USD/JPY Fundamental Analysis January 16, 2012 Forecast

The U.S. Dollar was higher against the Japanese Yen on Friday. A reminder that the U.S. Dollar continues as the world’s reserve currency and the recent positive tone in US economic data suggests that the Fed’s may be easing away from introducing another round of quantitative easing.

USD/JPY was trading at 76.79, up 0.04% at the close of the Asian session.

With these downside pressures on the U.S. Dollar slowly abating, coupled with our expectation that the Euro-zone crisis will get worse before it gets better, expect the USD/JPY to strengthen with other crosses favoring Yen strength, in the periods ahead.

The Japanese Yen was the best performing major currency on the week against the U.S. Dollar, even though it depreciated by 0.21 percent against its safe haven comrade. The majority of the strength the Yen exhibited against the other majors came at the frontend of the week, when market participants were just starting to digest the results of the most recent Euro-zone summit that concluded last Friday. Funding concerns continue to drive markets these days, as liquidity conditions remains tight; coupled with seasonal end of year effects, recent U.S. Dollar strength might be a bit exacerbated but demands respect nonetheless.

Looking ahead, there are some key events on the docket to look for, despite the limited impact data and fundamental event risk has had on the Yen in recent months (the Yen ebbs and flows on funding needs and haven demand). The most important event of the week is the Bank of Japan rate decision, due out sometime near the close of Asian markets on Wednesday. The Yen’s recent strength remains a concern for the BOJ and Ministry of Finance – it is the best performing currency versus the U.S. Dollar this year – and there will likely be a statement made that officials are “watching the Yen closely.” Aside from that, markets are pricing in zero percent change of a rate move, and accordingly, only 2.0-basis points are priced into the Yen over the next 12-months.

The Yen will continue to move along with global risk-appetite trends; on good days for equity markets, the Yen will lose ground; on bad days for equity markets, the Yen will gain ground. Little in the way of news or economic data is expected from European and US markets and therefore the pair was likely to find support at 76.67, Thursday’s low, and resistance at 77.04, Wednesday’s high.

Market gained on Successful Bond Auction in Italy and Spain

The market enjoyed some gains on Thursday after the bond auctions went smoothly and successfully in both Spain and Italy while the ECB president Draghi said tentative signs of stability are seen.

On Thursday Spain sold double its target raising 10 billion euros as costs fell. While Italy also saw borrowing costs fall sharply as it raised its targeted 12 billion euros.

Furthermore, the ECB left interest rates steady at 1.00%, while Draghi expects growth to recover gradually, where domestic demand and growth in general may be hurt by bond and financial markets tensions.

On the American side, unlike the market forecasts Thursday’s retail sales for December along came in worse than projected and gloomier than the prior reading regardless of the holiday shopping season as cheaper fuel prices and discounts held down actually the value of goods sold, while that jobless claims rose up despondently.

Thereby European shares were mix with DAX inclining by 0.48% while CAC closed Thursday’s session unchanged, as demand for higher yielding assets is increasing; the euro jumped trading at 1.2818, while the pound inclined slightly trading at 1.5336.

The USD lost yesterday’s gain trading around the 80.81 level, while declined to trade at 76.70. The AUD is unchanged trading around the 1.0308, where gold gained trading around $1654.55, and oil jumped again  trading at $102.22.

USD/JPY Forecast Jan. 13, 2012, Fundamental Analysis

The USD/JPY pair traded within the same rang that dominated the movements for the past two weeks.

The Japanese trade deficit widened during November in a sign that the higher yen is negatively affecting exports, while the yen was able to record more gains against the euro on speculations that the ECB will not take further actions to support the European economy during its meeting.

Also the expected weak European output reduced demand for the euro against the dollar and the yen, in addition to the current concerns regarding the EU debt crisis which dragged down demand on the higher-yielding currencies.

On Friday at 13:30 GMT, the U.S. economy will issue the Import Price Index for December, where it’s expected to drop to 0.1% from the prior reading of 0.7%, while the annual reading had a previous reading of 9.9%.

The U.S. Trade Balance will be up at 13:30 GMT, where it’s expected to show a deficit of $45.0 billion from the prior deficit of $43.5 billion.

At 14:55 GMT, the University of Michigan Confidence for January will be released, where it had a prior reading of 69.9 and it’s expected to up to 70.3.

