US Dollar Index (DX) Futures Analysis – January 31, 2013

The March U.S. Dollar Index traded mixed overnight. On Wednesday, the index sold off sharply in reaction to a surge in the Euro. Fed comments later in the session and reports of a contraction in the U.S. economy helped provide a bounce shortly before the close.

Overnight the Euro backed down from its new multi-month high but managed to hold above support at 1.3491. This action helped to give the dollar some support. The dollar is also posting a gain versus the Canadian Dollar but struggling with the Japanese Yen and Australian Dollar.

An unexpected drop in the U.S. fourth quarter GDP and a subdued outlook for the economy by the Federal Open Market Committee helped underpin the Greenback late Wednesday. This appears to have caused some confusion for dollar traders who helped hold the dollar in a limited range overnight.

Daily March U.S. Dollar Index
Daily March U.S. Dollar Index

The main trend is down on the daily chart, but the March U.S. Dollar Index stopped short of taking out the December 19 bottom at 79.01. The overnight stabilization suggests that the index may have reached an oversold level.

Lower demand for higher risk assets could be the catalyst that drives the dollar higher. Traders should watch the action in the equity indices to determine if yesterday’s late session reversal down was real. Weaker stock prices could trigger a short-covering rally that fuels a retracement back to 79.77 – 79.87 over the near-term.

It is possible that trading could be light because of tomorrow’s U.S. Non-Farm Payrolls report. If this is the case then look for an inside trading day. 

The JPY Could Hit 100.00 Minister Warns

The JPY could hit 100.00 Minister warns
The JPY could hit 100.00 Minister warns

The Japanese government knows all about keeping face and how to make the bad look good. Japan last week printed a historic trade deficit for 2012 with exports hit by a bitter diplomatic spat with its biggest market China and plunging demand in debt-wracked Europe. Japan’s trade deficit with Beijing doubled to a record 3.52 trillion yen last year, as a feud over a chain of islands in the East China Sea spurred anti-Japan protests across China and a consumer boycott of Japanese goods. The small islands contain some of the largest deposits of rare earth minerals in the world and would ease Japan’s dependency on China’s minerals. The ongoing territorial dispute flared in September after Tokyo nationalized some of the Senkakus, which Beijing refers to as the Diaoyu islands.

The economy showed a major contraction in the Q3 after a slip in the previous three months, meeting the technical definition of a recession. The poor trade and growth figures underscore the size of the task ahead for the new government under the aggressive Abe, which has heaped pressure on the Bank of Japan for more monetary easing to boost the deflation-plagued economy. Just last week, Angela Merkel German Chancellor accused the Japanese government of currency manipulation as the JPY tumbles helping to support exporters but weighing heavily on imports.

Yesterday the government hailed upbeat factory output numbers as a turning point for the beleaguered economy as Prime Minister Shinzo Abe’s new government strives to reverse the nation’s fortunes. But failed to mention that Abe had only been in office for a few days not long enough to affect changes in last month’s numbers.  “Industrial production shows signs of having bottomed out,” the economy ministry said in a positive statement. A survey of manufacturers in the world’s third biggest economy released with the data found that producers expected another increase for January of 2.6% and 2.3% in February.

This morning Japan’s industrial production rose less than economists forecast, suggesting that a recovery in the nation’s manufacturing sector is lagging a weakening yen. Output rose 2.5 percent from November, when it declined 1.4 percent, the Trade Ministry said in Tokyo today. The median estimate of 25 economists was for a 4.1 percent gain. Production fell 7.8 percent from the previous year. The outlook for the economy may improve this year as the depreciating yen and Prime Minister Shinzo Abe’s fiscal stimulus measures help to support corporate profits and stoke growth.

Government officials are hoping that Japan’s economy continues to pick up, given the latest large-scale stimulus package is likely to help boost growth, with the global economy also starting to recover.

Just yesterday the government approved Prime Minister Shinzo Abe’s stimulus package entailing ¥10.3 trillion in central government funds in an attempt to add around 2 percentage points to the nation’s real gross domestic product growth and create at least 600,000 jobs. The previous quarterly report, released by the Finance Ministry in October, said economic activity “showed some pausing” in the three months to September on weak exports and output amid shrinking demand overseas. The JPY is trading against the US dollar at 90.82 after breaking the 91.00 level while the EUR/JPY continues to climb well breaking records, trading at 123.23

Gold Climbs as Safe Haven

Gold Climbs as Safe Haven
Gold Climbs as Safe Haven

Gold ended higher yesterday, as prices rallied after news that the US economy shrank in the fourth quarter buoyed the metal’s appeal as a safe haven. Gold is trading this morning in the Asian session at 1680.55 giving back a bit of yesterday’s gains. Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, declined to 1,328.09 tons, as on Jan 30.

