Daily Forex Bullteins and Market News Analysis: Forex Bulletin, April 07, 2011

FOREX Newsletter

Pulse of the Market

· Greenback wrapped up in Euro event risk, unfazed by steady S&P 500 and ignores Fed’s sale of debt

· Breaking down the ECB rate decision and plotting out trade approaches for different scenarios

· Japanese Yen steady immediately after the BoJ holds policy, extends 1 trillion Yen in quake loans

· Australian Dollar rallied following strong employment report and progress restrained by risk trends

The U.S Dollar ended yesterday’s trading session lower against the basket of major currencies. The rally in currencies, equities and commodities along with the rise in bond yields indicates that investors are still willing to take on risk regardless of the possibility of a U.S government shutdown. Congressional leaders are in deep discussions and a shutdown may be avoided, but with the U.S government telling federal agencies to be prepared to implement emergency plans. When the government was shut down in Nov 1995, both the EUR/USD and USD/JPY barely moved. When a second shutdown occurred during the Clinton Administration in December of that year, the Greenback actually rallied against the Japanese Yen before normal government operations were resumed. The main reason is because any shutdown is expected to be so temporary that it will pose no risk to the U.S sovereign debt rating. The only major economic implication is that Federal workers won’t be paid during the period that the government is shut down. The latest FOMC minutes show a central bank that is still divided on what to do with monetary policy when asset purchases are set to expire in June. The Single Currency rose against the U.S Dollar yesterday ahead of ECB’s interest rate decision. There is only one thing that Euro investors care about right now and it is the prospect of an interest rate hike from the European Central Bank today. Nothing else seems to matter, including Portugal’s official request for a bailout. Portuguese Prime Minister Socrates said increasing difficulty in assessing financing has forced them to ask European Commission for financial assistance. The doom of the Euro lies in the hands of the ECB. If the central bank raises interest rates and talks about the need for more tightening, investors will continue to turn a blind eye to sovereign debt troubles. If they raise rates but downplay the need for further rate hikes, problems in minor nations could come back to haunt the Euro. Cable ended the session higher but the gains were capped by weaker than expected economic data. Industrial production fell 1.2 percent in February which was the steepest decline more than a year. House prices also grew at a slower pace in March, rising only 0.1 percent according to Halifax. The Japanese Yen traded lower against all of the major currencies ahead of the BOJ’s monetary policy announcement.

Time(GMT)	Economic Release	IM	Actual	Forecast	Prior
	Bank of Japan Rate Decision (APR 7)	Medium			0.10%
01:30	Australia Employment Change (MAR)	High	37.8K	24.0K	-8.6K
11:00	Bank Of England Asset Purchase Target (APR)	High		200B	200B
11:00	Bank of England Rate Decision (APR 7)	High		0.50%	0.50%
11:45	European Central Bank Rate Decision (APR 7)	High		1.25%	1.00%
12:30	U.S Initial Jobless Claims (APR 2)	Low		385K	388K

Euro

The Single Currency rallied to its highest levels against the U.S Dollar in more than 14 months as investors speculate that the ECB will hike interest rates at their meeting today. Moreover, the Single Currency continues to gain as investors expect not only higher rates today, but signs that the ECB will likely engage in further tightening throughout the rest of 2011. Overall, the EUR/USD traded with a low of 1.4207 and a high of 1.4348 before closing the day around 1.4330 in the New York session.

Yen

The Japanese Yen touched a fresh six month low against the U.S Dollar and fell against all of it major counterparts. The Yen has come under renewed pressure as the ECB widely expected to hike interest rates today and the Fed expected to lag far behind. A recurrence of the carry trade has also seen the Yen to fall against higher yielding currencies. Overall, the USD/JPY traded with a low of 84.83 and a high of 85.51 before closing the day around 85.47 in the New York session.

British Pound

The British Pound ended yesterday’s trading session higher against the U.S Dollar regardless of weaker than expected economic data. Industrial production fell 1.2 percent in the month of February which was the steepest decline more than a year. House prices also grew at a slower pace in March, rising only 0.1 percent according to Halifax but a gain is still better than a decline. Overall, the GBP/USD traded with a low of 1.6256 and a high of 1.6362 before closing the day at 1.6329 in the New York session.

Canadian Dollar

The Canadian Dollar climbed to fresh highs against the Greenback. Although Canadian economic data was better than expected but an improvement in risk appetite is the main reason why the commodity currencies have performed so well. The IVEY PMI index rose from 69.3 to 73.2, its highest level since May 2009. Overall, the USD/CAD traded with a low of 0.9566 and a high of 0.9640 before closing the day at 0.9601 in the New York session.

Euro-Yen

EUR/JPY is trading above 14, 50 and 100 days moving average. Fast stochastic is giving a bearish tone and MACD is issuing a bullish stance. The RSI is above 74 and lies above the neutral zone. Overall, the cross has gained 1.50%.

Sterling-Yen

Currently GBP/JPY is trading above 14, 50 and 100 days moving average. Fast stochastic is issuing bullish and MACD is also indicating a bullish stance. The RSI is above 70 reading and lies above the neutral zone. The pair has gained 0.95%.

Aussie-Yen

Currently, the cross is trading above 14, 50 and 100 days moving average. Fast stochastic gives bearish and MACD is indicating a bullish stance. The RSI is above 75 reading and lies above the neutral region. The cross has gained 1.81%.

Euro-Sterling

This cross is trading above 14, 50 and 100 days moving average. Fast stochastic is indicating a bearish and MACD is also issuing a bearish signal. The RSI is above 58 reading and lies above the neutral region. The pair has gained 0.55%.

Sterling-Swiss

This cross is trading above 14 and below 50, 100 days moving average. Fast stochastic is issuing a bearish stance and MACD is indicating a bullish tone. The RSI is above 53 and lies above the neutral region. The pair has lost 0.49%.

Appendix

Daily Pivot Points
			Trading Range
Contract	S3	S2	S1	Pivot	R1	R2	R3
EUR/USD	1.4101	1.4154	1.4242	1.4295	1.4383	1.4436	1.4524
USD/JPY	84.35	84.59	85.03	85.27	85.71	85.95	86.39
GBP/USD	1.6163	1.6210	1.6269	1.6316	1.6375	1.6422	1.6481
USD/CHF	0.8946	0.9038	0.9112	0.9204	0.9278	0.9370	0.9444
USD/CAD	0.9491	0.9528	0.9565	0.9602	0.9639	0.9676	0.9713
EUR/JPY	119.34	120.01	121.25	121.92	123.16	123.83	125.07
GBP/JPY	137.00	137.55	138.57	139.12	140.14	140.69	141.71
CHF/JPY	90.45	91.07	92.03	92.65	93.61	94.23	95.19
AUD/JPY	86.53	87.08	88.15	88.70	89.77	90.32	91.39
EUR/GBP	0.8653	0.8685	0.8730	0.8762	0.8807	0.8839	0.8884
EUR/CHF	1.2897	1.2981	1.3074	1.3158	1.3251	1.3335	1.3428
GBP/CHF	1.4581	1.4737	1.4870	1.5026	1.5159	1.5315	1.5448