USD/JPY Forecast January 12, 2012, Technical Analysis

USD/JPY rose slightly during the Wednesday session, but gave back all of those gains by the close. The pair is currently sitting at the bottom of a recent consolidation area, and the Bank of Japan is always a threat to intervene as we grind lower. Because of this, we don’t like selling at this level. The buying of this pair could be done – but preferably at lower levels as it would increase the odds that the BoJ would step in and help us out. At the moment however – we are very much flat of this market as it looks like it could go sideways for a while.

USD/JPY Forecast January 12, 2012, Technical Analysis
USD/JPY Forecast January 12, 2012, Technical Analysis

Fitch Fueled Concerns in Market

Fitch Fueled Concerns in Market
Fitch Fueled Concerns in Market
Markets were knocked down by concerns mounting over the 17-bloc euro nation’s debt crisis, as Fitch ratings fueled concerns saying Italy nears having its credit rating slashed. Now, Fitch will assign France and Spain under credit watch for possible downgrades until the month end.

However, Germany allotted 3.1533 billion euros of bonds maturing 2017 with 0.75 percent coupon from 8.967 billion euros, while bid-to-cover- ration at s strong 2.84 times and the average yield at 0.9 percent, missing the sale target of 4.0 billion euros. Furthermore, growth concerns reignited after Germany grew 3 percent in 2011 from 3.7 in 2010.

Thereby European shares dropped with DAX declining 0.17% while CAC slipped by nearly 0.19%. As concerns returned somehow, demand for higher yielding assets is decreasing; the euro dropped trading at 1.2683, while the pound slipped trading around 2-months low at 1.5322.

The USD is moving with an upside momentum around the 81.39 level, while the yen is almost unchanged at 76.91. The AUD dropped slightly trading around the 1.0292, where gold gained trading around $1642.52, while oil declined again  trading at $101.88 on EIA report.

USD/JPY Forecast Jan. 12, 2012, Fundamental Analysis

USD/JPY Forecast Jan. 12, 2012, Fundamental Analysis
USD/JPY Forecast Jan. 12, 2012, Fundamental Analysis
The USD/JPY pair was little changed early Wednesday, as each of the US dollar and the Japanese yen failed to earn ground against other major currencies, driving the pair to move sideways.

Markets are waiting for Spain and Italy to sell securities tomorrow, with expectations to more obstacles in funding, where risk appetite kept on hold waiting for the latest EU crisis developments.

On the other hand, China will issue its inflation report, where expectations refer to further slowdown in the inflation level which in roll will help the PBoC to focus more on the economic growth, in the way that will spur the global demand.

On Thursday at 23:50 GMT (Wednesday), the Japanese economy will issue the Current Account Total for November, where the expectations refer to a surplus of 246.8 billion yen from the prior surplus of 562.4 billion yen.

The Adjusted Current Account Total for November is expected to show a surplus of 446.0 billion yen from the prior reading of 518.6 billion yen. While the Trade Balance is expected to show a deficit of 599.4 billion yen, from the previous deficit of 206.1 billion yen.

At 05:00 GMT, Japan will issue Eco Watchers Survey: Current for December which had a prior reading of 45, as for the Eco Watchers Survey: Outlook it had a previous reading of 44.7.

The U.S. economy will release the Advance Retail Sales for December at 13:30 GMT, where the expectations refer to 0.2% in line with the previous reading. The Retail Sales Less Autos is expected to rise to 0.3% from the prior 0.2%.

At 13:30 GMT, U.S. economy will issue its weekly initial claims numbers, where the number of people filing for first-time claims for the state unemployment insurance increased 372 thousand last week.

The U.S. Business Inventories for November will be released at 15:00 GMT, with a previous reading of 0.8% and the expectations refer to 0.4%. While the Monthly Budget Statement for December will be released at 19:00 GMT, and it’s expected to show a deficit of 79.0 billion.

The German Bond Auction Trigger Caution

The German Bond Auction Trigger Caution
The German Bond Auction Trigger Caution

Currency markets are moving in tight ranges while equities in Asia and Europe are mixed ahead of the German 4 billion euros 5-year bonds auction, while Spain and Italy are preparing to sell as much as 17 billion in debt tomorrow.

IMF chief Christine Lagarde will meet French President Nicolas Sarkozy in Paris to discuss the debt crisis, after Merkel-Lagarde meeting yesterday focused on Greece and efforts to resolve the crisis which is dragging Europe in recession.