The euro climbed to a 14-month high and gold rallied yesterday after the Federal Reserve left its monthly $85 billion bond-buying stimulus plan in place. The Fed said economic growth had stalled but indicated the pullback was likely temporary, describing the nation’s job market as continuing its modest pace of improvement. It repeated a pledge to keep purchasing securities until the outlook for employment improves substantially.

A report earlier in the day showing the U.S. economy contracted in the fourth quarter had already bolstered expectations the Fed would continue its easy monetary policy. GDP data, which showed the world’s largest economy in the fourth quarter unexpectedly suffered its first decline since the 2007-09 recessions, supported that expectation. Gross domestic product fell at a 0.1 percent annual rate after growing at a 3.1 percent clip in the third quarter.

Base metal prices traded on a positive note in yesterday’s session. The gain was on optimism that the US Fed would continue the purchases of $ 85 billion of securities a month.  Better data from the US on the consumer spending and a recovery in Europe also supported an upside in the copper prices. Some correction was witnessed after US GDP contracted more than expected and erased some of the gains.   Weakness in the DX along with decline in inventories also supported an upside in the prices. Copper prices rose to the highest level in almost 4-weeks.  Nickel reached a 3-month high while zinc and lead also rallied. Copper futures for March delivery closed up by 1.1% at $3.7355 on the COMEX division of the NYMEX. Copper exports from Japan surged 27% last year to the highest level since 2009 amid a decline in domestic demand as users increased production overseas.

Silver holdings of ishares silver trust, the largest ETF backed by the metal, increased to 10,443.19 tons, as on Jan 30. Silver continued to add to the gains of the previous day and settled 2 percent higher in yesterday’s session tracing strength in the gold prices along with weakness in the DX.  Firmness in the entire base metals also pushed prices upwards. Silver is trading at 32.093 dipping a few pips this morning after it skyrocketed yesterday. Traders are seeing market selling with many sell orders being filled at the 32.00 price level.

 

Crude Oil Set To Break $98.00

Crude Oil Set To Break $98.00
Crude Oil Set To Break $98.00

WTI light sweet crude oil is trading flat in Asian trade this morning at 97.89. Oil touched a three-month high yesterday after better-than-expected economic data out of Europe spurred optimism about the global economy before oil pared gains with surprisingly weak U.S. growth numbers. Crude oil prices climbed close to $98 per barrel, getting an added boost after the US Federal Reserve kept its easing stance as expected, while gasoline futures rallied past $3 per gallon on the heels of a surprise drop in inventories. U.S. crude oil inventories jumped by 5.95 million barrels in the week to Jan. 25, the U.S. government said. Analysts had forecast a 2.6-million-barrel crude build. The US dollar weakened also helping to support crude’s price climb.

But the recent run of economic optimism overshadowed the inventory numbers and weak U.S. data. Eurozone economic sentiment improved more than expected across all sectors in January, rising for the third month in a row in a sign that the region’s economy could be emerging from a low point in the fourth quarter of 2012.

Oil markets took the U.S. Federal Reserve’s announcement positively that it would maintain its monthly $85 billion bond-buying stimulus plan. US GDP contracted by 0.1% in the 4th quarter and unemployment still remains at 7.7% which is well above the Fed’s comfortable level of 6.5%. This has forced Fed to continue its bond buying program weighed on energy products. Brent crude touched a three-month high, after a better-than-expected economic data out of Europe spurred optimism about the global economy before oil pared gains with surprisingly weak US growth numbers.

Crude oil stocks rose by 5.947m barrels and total motor gasoline inventories moved down by 1mn barrels. Iran’s crude oil exports in December rose to their highest level since European Union sanctions took effect last July, mainly due to strong Chinese demand while tanker fleet expansion helped the OPEC member dodge sanctions.

