Forex

Busy Economic Calendar Starts 2010

By AC Markets

The first week of the new year is packed with important economic events which should help shake off the sluggish holiday trading that characterized the past fortnight. Today’s US ISM Manufacturing data is expected to post an improvement from the month prior (exp: 54.0, prev: 53.6), and while we would point to the tentative correlation between better-than-expected US data and USD strength to trade this number, the more significant events for longer-term direction of the USD will come later in the week. The highlights are likely to be Wednesday’s release of the FOMC Minutes, and Friday’s Non Farm Payrolls and Unemployment Rate. The unexpected drop in US unemployment at the start of November was the catalyst for the recent turnaround in the USD’s weakening trend; and since that point the upside surprises in other US data including Retail Sales and CPI have led to further capitulation of USD short positions in the market. Crucially important to the USD’s direction from here is the Fed’s stance on US interest rates in 2010; a stance that had, until late 2009, been assumed to be one of steadfast accommodative policy for the foreseeable future. Indeed, the use of the phrases “exceptionally low” and “for an extended period” within the FOMC statements had underpinned much of last year’s USD weakness as investors used this rhetoric as the green light for selling USDs as a funding currency for carry trades. However, the market’s assumption that “an extended period” meant the majority of 2010 was dealt a blow in December by remarks from the Fed’s Evans that he interpreted the phrase to mean “about three to four meetings”. This latest set of minutes from the December meeting may therefore give us a little more clarity on whether the Fed is at all inclined to begin normalizing rates in the coming year, and whether the voting members perceive the recent improvements in economic data as set to continue at the same pace.

Today's Key Issues (time in GMT):

15:00 USD ISM Manufacturing (Dec) exp: 54.0 prev: 53.6
15:00 USD Construction Spending (Nov) exp: -0.5% prev: 0.0%

The Risk Today:

EurUsd For now EURUSD remains locked in a 250 pip range between 1.4210-1.4460, and this morning's rally to 1.4375 levels has helped pulled the 14-day RSI back above oversold 30 levels seen at the end of last week. 1.4460 should pose a significant barrier to any further rallies, and any break above there would face further supply at 1.4500, 1.4600, and a major hurdle at 1.4685. On the downside, today's lows at 1.4258 provide weak near-term support, with the 200 day moving average coming in below at 1.4232, and range lows at 1.4210 the major level to watch.

GbpUsd The end of last week saw GBPUSD break 1.5925 support to touch 1.5833 lows, but this move was quickly negated by a strong rebound to 1.6236 highs on Thursday, and stochastics point to further bullish momentum to come. The pair now sits comfortably back above the 200 day moving average (comes in at 1.6085), but the 1.6248 level (Dec 18 highs) should form decent resistance on the first test. Expect any break above there to face very little significant resistance until 1.6335 (100 day moving average), and above there the 1.6400 psychological barrier and 50 day moving average. Immediate support should now come in at 1.6059 (today's lows), and 1.5833 (Dec 30 lows).

UsdJpy Despite the short-term bullish momentum which took USDJPY above 92.50 levels at the end of last week, the pair has still not staged a convincing breakout from the major downtrend channel that has been in play since mid 2007. Expect plenty of offers around 93.00-20 zone, and only a daily close above the 93 handle to suggest a further move higher. Thursday's 91.92 lows provide first support; watch for a break below 91.10 to indicate a resumption of the larger downtrend.

UsdChf Range-trading prevails in USDCHF between 1.0280 and 1.0425, but the break above the 100-day moving average (1.0301 currently) does seem to favour further USD strength from here. Next levels to watch outside the range are 1.0508 key high and beyond there the 1.0700 major resistance (38.2% correction of the move from 1.1970 down to 0.9918). Near term support stands at 1.0320 ahead of 1.0220.