Meanwhile Italian Prime Minister Mario Monti will meet the German Chancellor after Fitch said yesterday Italy, Belgium, Spain, Slovenia, Cyprus and Ireland remain on negative watch facing downgrades.

In Asia stocks were mixed as growth outlook is faltering across Asian countries on worried that Europe’s debt crisis will damage the global economy even more, where Kospi Index fell 0.41% while Nikkei 225 rose today 0.30%.

In Europe stocks are also mixed with DAX falling 0.06% while CAC 40 gained 0.27% ahead of the bond auction while economic data is absent from the euro-zone today, yet UK released its trade balance for Nov. were deficit widened.

The US will release its Beige Book and the EIA crude oil inventories later in the day, however markets await tomorrow’s key rate decisions from EU, UK and South Korea, all expected to hold rates unchanged to support growth.

The euro is almost unchanged at 1.2775, while the pound fell trading around 1.5465 following the downbeat trade balance report. The dollar index is almost unchanged at 80.87, while the yen weakened slightly trading at 76.90.

The AUD is almost unchanged at 1.0318, yet gold found support from physical demand from Asia, mainly China and India, where gold is trading at $1645.00 from the opening at $1631.45.

Crude oil is almost unchanged at $102.10 yet its movement seem to be somehow bearish as Europe’s crisis is weighing on sentiment, yet the continued tensions over Iran and Nigeria are limiting its losses.

USD/JPY Forecast January 11th, 2012, Technical Analysis

The USD/JPY pair fell slightly during the session on Tuesday as the markets were fairly quiet overall. The pair has been consolidating between 76.50 and 78.50, and it looks like these two areas are where traders start to get involved. The pressure to the downside is certainly strong, but the Bank of Japan has intervened a few times over the last year, and is likely to do so again if this pair falls too far. With this in mind, we feel that selling at the bottom of the consolidation pattern is risky, especially if the Bank of Japan is going to get active again. Because of this, we are flat in this pair, but would buy a bit close to 75 on a supportive candle and jawboning coming out of Tokyo. In the mean time – there isn’t much to do we are afraid.

USD/JPY Forecast January 11th, 2012, Technical Analysis
USD/JPY Forecast January 11th, 2012, Technical Analysis

Stocks Turned Green on Alcoa’s Earnings

Stocks Turned Green on Alcoa’s Earnings
Stocks Turned Green on Alcoa’s Earnings

Markets are mix as several bond auctions supported the high yielding assets to hold on to the gains, where the Greek bonds saw strong demand while yields retreated slightly; however, the pair surrendered then some of the gains after the European Central Bank reported that overnight deposits rose this week to all-time record.

While the German Chancellor Angela Merkel will meet today the IMF’s managing director Christine Lagarde in Berlin to discuss about Greece. while Merkel and Sarkozy stressed the need of quick solutions to ease Greece’s debt burden.

However, still there are some concerns regarding the European debt crises, as the global recovery is not yet clear, Thereby European shares rose after Alcoa gave a good start to the earnings season, with DAX gaining 2.4% while CAC inclined by nearly 2.6%.

As sentiment improved somehow, demand for higher yielding assets is increasing, the euro is almost unchanged at 1.2775, while the pound gains trading around 1.5491.

The USD is moving with a downside momentum around the 80.82 level, while the yen is almost unchanged at 76.82The AUD gained significantly trading around the 1.0325 from the opening at 1.0236.

Commodities found support today from the good start in the earnings season, where gold gained trading around $1638.80, while oil rose again above the $102.00 level trading at $102.98 on continued worried over Iran and Nigeria.

USD/JPY Forecast Jan. 11, 2012, Fundamental Analysis

USD/JPY Forecast Jan. 11, 2012, Fundamental Analysis
USD/JPY Forecast Jan. 11, 2012, Fundamental Analysis
The USD/JPY pair traded in a narrow range early Tuesday, where the US dollar and the Japanese yen retreated against most of their major counterparts since the beginning of the week.

The German Chancellor Angela Merkel and French President Nicolas Sarkozy summarized further steps to accelerate the progress on the fiscal pact, which provided the FX market with positive sentiment and helped the major currencies to hold ground against the yen and the dollar.

The latest period in the global financial market confirmed that the EU debt crisis is the main influence on the sentiment, which in roll reflected on the higher-yielding assets demand.