Natural gas rose more than 2%, ahead of a weekly government data due later today that  is  expected  to  show  a  steep decline in US gas stockpiles. Natural gas inventories are expected to decline by 207-210bn cubic feet, actual data will be released by EIA later in the day. Natural gas prices are likely to go up as weather forecasts call for colder weather in the next few days and lower inventories can also support prices. Gas futures on the New York Mercantile Exchange ended up 7.7 cents, or 2.4 percent, at $3.335 per million British thermal units after trading between $3.261 and $3.344. Natural gas is trading this morning at 3.349 adding 9pts.

US Dollar Index Forecast January 31, 2013, Technical Analysis

The US Dollar Index fell during the session on Wednesday as the Euro broke the 1.35 level against the US dollar. Because of this, and the fact that the Euro is worth 40% of the index itself, it makes sense that the market fell. Looking at this chart, we can see quite a bit of support right around the 79 handle, and as such we do expect some buyers the stepped into the marketplace. Right now though, it must be said that the last couple candles look extraordinarily bearish, and as a result we could finally see a breakdown. However, we need to see a daily close below 79 in order to start selling this market.

 

US Dollar Index Forecast January 31, 2013, Technical Analysis
US Dollar Index Forecast January 31, 2013, Technical Analysis

US Dollar Index (DX) Futures Analysis – January 30, 2013

The March U.S. Dollar Index is trading sharply lower overnight. The move is a continuation of  Tuesday’s breakdown. The overnight action suggests that the market is poised to take out the recent main bottom at 79.40. This would likely trigger a further decline to the mid-December bottom at 79.01. It looks as if the pressure is going to be on dollar unless the resistance line at 80.55 is violated.

Daily March U.S. Dollar Index
Daily March U.S. Dollar Index

The main catalyst behind today’s weakness is the surge in the Euro. Overnight the Euro reached a 13-month high versus the U.S. Dollar. Renewed interest in higher risk assets could keep pressure on the dollar for the duration of the trading session.

Today, the U.S. Federal Reserve announces its latest monetary policy statement. The Fed is likely to hold steady. 

Precious Metals and Industrial Metals Strong Ahead of FOMC and GDP

Precious Metals and Industrial Metals Strong Ahead of FOMC and GDP
Precious Metals and Industrial Metals Strong Ahead of FOMC and GDP

Gold traded slightly higher this morning, holding just above a key resistance level on support at 1667.55 due to a sluggish dollar as investors expect the U.S. Federal Reserve to keep its loose monetary policy at a meeting ending later in the day. Gold holdings in exchange-traded products are poised for the biggest monthly decline in more than a year as global economic recovery curbed demand for the metal. Analysts from Credit Suisse Group AG to Goldman Sachs Group Inc. are calling for gold to peak in 2013 after a 12-year rally as the global economy rebounds.

Just a day before data showed that U.S. durable-goods orders rose in December for an unprecedented fourth consecutive month, while China’s economy snapped a seven-quarter slowdown in the final three months of 2012. The countries are the world’s two largest economies. 

Gold is expected to go up as a stronger euro due to positivity in eurozone and expectations for poor US GDP and nonfarm payroll data can support prices. . In Q4 the fiscal cliff resolution would have deterred the government to spend more, which was a major component for Q3 GDP to surpass the estimates over 3%. In the month of December, the US have already hit the debt ceiling of $16.4 trillion which is 105% of its nominal GDP of $15.6trillion and is expected to continue to rise until the May 18th deadline for lawmakers to deal with this rising ceiling.

For the first time after April 2011, the US 10year bond yield rose above 2%. This means an addition to the refunding cost of US which should force them to keep the yield low and hence accommodation should be in place. Consistent with its statutory mandate, the Fed seeks to foster maximum employment and price stability. Without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. To support a stronger economic recovery and to ensure that inflation remains at or below 2% the Fed will most likely keep their current programs in place.

Base metals are expected to go up on expectations of positive Chinese Manufacturing PMI data on Friday. The upside will be limited if GDP growth numbers in US disappoints investors. This morning base metals are trading up by 0.06% to 0.62% at LME electronic platform. Presently, markets have remained volatile and although we expected yesterday that base metals would continue to remain weak on the back of weak US consumer sentiments. The impact was mitigated by weak dollar.

Silver is trading at 31.413 as precious metals and industrial metals are supportive. Silver climbed 23 cents this morning. Copper prices rose yesterday after China’s top think tank lifted its economic growth forecast for 2013 to 8.4 percent from 8.2 percent, with faster expansion seen in the first half of the year.   Copper is trading this morning at 3.703 up 15pts.

