Forex Investment and Currency Trading

Overall: Some signs of better USD performance yesterday as yields and Equities headed higher.Up move in yields still bears watching while the Equity markets are approaching good resistance levels. the bias is retained that the corrective move lower in commodities has not yet run its course.

Equities: Important resistance is now close by on U.S. markets. Elsewhere the Sensex remains under pressure

FX: EURUSD holds short-term support although bias remained for lower levels. GBPCHF and G10CHF bounce off the 76.4% pullback level. USDJPY breaks back through the major pivots.

Fixed Income: U.S. 2-year yield testing major resistance. Could this be a pivotal week in the dynamics of the last 9 months???

Commodities: Lumber…the ugly stepchild about to become Cinderalla??? Has the low been put in. The answer is it has

EM: EURZAR…is a significant correction looming?

EUR/USD: Very good short-term support held overnight between 1.5525 and 1.5533 and resulted in a bounce higher that has so far fallen short of very good resistance in the 1.5685 90 area.

A break below this 1.5525-33 support would be constructive for the short-term bullish USD view and open up the potential for a re-test of the recent low at 1.5341. A decisive break below this latter level would complete a double top, which would suggest the potential for losses that could take it back below 1.48.

AUDUSD: Held a good short-term 76.4% support level at .9025 and bounced overnight. Continue to favour AUD outperformance as a whole but if we see some short-term USD strength we may likely see AUDUSD caught in a range for a while. Above .9253 would suggest further AUDUSD gains are back in play.

GBPUSD: Is now sitting just above major support in the 1.9722-40 range having closed below the 55 day moving average yesterday (1.9805) A break below this support range would suggest further losses towards the range of supports at 1.9337-1.9338.

GBPCHF: Has formed a 76.4% Fibonacci retracement against the lows, which is supportive at 1.9657. A rally back up through resistance at 2.0326 and then on towards the 55 dma at 2.0932 is now expected as GBP begins to find some strength in what appears to be a stretched market and the CHF weakens in the Short Term.

G10CHF: The equally weighted basket has also formed a 76.4% Fibonacci retracement against the lows and is expected to rally up to the 55 dma at 96.98, which converged with horizontal resistance from January ’08. This implies a weakening of 3.36% for the CHF across all other G9 currencies.

USDJPY: The hold of the long-term 76.4% pullback level at 95.79 (Low traded was 95.77) is looking increasingly significant. Since then it has bounced sharply and broken back through the major pivots of 101.30-101.67 overnight. This comes at a time when most of the building for a lower USDJPY have started to fall away.

• 1 month USDJPY implied volatility has come off sharply (From 22% to 16%)
• Equity markets have rallied strongly
• U.S. 2 year yields are pushing major resistance at 1.83-1.85% with a break likely to suggest at least  2.15-2.25% and possibly 2.40%
• Some evidence that people are dipping their toes in the water again on risk trades
• Technical picture looking more USD constructive in general short-term

All this could open up a move to at least 104.95 and possibly as high as 108.60-109.00 on USDJPY

U.S. 2 year yield: Now testing significant resistance in the 1.83% to 1.87% area. A break above would suggest a further move to at least 2.15-2.20%. If viewed as an inverted head and shoulders it would actually suggest at least 2.44%.

• That would be particularly significant in that it suggest we could see U.S. 2 year yields over FED funds for the first time in this crisis.
• This would be a positive dynamic suggesting that the various interest rate and liquidity moves were finally gaining traction.
• It is unlikely it would suggest an all clear at this point and lower official rates to enable further traction still look to be inevitable.
• In addition a weekly close above 1.84%, if achieved would constitute a bullish outside week. That would be the first time we have seen such a development since the precipitous fall began from 5.15% in June last year.

Lumber…the ugly stepchild about to become Cinderella???

Lumber-Weekly continuation: Having been in virtual freefall since late 2004 (How about that for a leading indicator) there are some technical developments which suggest that Lumber may well be putting in a base here. There is very clear triple divergence on the weekly chart into the low 3 weeks ago and lumber posted an aggressive bullish weekly reversal off that low.

Lumber-Monthly continuation: On the monthly chart we have seen attempts to move lower in the last 3 months fail to make any impression and are sitting at almost exactly the same levels as we closed at the end of January.

As a consequence we are now seeing triple positive momentum divergence on the monthly chart to add to that on the weekly chart. As with equities you cannot rule out choppy price action in the days and weeks ahead.
However, as with equities we also suspect that the trend low in the lumber price may now be in place.

EURZAR has failed to hold the break above the major high posted in late 2001 as it has turned down sharply in recent weeks

It is now threatening to post a bearish weekly reversal for the first time in this leg higher from October 2007.(weekly close below 12.4)

In addition weekly momentum is turning down from above 90% for only the 4th time in the last 10 years. The present peak is also the highest print in this period.

All this suggests the danger of a severe downside correction in the weeks and months ahead.