On Wednesday at 05:00 GMT, Japan will release the Coincident Index for November, where the preliminary reading is expected to come at 90.3 from the prior 91.4.

On the other hand, the Japanese Leading Index for November is expected at 92.9 from the prior reading of 92.0.

The U.S. economy will issue the MBA Mortgage Applications at 12:00 GMT, which had a prior reading of – 4.10%.

Improved Sentiment Ahead of Merkel-Lagarde Meeting

Markets are moving in tight ranges with some upside bias ahead of a key meeting between Merkel and IMF’s chief Lagarde, as well as bond auctions from Netherlands, Austria, Hungary and Greece.

German Chancellor Angela Merkel will meet today the IMF’s managing director Christine Lagarde in Berlin to discuss about Greece. Yesterday Merkel and Sarkozy stressed the need of quick solutions to ease Greece’s debt burden.

Data is absent today from Europe, yet Netherlands, Austria, Hungary and Greece are holding bond auctions. Meanwhile the US will release Nov.’s wholesale inventories expected to fall, yet the focus will turn to Merkel-Lagarde meeting.

As the US recovery is increasing while no fresh bad news came from Europe and in China policy makers are expected to accelerate easing measures after the weaker than expected trade balance report, markets are somehow optimistic.

Thereby Asian stocks climbed on Tuesday with Nikkei 225 rising 0.38% and China’s CSI 300 Index rising 3.33%. European shares also rose after Alcoa gave a good start to the earnings season, with DAX gaining 0.95%.

As sentiment improved, demand for higher yielding assets is increasing, yet the caution ahead of Merkel-Lagarde is keeping markets in tight ranges. The euro is almost unchanged at 1.2765, while the pound gains trading around 1.5465.

The USD is moving with a downside momentum around the 80.95 level, while the yen is almost unchanged at 76.82. The AUD gained significantly trading around the 1.0303 from the opening at 1.0236.

Commodities found support today from the good start in the earnings season, where gold gained trading around $1621.05, while oil rose again above the $102.00 level trading at $102.60 on continued worried over Iran and Nigeria.

2011 Forex Recap: Not Good, Not Bad, Just Tradeable

In deciding which currencies were the best or the worst performing currencies during 2011 it would have been easy to just look at the closes on December 31, 2010 and compare them to where the markets are currently trading. This would have been easiest but also the most uninformative because just looking at the net gain or net loss for the year would have meant ignoring the volatile swings and changes in direction, which in my opinion, really define the Forex markets this year.

During 2011 the Forex markets have been at times subject to headline news, flight to safety, rumors and risk-on/risk-off scenarios. We saw a tsunami drive a currency both up and down. There were interventions and threats of interventions. The year had to be extremely difficult for trend traders because the trends that occurred were short-term in nature, ended suddenly and took back gains quickly. Support and resistance traders also had difficultly because just when they thought a solid range had been established, the market became trending, and they were left in the dust.

Here is a list of the highlights and lowlights in 2011 for a few of the major currencies.

EUR USD

The EUR USD has had a rollercoaster ride in 2011. The rally started in January at 1.2873 after then European Central Bank President Jean Claude Trichet hinted that the economy had improved enough to warrant a rate hike. From January to May the market trended from 1.2873 to 1.4940 then sovereign debt problems in Greece and neighboring countries began to surface after being swept under the carpet for almost a year.

As the situation worsened, talk began to surface that perhaps Greece should be ousted from the Euro Zone. In addition, Euro Zone bank stocks began to plummet, calling for the need to recapitalize. Euro Zone finance ministers finally got the message after the market had fallen from 1.4940 to 1.3145. After bottoming in early October, the Euro mounted a strong rally that produced a monthly closing price reversal bottom. Until the October top at 1.4247 is penetrated this currency repair remains susceptible to further downside action.

As the year ends, the Euro Zone is still battling the risk of contagion but recent government shuffles in Italy and Greece could mean that the European Ministers are lining up allies that support its plans to save the Euro Zone from further damage caused by toxic sovereign debt.

USD JPY

On December 31, 2010 the USD JPY closed near its low for the year at 81.18. This currency pair straddled this close for the first two months of the year under the threat of intervention by the Bank of Japan. The central bank and the Japanese government are battling traders seeking lower-yielding currencies in times of economic turmoil while trying to protect its fragile export trade.