US Dollar Index January 30, 2013, Technical Analysis

The US Dollar Index fell on the session for Tuesday as sellers stepped into the marketplace. It should be noted that the Euro is pressing up against the 1.35 level, and that a breakout above that in the spot Forex pair would have a massive effect on this market. This is because the Euro is 40% of the valuation of the US dollar, and as a result a breakout would be pretty significant. With all this being said, it does appear that we will continue to go lower, but with a nonfarm payroll number coming out on Friday, anything is possible. Because of this, we choose to stay out of this market but do recognize the fact that the Dollar is getting weaker. However, we choose to play this in the Forex markets, not the futures pits.

 

US Dollar Index January 30, 2013, Technical Analysis
US Dollar Index January 30, 2013, Technical Analysis

US Dollar Index (DX) Futures Analysis – January 29, 2013

The March U.S. Dollar index is called sideways-to-lower. Mixed currency markets are controlling the short-term direction of the index. This week’s Fed meeting and Friday’s U.S. jobs figures is also weighing on the trading action.

A stronger Australian Dollar is helping to pressure the dollar. Overnight the Aussie received a boost after the release of a survey showing Australian business confidence rebounded sharply in December. The New Zealand Dollar is also rallying on the heels of an improved trade balance. The Euro is trading slightly lower as profit-taking continues following last week’s surge. Euro Zone PMI data and the U.S. Non-Farm Payrolls report may be other reasons for the limited trading action.

Daily March U.S. Dollar Index
Daily March U.S. Dollar Index

The March U.S. Dollar Index continues to trade inside of a nicely formed triangle chart pattern. The uptrending support line is at 79.71. The down trending resistance line is at 79.99. The gradual compression of these two lines suggests impending volatility. Although some may prefer to trade the support and resistance, the better move will occur after the breakout.

Based on the short-term range of 79.40 to 80.27, a retracement zone was formed at 79.84 to 79.74. This zone has provided support for several days. Since the index is holding this area, there may be a buyers in there, but since the main trend is down, one has to conclude that there is a bias to the downside. ‘

Technically, the main trend won’t turn up until the swing top at 80.27 is violated, however, a breakout above the downtrending angle at 79.99 will be a strong sign that sentiment is shifting. 

Gold, Silver and Copper Trading Up Ahead of FOMC

Gold, Silver and Copper Trading Up Ahead of FOMC
Gold, Silver and Copper Trading Up Ahead of FOMC

Gold continued to gain in Asian trading on Tuesday morning adding over $5.00 (1660.65) ahead of the FOMC meeting beginning today. Bullion edged up on Monday but struggled to break away from a two-week low hit in the previous session, with a brighter global economic outlook dampening the metal’s appeal as a safe haven. EU leaders have spent the last week talking up the euro saying that the euro zone crisis is stabilizing while the U.S. recovery is gaining traction helped drive investors to the higher-yielding equity market. Investors will closely watch the Federal Reserve’s policy meeting which starts today as well as a string of data on employment, economic growth and consumption, to gauge the pace of recovery in the world’s largest economy. The US dollar traded flat yesterday having little effect on the value of the commodity.

Yesterday was a light day for eco data, until the US opened. US durable goods reported well above forecast, while pending home sales plummeted. On the economic data front, the US consumer confidence and CaseShiller home prices are likely to maintain at same levels as procession of new homes reports have resulted in increased rentals which may limit the prices of US homes from continuous growth.  Traders can expect the US releases to remain in line with expectations and may fail to support gains in base metals.

Markets would also eye the FOMC, non-farm and US GDP later during the week and above these high voltage events we expect base metals to remain in the green zone until the afternoon. Thereafter concerns of slower US GDP and weak addition of manufacturing jobs may continue to support base metals for the rest of the week. The main focus will be the FOMC meeting.  The outlook for the monetary policy should be the key for gold. No policy change is expected and the Fed is likely to continue with $85billion asset purchase per month. With higher returns from the other asset classes, gold should take a dip once again. Spectators can expect a bounce up to $1670-75 can be seen after which it should fall. The nonfarm payroll report is expected to have little market effect coming so closely on the heels of the FOMC meeting.

In the latest gold holdings data from the International Monetary Fund, Iraq cut its gold holdings by a 25% to 29.9 tons in November, reversing some of the country’s recent efforts to bolster its reserves.

