is dragged below signal line and stays in negative zone. Hence, even though further recovery could still be seen, upside should be limited by 1.2150 resistance and bring fall resumption. Break of 1.2037 minor support will encourage a retest of 1.2001 low and bring will bring further decline towards 1.1878 low. However, break of 1.2150 resistance will indicates that consolidation from 1.2029 is still in progress and further rebound towards 1.2282 should then follow.

In the bigger picture, medium term outlook remains bearish with USD/CHF staying below both 55 days EMA and 55 weeks EMA. Daily and weekly MACD are both still staying negative, supporting this view too. The preferred interpretation at this point is that the whole down trend from 1.3283 is still in progress with the first move from 1.3283 finished with three waves down to 1.1919. Subsequent rebound to 1.2768 was the interim correction and price actions from there represent resumption of such down trend. Further decline should be seen to 1.1878 low and sustained break will add more credence to this view and bring further medium term weakness towards 100% projection of 1.3283 to 1.1919 from 1.2768 at 1.1404.

However, note that USD/CHF is still bounded in wide range of 1.1878 to 1.2768. A rebound to above 1.2354 resistance will dampen this view and indicate that the fall from 1.2571 has completed after meeting 1.2027 fibo support. Another rise could then be seen to retest this high and then the upper end of the range at 1.2768.

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USD/JPY

It was a volatile week for USD/JPY but after all the roller coaster ride, USD/JPY ended the week inside previous week's range. As discussed before, a short term should be formed at 119.86 after rise from 115.13 failed to take out falling trend line resistance (122.05, 121.61) and 61.8% retracement of 122.17 to 115.13 at 119.48 decisively. Bearish divergence condition in 4 hours MACD and RSI and daily MACD's turn below signal line support this. Hence, even though recovery from 117.60 could still extend further, short term risk remains on the downside as long as USD/JPY stays below 119.86 high. Below 118.24 minor support will suggest the recovery from 117.60 has completed and encourage further fall to 117.20 support and then 116.38.

In the bigger picture, our view remains unchanged. Previous break of medium term rising channel support (108.99, 114.41, 117.87) indicates the whole up trend from 108.99 has completed at 122.17. Weekly MACD's stay below signal line is still supporting this. The corrective nature of the rise from 108.99 swings favors back to the case that such medium term rally is merely part of a large scale consolidation that started at 121.38, with first leg completed at 108.99 and second leg completed at 122.17. The fall from 121.17 should then the third leg of such consolidation and deeper decline should at least be seen to below 114.02/41 support zone (61.8% retracement of 108.99 to 122.17 at 114.02) first with much possibility of further fall to retest 108.99 low.

However, decisive break of 119.48 fibo resistance (61.8% retracement of 122.17 to 115.13) will indicate that a stronger rebound is underway. Also, price actions from 122.17 is probably developing into sideway consolidation to rise from 108.99 only, instead of as the third leg of consolidation that started at 121.38. In such case, a rest of 122.17 high could then be seen. But still, firm break above this resistance is needed to confirm medium term rally from 108.99 has resumed. Otherwise, medium term outlook will be neutral at best.

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EUR/JPY

EUR/JPY's rally extended further to as high as 162.42 last week, making new record high. However, EUR/JPY turned into choppy consolidative since then after failing to take out mentioned short term and medium term channel resistance. From a short term angle, even though further recover could still be seen, with mentioned channel resistance in sight, firm break above 162.42 is needed to confirm recent rally has resumed. Otherwise, risk remains on the downside. Below 160.88 minor support will suggest recovery from 159.60 has completed and bring further decline to short term channel support (now at 159.66). Break will encourage deeper decline to 158.01 cluster support (38.2% retracement of 150.75 to 162.42 at 157.96) first.

In the bigger picture, EUR/JPY is at an important resistance level and hence risk of medium term reversal is increasing. We're treating the whole year long rise from 130.60 as resumption of the long term up trend with first wave ended at 143.60, subsequent correction ended at 137.167. The third wave up ended at 159.63 while fourth wave correction has ended at 150.75. Rise from there represents the final advance in this structure. The channeling property of 143.60, 137.16, 159.63 and 150.75 is supporting this case. Having said that, the upside target of the medium term channel is met.

On the downside, break of the short term channel support will indicate that rise from 150.75 has completed and give a serious warning signal that the whole rise rise from 130.60 has ended. Focus will then turn to medium term channel support (now at 152.39). However, sustained break of the mentioned channel resistance will suggest that the underlying outlook is more bullish than we thought and will path the way towards 61.8% projection of 137.16 to 159.63 from 150.75 at 164.64.

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AUD Firms Ahead Of Key CPI Release

Forex Exchange Morning Report

New Zealand Dollar: NZD shy of post-float high

The NZD ended the week in sight of post-float highs, having recovered from Thursday's equity market related sell-off. Domestically, the currency ranged between 0.7425 and 0.7455, but again strengthened during the overnight session to post a 0.7485 high, just shy of Wednesday's post float high of 0.7493. Attention is now squarely focused upon this week's interest rate review on Thursday, with the market currently pricing the chances of a hike in the OCR to 7.75% at around 75%.