In March Japan was hit with a devastating tsunami which wreaked havoc on the economy. Almost immediately after the event the Yen soared as Japanese citizens around the world repatriated their money to come to its aid. Sensing an economic debacle, the Bank of Japan called upon central banks from around the world to help it intervene in an effort to drive the Japanese Yen lower. Everyone knew at this point that besides government aid, Japan would have to step up export sales in order to avoid a recession.

The aggressive action by the global central banks drove the USD JPY from 76.37 to 85.52. This intervention stabilized the Yen, helping the Japanese economy slowly recover from the devastating effects of the tsunami. The action only lasted until August, however, when the currency pair penetrated the tsunami low. This was caused by greater demand for lower-yielding assets because of problems in the Euro Zone and a downgrade of the U.S. debt rating. Once again an intervention took place as the Japanese government made it clear that it would defend its currency from instability.

The battle between those demanding the lower-yielding Yen and the Japanese government’s need to stabilize its currency to help grow the economy is likely to continue into the end of the year. As recently as three weeks ago, another attempt was made to drive the Japanese Yen higher. As long as the government has the firepower to defend its currency, look for it to continue to take aggressive action. The battle line has been drawn so don’t expect too much movement until one side decides to give in.

EUR CHF

As conditions worsened in the Euro Zone, risk adverse traders shunned the U.S. Dollar for safety and were rebuked by the threat of intervention in the Japanese Yen. This gave them no choice but to buy the Swiss Franc. From May until early August, the EUR CHF plunged sharply lower as speculators sold the Euro and bought the Swiss Franc.

The higher priced Swiss Franc began to adversely affect the economy as it drove up the price of Swiss goods and services. With its export based economy being threatened, the Swiss National Bank decided to take decisive action. In early August it began to threaten to intervene. When this didn’t work it actually intervened. At the same time talk began to circulate that the central bank was fed up with having to defend its currency. Records show that it had lost a large sum of money making transactions that just weren’t working.

Rumors began to surface that the SNB was poised to peg its currency at 1.20 to the Euro. This triggered a massive short-covering rally from 1.0068. Then true to its word, in September the central bank took the aggressive action. Since then the EUR CHF has remained locked inside of a tight range with 1.2000 the support and last year’s close at 1.2479 the resistance. Look for the volatility to remain low and this pair to remain locked inside of a tight range until either conditions improve drastically in the Euro Zone or the Swiss National Bank gives up defending its aggressive action.

In summary, with almost all of the major currencies making volatile moves in both directions and hovering near last year’s close, it’s difficult to say which the best was and which the worst was. From a year-to-year standpoint, one can easily assess the gains and losses, but looking at it from a trader’s perspective, the conclusion is different. In my opinion, there wasn’t a “good” or “bad” currency, just very exciting trading markets. Corporations and bankers may be complaining, but traders have to have liked the volatility offered during 2011.

The Best and Worst Currency Performances of 2011

In what can be considered one of the most volatile years of the last ten years, it has been hard to find currencies that have had steady trends over the last year as the debt crisis in Europe has pushed currencies with ferocity in a similar manner to the issues in 2008, albeit in a less dramatic fashion. In this piece, we look at five major currencies against the US dollar to measure the strength and weaknesses of these currencies.

Euro

In the past twelve months, the Euro has been at the epicenter of the financial problems that have been moving markets. Initially, the Euro was rising with great strength against the Dollar, but as early as May the surge began to fade. The European debt problems began to come to the forefront, and the Euro declined as a result.

The Euro started the year just below the 1.29 handle. During the ascension, it went as high as the 1.4850 area, and looked primed to keep the long-term uptrend intact. The pair started to drift lower, and has become a news-driven pair towards the later weeks of the year. The pair is starting to show signs of strength though, and is currently looking primed for a bounce. At the time of writing, this pair sits at 1.3750, which is considerably lower than its highs.

Performance for the year: 6.55%

Canadian Dollar

The Canadian dollar has been particularly whippy against the Dollar over the course of the year as the two currencies and economies are so interconnected. The pair serves as a proxy for the oil markets which have behaved in a very similar manner. The pair has visited the 0.9450 area twice during the last 12 months, but managed a bounce as high as the 1.0650 area as well. This was a significant move as the economic fears over sovereign debt heated up, but over the last couple of weeks we have seen this pair fall quite rapidly as the oil markets heat up, and the Europeans look like they are making progress on the debt issues. Until the crisis is over in Europe, this risk currency will more than likely continue to be flat overall, but with massive moves for short bursts of time.