Silver regained 21 cents to trade at 30.990 this morning bounding along with gold and on a bit stronger metals family ahead of the FOMC meeting. Industrial metals have been trading on a positive note following global market sentiment as recovery in the US and China and a healing in the eurozone buoys traders sentiment. Copper edged higher on Monday after better-than-expected U.S. durable goods data lifted confidence about growth and demand in the world’s largest economy, but uneasiness about the growth of supply kept prices in check. Copper prices hit intraday highs after data showed that U.S durable goods orders rose 4.6% in December, surpassing expectations for a 1.8 percent gain. Hedge funds and money managers increased the size of their net longs in futures and options of gold, silver and copper last week on signs of continued improvement in the U.S. economy.

US Dollar Index Forecast January 29, 2013, Technical Analysis

The US Dollar Index did very little during the session on Monday as the financial markets in general were very quiet. With the markets being so quiet, this contract continues to grind sideways between 79.80 and 80.20 as we have for the last several sessions. Because of this, this is a very difficult market take any substantial trade and, and as a result we are currently monitoring it. If we managed to break above the 81 handle, this would be a longer-term buy signal, just as a breakdown of the 79 level would be a longer-term sell signal. Until we get one of these clear moves, anything in this market will be choppy at best.

 

US Dollar Index Forecast January 29, 2013, Technical Analysis
US Dollar Index Forecast January 29, 2013, Technical Analysis

US Dollar Index (DX) Futures Analysis – January 28, 2013

The March U.S. Dollar Index is trading a little better this morning after a sharp sell-off on Friday. The Greenback is being boosted by a weaker Euro which is succumbing to profit-taking following last week’s strong rally. A weaker British Pound is also contributing to the dollar’s strength. The Sterling is down because of the threat of additional easing by the Bank of England.

Profit-taking is also helping to drive the Japanese Yen higher. Finally, the U.S. Dollar is rising versus the Canadian Dollar as lower inflation figures diminish hopes the Bank of Canada will raise interest rates in the near-term.  All of these factors are helping to contribute to a firmer U.S. Dollar.

Daily March U.S. Dollar Index
Daily March U.S. Dollar Index

Technically, the March U.S. Dollar Index found support on the 50% level of a short-term retracement zone. This level is 79.84. A failure to hold this level could drive the market into Fibonacci support at 79.74.

Uptrending Gann angle support at 79.68 could provide support if tested, but the most important angle is at 79.96. This angle provided resistance twice last week. An uptrending Gann angle is at 80.05. This makes 79.96 and 80.05 an important price cluster and pivot area.  A breakout over this zone could trigger an acceleration to the upside.

Since the main trend is down, look for selling pressure on its initial test but if today’s upside momentum can continue then a breakout though 80.05 could trigger a rapid acceleration to the upside. Since the Euro controlled much of the dollar’s weakness last week then a break in this currency is likely to be the catalyst behind any rally. 

Crude Oil Remains High but Eases a Bit

Crude Oil Remains High but Eases a Bit
Crude Oil Remains High but Eases a Bit

WTI crude oil traded near the highest level in four months in New York, after posting the longest run of weekly gains since April 2009, amid speculation a global economic recovery will boost fuel demand. Nymex crude oil prices increased 0.3 percent week on week due to favorable data from the major consuming nations which raised hopes that demand from the major consuming nations might increase. Additionally, weakness in the DX also supported an upside in the oil prices. However, downward revision of the global growth forecast of by the International Monetary Fund to 3.5% from 3.6% earlier forecasted in the month of October 2012 restricted gains in the crude oil prices. Crude oil prices touched a weekly high of $96.92. WTI crude oil is trading on a positive note this morning at 95.94 but off of last week’s high.

Crude oil prices fell off their weekly high on Thursday due to higher inventories after the Seaway pipeline reduced the volume flowing through it creating a supply gut at Oklahoma, which is the delivery point for NYMEX futures. However the downside was limited after data from Europe signaled signs of economic recovery which can increase the demand. Tensions in the Middle East and Africa can also put pressure on supplies and support prices.

Crude is trading high on speculation that recovery of major oil consuming nation’s economy will boost fuel demand soon. National Bureau of Statistic, Beijing reported industrial profit have climbed up by 5.3%, which is a fourth month gain. Most of the Asian equities are trading high, supporting oil to hold its positive trend. Besides, China gasoline consumption has increased by 7.5% in 2012. Today there are no major releases in Europe that will affect prices. During the US market hour traders can expect prices to gain ahead of the US economic releases. Durable goods orders are likely to increase by 1.9%, whereas pending home sales may increase by 0.40%.