Australian Dollar: AUD firms ahead of key CPI release

The AUS also recovered from Thursday's sharp sell-off to end the week towards a 17-year high. In the local session, the AUD ranged between 0.8340/66, before pushing higher to 0.8378 offshore. Key CPI data is due for release tomorrow, with markets in Australia and New Zealand closed on Wednesday in observance of the ANZAC Day holiday.


Major Currencies: USD firms against yen

With China's CPI and GDP figures out of the way and no immediate tightening measures by the PBoC in response, the green light was given for investors to return to the carry trade. This saw USD/JPY rally towards 119.00 as yen positions were unwound. The euro reached a fresh two year high of 1.3638 before reining in momentum and pulling back to 1.3585. GBP/USD won the prize for volatility among the majors rallying 50 points to 2.0070 then tumbling to 1.9990 after softer-thanexpected March retail sales then recovering to finish the session above 2.0000.

Japan's all-industry activity index rose 0.9% in February. The AAI beat expectations of a 0.3% fall principally because IP was revised from -0.2% to +0.7% between the forecasts being collated and the release of this index. The result follows a (revised) January reading of -0.2%. However, the two months together give a steady uptrend.

Fedspeak: Fed Governor Fred Mishkin said the mostly likely outcome over coming quarters is a continued moderate rate of economic expansion accompanied by some easing of pressures on resources.

Canadian retail sales rise 0.1% in Feb. This was despite soft auto sales. However a near 5% jump in gasoline sales due to rising prices meant that ex auto sales rose 1.0%. Food sales were also solid, but this was also mainly a price effect. In real terms, sales were down 0.7% in Feb, and this will be a drag on GDP forecasts for Q1.

UK retail sales volumes rose 0.3% in Mar, on top of their 1.6% bounce in Feb. However the weak start to the quarter means that Q1 sales volumes rose just 0.4% compared to 1.4% in Q4. Hence our expectation for slower Q1 GDP growth.

French consumer spending bounces 0.7% in Mar. This leaves intact a solid trend, and with German retailing showing signs of recovering from the VAT hike in Jan, the broader Euroland consumer picture for Q1 is looking quite solid.

Westpac Institutional Bank

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Forex Market Summary

U.S. Dollar Trading (USD) had a mixed day on Friday. On the back of record highs seen in the Dow Jones index, the USD found significant support against other currencies. The Dow Jones was up by 153.35 points (1.2%) whilst the NASDAQ was also up by a further 21.04 points (0.84%). Crude oil rose by US$0.90 a barrel to US$64.22. Looking ahead, a quiet day expected to begin the week as markets look to Tuesday to begin the data release.

The Euro (EUR) traded near record high of 1.3670 set in December 2004, reaching a high of 1.3636 on Friday. Investors were confident that the Euro would return to its bullish sentiment against the USD and JPY seen recently. Overall the Euro trade with a range of a low 1.3586 and a high of 1.3636 before closing at 1.3598 in the New York session to remain relatively unchanged.

The Japanese Yen (JPY) eased against the USD dropping by 0.3% on Friday. Markets have recently found a correlation of any mention to the Chinese Yuan and the need for a faster pace of appreciation tends to benefit the Japanese Yen, which is portrayed as a proxy for other Asian currencies. Overall, the JPY traded with a range of a low 118.25 and a high of 118.97 to close at 118.75 in the New York session. Looking ahead, Monday is relatively quiet before the sheer volume of data is set to increase on Tuesday.

The Sterling (GBP) initially eased against the USD on Friday on the back of a broadly stronger greenback and softer than anticipated UK retail Sales figure before regaining its momentum later on in the session. Markets had expected a figure of 0.5% with the actual figure coming in at 0.3% (the previous figure was revised higher to 1.6%). Overall the GBP traded with a low 1.9992 and a high of 2.0058 before closing the day at 2.0037 during the New York session.

The Australian Dollar (AUD) re-established its strength against the USD on Friday which it had paired during the previous session despite being subject to technical trading. Overall the AUD had traded within a tight range of a low 0.8340 and a high 0.8376 before closing near day highs at 0.8375 in the New York session. Looking ahead. PPI is scheduled for release on Monday with the previous figure being 0.2%. Markets are sure to pay attention to the data release ahead CPI (Tuesday) for any further indication of inflationary growth that may induce an RBA interest rate hike by 25 basis points.

The Turkish Lira (TRY) saw the Central Bank of Turkey publish the CPI on for the year end Friday, which was released at 7.48% (7.44% previous). Furthermore, Turkey's trade deficit was released at - 31.747 Bln.

Gold (XAU) traded higher on Friday with a back wind from the commodities prices that surge together with the U.S stock markets. Gold rose by US$7.50 an ounce to US$695.80.