Performance for the year: -1.95%

Australian Dollar

Being one of the most popular “risk” currencies, the Australian dollar has had a rough year as a result. The Aussie started the year just below the parity level against the Dollar, and even ascended to the 1.10 level at the peak. The pair has mirrored the global risk appetite, and as such saw a massive fall in July that actually pushed the pair into negative territory in the late summer months. The pair as skyrocketed over the last several weeks, and has managed to push into positive territory.

The Australian economy is highly sensitive to global risk, Chinese economics, and hard futures such as gold, copper, and other mined commodities. The pair should continue to be volatile as the world tries to emerge from several headwinds in the outlook of the global markets. The pair has retested the parity level recently, and it does look to be supportive which would be a positive sign. However, for traders that went long at the start of the year, the performance has been quite a rollercoaster.

Performance for the year: 3.33%

Japanese Yen

The Japanese Yen has been an interesting currency to trade over the last year. The Bank of Japan has intervened at least three times, and even had a coordinated action with several other central banks after the tsunami that hit the island in the spring. The Yen has been a safety currency to traders as the trend continued to be downward.

The Yen has gradually appreciated against the Dollar, and while it started above 81, the ending months of the year sees the USD/JPY heading back down towards the 76 handle again. The pair has only managed to stay above that level because of the above mentioned interventions. Without them, the pair would undoubtedly be much, much lower. While the BoJ looks set to intervene on sharp downward moves again in this pair, the writing is on the wall, and the trend is most decidedly down.

Performance for the year: 4.94%

British Pound

The British Pound has had the misfortune of being tied into the European debt issues this past year. The British banks are exposed to the poor debt, and the Pound has suffered. The UK is presently going through massive austerity which can slow down an economy as well, and unemployment remains high. However, as the Parliament continues to do what it takes to cut the budget, traders have rewarded the UK by pushing the Pound higher. The 1.60 level against the Dollar has recently seen supportive action, and the pair currently looks like it might the first one to completely retrace the fall from the summer, if it gets a bit of traction. As a result, the performance of the Pound has been one of the best this year.

Performance for the year: 3.45%

As you can see, all of these currencies appreciated against the Dollar with the exception of the Canadian dollar. This is perhaps because of Canada’s dependence on the US as an export market. The oil markets have been down for some time, only to bounce recently – which could possibly reflect well on the Loonie toward the last weeks of the year.

The selling of the US dollar continues as it has for years, but this previous year has been interrupted by massive spikes in the demand for the Dollar, and financial issues continue to be at the forefront. Because of this, the Dollar will have sudden and aggressive moves to the upside. However, the trend is clearly to sell the Dollar overall, and there is nothing in the charts that suggests that the trend will change for the long run.

Outlook for Major Currencies in 2012

Euro

Without a doubt, the trickiest of all currencies in the next year will be the Euro. During the second half of the year in 2011, we saw several attempts to tweak the EU and make the debt crisis go away. However, there were mainly instances of half-hearted attempts at fixing the issues. It wasn’t until December that the leaders in the EU even began to act like they were taking the whole situation seriously.

The biggest problem with the Euro is that it structurally makes no sense. The idea of that many cultures, religions, and languages can unite under one currency is a bit farfetched if you think about it. The southern Europeans aren’t savers, or even producers for that matter. Quite frankly, the ability of the Germans to sell their goods to poorer nations due to the same currency may be outliving its usefulness. However, there is a good chance that something is finally done over the next year, and that the Euro survives.

None the less, we are looking at an almost certain recession in the EU, and perhaps a few more rate cuts. The currency will probably get one massive rally once the issues are dealt with, but then reality will settle in. After the initial surge upward, the currency could very well fall below the current 1.30 – 1.35 levels. Expect another choppy and whippy year in this currency.

Australian dollar

With the slowing down in the Chinese economy and the global “risk off” attitude that keeps popping up, the Aussie will fall overall. The Australian housing markets is starting to show signs of a crack in the bubble, and this will have money running from Oz as well.

The commodity market might be the one positive for the Aussie, albeit only slightly so. The currency will track some of the run to commodities, but in the end this should only serve to slow down the total descent, not stop it. We think the Aussie will be lower on the year, although not significantly so.