Natural gas prices closed 3.42% lower week on week on the back of break in the frigid cold weather which reduced the demand for this fuel thereby exerting a downside pressure on the prices. However, weakness in the DX cushioned fall in the natural gas prices. Prices touched a weekly low of 3.441mmbtu and closed at 3.444 mmbtu on Friday. Mixed weather forecasts had traders a bit confused for the week. Higher global demand for natural gas with additional stimulus in Japan, one of the world’s largest importer of NG and the terrorist attack in Algeria, supported prices. Still-high inventories and record production have also weighed on prices while warmer weather forecasts for the coming days can hurt the heating demand and push prices down.

Monday’s Currency Puzzle Pieces, EUR-USD-GBP-JPY and Gold

Monday's Currency Puzzle Pieces, EUR-USD-GBP-JPY and Gold
Monday’s Currency Puzzle Pieces, EUR-USD-GBP-JPY and Gold

Wall Street markets moved notably higher over the course of the trading day on Friday. The markets benefited from a positive reaction to the latest batch of earnings news, which overshadowed a disappointing housing report. Major European exchanges ended the trading session on Friday in positive territory. The stronger than expected increase in German business sentiment and the news regarding bank repayment of LTROs were viewed positively. Comments from ECB President Mario Draghi also provided a boost to investor sentiment. The markets were largely able to shrug off the higher than expected decline in British GDP. The Euro appreciated by more than 1 percent in the last week. The currency appreciated as a result of better economic data like rise in manufacturing and services PMI, increase in German Ifo Business Climate which rose by 1.8 points along with upbeat global market sentiments. Additionally, weakness in the DX also supported an upside in the currency. German Ifo Business Climate rose to 104.2-mark in January as against a rise of 102.4-level in December. The Euro touched a weekly high of 1.3479 and closed at 1.346 against dollar on Friday. US Dollar Index (DX) declined by 0.4 percent in the last week. The currency depreciated on the back of rise in risk appetite in the global market sentiments which led to decline in demand for the low yielding currency.   The prime cause was the US House of Representatives passing a Republican plan to allow the federal government to keep borrowing money till mid-May added downside pressure on the DX.  The euro is trading flat on Monday morning the EUR/USD is holding at a recent high of 1.3454, while the GBP is falling after traders have taken the weekend to digest the weak GDP data. The GBP/USD is trading this morning at 1.5759.

This morning, Asia markets are trading on a mixed note as Japan’s corporate index declined less than forecast along with rise in Chinese industrial profits. Most currency news this weekend was centered on the Davos Economic Forum with the main attraction a video from newly elected Prime Minister of Japan Abe, defending the governments aggressive stance to jump start the Japanese economy and fending off rumors of currency manipulation and the beginnings of a currency war. The USD/JPY is trading at 91.05, near a recent record high.

Gold was down as signs of recovery in the euro zone, China and US raised hopes of an improving global economy and hurt gold’s safe haven appeal. Friday’s encouraging U.S. housing data (although lackluster) and lower unemployment claims and signs of stability in the euro zone after the ECB said that the European banks were repaying more than expected of the loans they had taken from the  ECB during the crisis which pressured gold. Gold is expected to go down further as investors risk appetite is likely to hurt gold demand by investors. Gold is trading flat this morning at 1660.55. Postponement of debt ceiling issue by the US law makers till May 19, 2013 along with positive sentiments created after European Central Bank said that banks in the region might be able to re-pay more of its emergency three year loans in the coming week. This reduced safe haven buying of the yellow metal. Thus, the optimism that the Euro zone debt crisis is gradually being curtailed supported positive sentiments. 

US Dollar Index forecast for the week of January 28, 2013, Technical Analysis

The US Dollar Index had a slightly negative week over the last five sessions, but remains well within the consolidation area that we have seen over the last several months. This area looks like a spot that the market has become very comfortable and complacent in, which means that when we finally get a breakout in either direction, it should be a significant one.

However, it should be stated that just below the negative candle we see massive amounts of support all the way down to the 79 handle. Above current areas, we see quite a bit of resistance going towards the 81 handle. Because of this, we need to break out of this consolidation box in order to place a longer-term trade.

 

US Dollar Index forecast for the week of January 28, 2013, Technical Analysis
US Dollar Index forecast for the week of January 28, 2013, Technical Analysis

US Dollar Index Forecast January 28, 2013, Technical Analysis

The US Dollar Index fell during the session on Friday, but remains near the 80 handle. The 80 level has been a bit of a magnet for price lately, and as a result we simply see this is a scalper’s market. With this being said, this market looks extremely flat and very neutral. At this point in time, we have almost no interest in this market as we are bound by the resistance at 81, and the support at 79. Beyond that, we have quite a bit of noise in between.

 

US Dollar Index Forecast January 28, 2013, Technical Analysis
US Dollar Index Forecast January 28, 2013, Technical Analysis

US Dollar Index (DX) Futures Analysis – January 25, 2013

Despite a Forex trading session that has multiple foreign currencies trading lower versus the dollar, the March U.S. Dollar Index is trading lower. The sharp rise in the Euro appears to be strong enough to offset the moves in the other markets.

The EUR/USD surged to the upside after a stronger-than-expected rise in the Ifo German business-climate index and positive comments by European Central Bank President Mario Draghi in Davos, Switzerland. Draghi set off a sharp rally after stating at the World Economic Forum’s annual meeting that 2012 had effectively marked the re-launching of the Euro. He also added that although financial stresses had eased, the economy continues to lag.

His comments were enough to trigger a breakout over a pair of tops at 1.3397 and 1.3403. The acceleration to the upside has put the Euro in a position to test a major 50% price level at 1.3491. The strength of the Euro has been enough to drive the U.S. Dollar into a short-term retracement zone, but momentum is strong enough to anticipate a further decline. Higher intra-day highs in the Euro combined with reversals in the currently lower currencies could trigger a rapid break in the dollar.

Daily March U.S. Dollar Index
Daily March U.S. Dollar Index

Technically, the March U.S. Dollar Index found resistance on a downtrending Gann angle at 80.12. This is the second consecutive day that this angle stopped the index. Later in the session an uptrending angle that had provided support for seven days also failed. This angle is at 79.90. Breaking this angle sets up a possible move to 79.65.

The main trend is down. The short-term range is 79.40 to 80.27. This range has created a retracement zone at 79.84 to 79.74. The market is currently testing this zone. It is possible that buyers may try to defend the market inside of this zone. This may trigger a few intraday short-covering rallies, but overall there is a growing bias to the downside. 

Economic Data Moves the JPY, USD, EUR, GBP and CAD

Eco data finally came back to importance in the markets yesterday. The U.S. House of Representatives has passed a Republican bill to suspend the legal limit on government borrowing until mid-May. If the bill is passed by the Senate and signed by the president, which appears likely, it will delay a major showdown between Democratic President Barack Obama and Congress over budget and spending issues, and stave off the threat of the United States defaulting on its national debt.  In a surprise move just days after President Obama’s second inauguration, House Republicans retreated from earlier demands for a dollar in spending cuts for every dollar they increase the legal limit on borrowing, and introduced a bill that would extend the debt limit until May 19.  The bill passed by a vote of 288 to 185. 

Across the Atlantic David Cameron gave his much anticipated speech on the future of the relationship between the UK and the EU. Cameron told British citizens that he would put the decision up to an In Out referendum. Earlier this week the Bank of Japan did as markets expected and increased its target inflation rate to 2%.

With Global Ministers and Lawmakers attending the Davos Economic Forum, eco data took the center stage.

Economic Data Moves the JPY, USD, EUR, GBP and CAD
Economic Data Moves the JPY, USD, EUR, GBP and CAD

Yesterday, the dollar was mixed against other currencies after the number of Americans seeking unemployment aid fell last week to the lowest level in five years. The Labor Department says that weekly unemployment benefit applications dropped 5,000 to 330,000. That’s the lowest since January 2008. The euro rose to $1.3371 in late trading Thursday from $1.3321 late Wednesday. The British pound fell to $1.5790 from $1.5843. The dollar rose to 89.96 Japanese yen from 88.66 Japanese yen and to 1.0030 Canadian dollar from 99.93 Canadian cents.

China’s flash manufacturing PMI inched higher in January to a reading of 51.9 from 51.5 in December. The print marked the highest reading in two years on the private-sector PMI, which had lagged the government China Federation of Logistics PMI for most of 2012 – raising questions about the reliability of the latter.  The government PMI came in at 50.6 in December, today’s print puts the private sector measure firmly ahead of the governments. 