Swiss franc

With Swiss National Bank’s need to work against the value of the Franc, the currency should continue to fall overall. There will be exceptions of course, but the major Franc-related pairs will all see a weakening of the Swiss currency. The latest talk is that the SNB will raise the “floor” of the EUR/CHF pair to 1.25, and then perhaps to 1.30 or so. With the obvious willingness for the central bank to get involved in this currency, the markets take them seriously.

Unlike the Yen, the Franc is a fairly thinly traded currency. The SNB is more than large enough to control the markets, and will certainly continue to do so. This is especially true as long as the Europeans cannot get their collective acts together on the debt crisis. With this in mind, we expect the Franc to fall in value, especially against the Dollar.

Japanese Yen

With the Bank of Japan intervening in the USD/JPY and EUR/JPY every once in a while, this currency will be difficult to hold for too long. Granted, the overall direction is stronger for the Yen, but waking up to a 300 pip loss isn’t what most traders are into. Because of this, we expect that the Yen will range trade for another year, as traders simply aren’t willing to take on the BoJ, and the world’s economy doesn’t improve much. The “risk off” trade will keep the demand for the Yen alive, but the BoJ will also keep it under control. Our assessment is that the Yen will be flat overall.

US dollar

The US dollar should continue to see inflows as the “safety trade” continues for at least the first part of the year. The situation in Europe has a long way to go, and if the EU settled on the “correct” solution today, we would still be talking about massive referendums across the continent. With that in mind, there won’t be any certainty until much later than people tend to think. The situation in Europe is far more complex than most traders understand. Because of this, the Dollar should do quite well in the year ahead. In fact, the Dollar is the last safe haven, as the Swiss and Japanese are intervening against their own currencies from time to time. With that in mind, it makes for a Dollar positive environment.

USD/JPY Forecast January 10th, 2012, Technical Analysis

The USD/JPY pair fell on Monday as the Dollar lost a little bit of its luster during the session. The pair still looks to be consolidative with a downside bias, but with the Bank of Japan sitting somewhere below, it is hard to think that selling is a good idea at this point. If you are not already short of this pair – you have simply missed this latest selloff. The areas below will certainly attract the attention of the central bank, and as a result – we are flat in this market until we get some kind of supportive movement in which to buy – in anticipation of an intervention.

USD/JPY Forecast January 10th, 2012, Technical Analysis
USD/JPY Forecast January 10th, 2012, Technical Analysis

Small Gains in Market after Upbeat Fundamental

Small Gains in Market after Upbeat Fundamental
Small Gains in Market after Upbeat Fundamental

The market gained some momentum during Monday’s sessions after upbeat data from Germany, as the German exports inclined by 2.5% compared with the prior decline of 2.9%, noting that the trade balance showed a surplus of 16.2 billion euro better than expected in Germany.

However, the French president and the German Chancellor made slight progress regarding the new budget rules; however, they provided markets with nothing new and further details were not seen, therefore, the euro remained mixed after the news as markets are still waiting for details on how leaders will solve the debt crisis and how they will apply the new budget rules.

In Europe stocks fell where the DAX lost 0.6% while CAC 40 fell 0.3%, as the worries over the euro zone’s crisis still prompting investors to be more cautious, while the USD declined trading as of this writing around the 81.11, however, the euro is trading around the 1.2744.

The pound inclined on Monday trading around the 1.5435, while the AUD rose slightly to trade around 1.0216 as. However the yen managed to gain after the USD lost some of last week’s strength trading around the 76.84 level.

Commodities are mixed, as crude oil lost the early gains, now crude is trading around $100.57. Gold is stronger trading around the $1616.57 as the US dollar declined today against major currencies.

USD/JPY Forecast Jan. 10, 2012, Fundamental Analysis

USD/JPY Forecast Jan. 10, 2012, Fundamental Analysis
USD/JPY Forecast Jan. 10, 2012, Fundamental Analysis
The USD/JPY pair fluctuated with the beginning of the week, where the strongest US data and the deteriorating conditions in Europe fuel instability in the financial market.

The strong US NFP’s numbers provided some confidence to the broader market sentiment, while the dollar gets benefit from the recovery in the employment sector in addition to the strong performance of the manufacturing sector in the United States.

However, concerns regarding the ongoing crisis in the EU had its toll on the market sentiment, which eroded gains in the major stocks indices and increased demand for safer assets.