The eurozone PMIs picked up steam in January both in Germany and the euro area as a whole (Germany’s manufacturing PMI increased to a reading of 48.8 from 46 in December while the services PMI moved to a reading of 55.3 from 52; the euro area composite PMI rose to 48.2 from 47.2), France’s manufacturing PMI fell to 42.9 from 44.6 and its services measure slipped to 43.6 from 45.2.  While today’s PMI data only provides a leading indicator of European economic health, it reflects a possible reversal of what had been a hard-to-understand trend in 2012 – and points to the possibility that while Germany might be starting to turn a corner.

Japan’s trade deficit came in at -¥800bn in December. Markets have reacted fairly negatively, with the yen selling off against the USD and USDJPY trading close to the 90 level. On the plus side, the number is an improvement from November, when the deficit sat at -¥852bn; marking a second straight increase, with volumes of exports rising in terms of shipments to the U.S., EU, and the rest of Asia.

Angela Merkel Accuses Japanese Government of JPY Manipulation

Angela Merkel Accuses Japanese Government of JPY Manipulation
Angela Merkel Accuses Japanese Government of JPY Manipulation

This morning the JPY continues its decline trading at 90.56. The greenback gained momentum in the North American session on Thursday after US unemployment numbers printed better than forecast. The US House of Representatives passing the vote to allow the US Treasury to continue to fund the government with an unlimited ceiling. This vote helped ease global fears over the uncertainty in the US. Yesterday, German Chancellor Angela Merkel attacked the Japanese government for manipulating the currency markets. Bank of Japan Governor Masaaki Shirakawa reaffirmed the bank’s commitment to maintain powerful monetary easing on Friday, but he warned that preventing credit bubbles was also among key roles for central banks across the world.

“Long-term interest rates will spike and erode the effect of monetary easing … if people perceive the BOJ as having shifted to a policy of recklessly buying government bonds, focusing narrow-mindedly on achieving 2 percent inflation,” Shirakawa told a news conference.

The BOJ announced on Tuesday it’s most determined effort yet to end years of economic stagnation, saying it would switch to an open-ended commitment to buying assets next year and double its inflation target to 2 percent.

Japan’s Finance Minister responded this morning to claims Tokyo was orchestrating a slide in the yen, a day after German leader Angela Merkel voiced concern over the new government’s exchange rate policy. The USD/JPY is trading at 90.56

“The criticism that (the government) is manipulating the currency rate is completely off the mark,” Taro Aso was quoted as saying in the online edition of the leading Nikkei business daily.

His comments were the latest in a simmering row over Japan’s currency, with critics saying Tokyo’s pressure on the central bank for aggressive policy action amounted to meddling that could spark a global currency war.

“I will admit I am not without some concern about Japan right now,” Merkel told top business and political leaders at the World Economic Forum in Davos on Thursday. The German leader added that “political influences or manipulations of the exchange rate” have become a hot topic within the Group of 20.

The yen hit record highs against the dollar in late 2011 — sitting around 75 to the greenback — and remained strong through much of last year, hammering Japanese exporters by making their products less competitive overseas. The EUR/JPY also continued to climb trading this morning at 121.06

But it has tumbled in recent months, since opposition leader Shinzo Abe promised before December’s election that he would urge the bank to be more aggressive in its battle to save the economy.

Abe swept to power in the poll and has since moved to bring BoJ policies into line with his new government’s position, at one point warning he would alter the law guaranteeing the bank’s independence it did not follow suit.

US Dollar Index Forecast January 25, 2013, Technical Analysis

The US Dollar Index initially rose during the session on Thursday, but stopped at the 80.20 level and fell back down in order to form a relatively neutral candle. With this being said, it appears that the market is tightening up, perhaps getting ready to make some type of move. However, we see quite a bit of significant resistance above and support below, so we’re not very interested in this market presently. Looking at this chart, if we managed to break above the 80.21 level it looks like we could go as high as 81, but this would be a short-term trader’s type of move at best. With that being the case, we will more than likely just look to this market as a barometer for what the Dollar will do against other currencies in the Forex spot market.

 

US Dollar Index Forecast January 25, 2013, Technical Analysis
US Dollar Index Forecast January 25, 2013, Technical Analysis