The Germany and France leaders are about to meet in Berlin to discuss a plan for rescuing the EU countries from the toughest sovereign debt crisis. The euro and other European currencies recorded some gains against the dollar and the yen before the meeting, but the main sentiment is still towards safe havens.

On Tuesday at 15:00 GMT, the U.S. economy will issue the Wholesale Inventories for November, where the previous reading was up by 1.6% and it’s expected to retreat to 0.4%.

Asia Opens the Week Weak, While the Yuan keeps Climbing

Asian share markets are mostly flat or slightly down today, opening the week on a quiet note.

Japanese markets are closed for a holiday today.

Continued worries about the EU Debt Crisis and the drop in the euro have foreign investors cooling their heels.

South Korea’s Kospi declined 0.8%, while Australia’s S&P/ASX 200 Index slipped 0.1%, Australia’s seasonally adjusted retail sales were flat in November, the Australian Bureau of Statistics reported Monday. Retail sales had risen 0.2% in October. Economists had been expecting a rise of 0.3% for November retail sales, according to a survey from Dow Jones Newswires. Sales were down 0.4% in the clothing, footwear and personal accessory category, and down 0.1% in department stores, the ABS reported.

In China, Hong Kong’s Hang Seng Index fell 0.7%. The Shanghai Composite Index however, rebounded from a near three-year low hit on Friday to rally 2%.

“The market is listless… people are waiting for some kind of breakthrough [from the U.S.] and waiting for the announcement of the reduction of the reserve requirement ratios from mainland China,” said Peter Lai, Hong Kong-based director at DBS Vickers.

Chinese developers broadly declined after property major China Vanke Co. Wednesday reported a 30% tumble in December sales. China Vanke shares dropped 1.1% and Oceanwide Real Estate Group Co. lost 1.5% in Shenzhen. Poly Real Estate Group Co. eased 2.5% in Shanghai, while China Overseas Land & Investment Ltd.  declined 2.5% in Hong Kong. “The reduction of the reserve requirement ratios will be beneficial to the mainland [Chinese] banks and consumer stocks. [Offshore] funds are buying the … mainland banks because they believe the RRR will be reduced [as early as] next week,” DBS Vickers’ Lai said.

China’s currency is not about to end its appreciation trend against the U.S. dollar, nor are investors pulling increasing amounts of cash out of the country, according to new research which argues that the two assertions will likely be debunked in coming months.

Capital flowing out of China reached a peak in September, but those outflows have fallen sharply in recent months, or even swung into reverse, according to a Bank of America Merrill Lynch study released Friday.

Forex-position figures that appear on the central bank’s monthly statement are widely quoted by the media and market players as indicating the size of investment funds flowing into and out of China.

Recent changes that bolster the role of the Yuan as a currency of settlement in international trade have rendered the data point “misleading,” according to Lu, who labeled the resulting distortion to some of the central bank’s monthly statistics an “unintended consequence” of the freer Yuan.

After reworking the data to filter out the distortion, Lu calculated that funds flowing out of China reached a top of $34 billion in the July-to-September quarter, likely peaking during September.

Helping explain the move, September coincided with heightened concerns over a hard landing in China, a rise in fears over the euro-zone crisis, and a medium-term low for the Hang Seng China Enterprises Index, which tracks Hong Kong-listed mainland Chinese firms a preferred channel for foreign fund managers investing in China-focused stocks.

USD/JPY Forecast January 9th, 2012, Technical Analysis

The USD/JPY pair fell on Friday as traders sold off risk everywhere, and the Yen got a bid in general. However, the pair is near the bottom of its most recent range, and the levels below will certainly attract the attention of the Bank of Japan. If we were to sell, we would need a bounce to do it from as the area we are in will certainly start jawboning by the BoJ.

USD/JPY Forecast January 9th, 2012, Technical Analysis
USD/JPY Forecast January 9th, 2012, Technical Analysis

USD/JPY Forecast for the Week of January 9th, 2012, Technical Analysis

The USD/JPY pair sat absolutely still for the week as it finished unchanged. With this in mind, we don’t expect much on the long-term front as the pair is being pressured to the downside by the 80 level, and the Bank of Japan continues to support this pair. If you are a long-term trader, you will want to see a daily close above the 80 handle in order to buy and hold. Otherwise, with the BoJ always a possible foe – stay out of this pair.

USD/JPY Forecast for the Week of January 9th, 2012, Technical Analysis
USD/JPY Forecast for the Week of January 9th, 2012, Technical Analysis