Cautious Trading Dominates Markets ahead of Thursday’s ECB Rate Decision and Friday’s EU Summit

Cautious trading dominated European and U.S. markets on Wednesday ahead of the European Central Bank meeting on Thursday, where the ECB is expected to cut the benchmark interest rates by 25 basis points to 1.00%, while investors are also eyeing the EU summit at the end of this week on hopes EU leaders will be able to reach an agreement on a plan to ease the European debt crisis.

Accordingly, investors targeted lower yielding assets, as the level of anxiety continues to build in markets amid some doubts that EU leaders will once again fail to reach a resolution to ease the euro zone debt crisis, and we should expect volatility to continue to dominate markets throughout this week until investors have a better idea of how EU leaders intend to tackle the debt crisis.

The U.S. dollar rebounded to the upside against a basket of major currencies on Wednesday, where the U.S. dollar index was trading at 78.60, compared with the opening level at 78.45. The Euro fell against the Dollar, where the EUR/USD pair traded at $1.3387, compared with the opening level at $1.3409, the British Pound rallied against the Dollar, where the GBP/USD pair traded around $1.5677, compared with the opening level at $1.5602, and the U.S. dollar was little changed against the Japanese Yen, where the USD/JPY pair was trading around 77.73, compared with the opening level at 77.75.

Stocks in the United States were lower by opening on Wednesday, as the Dow Jones Industrial Average was down by nearly 0.55% to trade around 12,081, while the S&P 500 index was down by nearly 0.90% to trade around 1246. European stock indexes were also lower before closing on Wednesday, where FTSE 100 was down by nearly 1.20% to trade at 5501 and the DAX was down by nearly 1.50% to close around 5939.

Gold prices were little changed to trade now around $1728 an ounce and crude oil prices fell after the EUA report showed crude oil stockpiles increased above expectations to trade around $99 a barrel.

Improved Sentiment on Believes EU Leaders will Boost Efforts to Solve the Debt Crisis

Optimism was seen spreading through the Asian and European markets today on hopes Europe will boost efforts to cure the debt crisis during Friday’s EU summit, after S&P warned it might downgrade 15 European nations and the EFSF.

Investors are hoping that officials might come up with a convincing plan for solving the debt crisis as pressures are mounting, which is sustaining optimism and increasing demand on higher yielding assets.

Sentiment found additional support from the parliamentary approval to Greek Prime Minister’s 2012 budget, while Australia’s economy grew on a yearly basis more than expected by 2.5% from 1.4% a year earlier.

Yet since investors are anxiously waiting for the European summit, the ECB’s rate decision tomorrow and some key economic data from China later this week, caution will be seen among traders, which could keep trading limited.

Optimism over the outlook of the EU debt crisis brought gains not only in Europe today but in Asia as well, where Nikkei 225 ended 1.71% higher while Hang Seng was up 1.58%. In Europe FTSE 100 rose 0.50% while DAX rose 0.74%.

If EU leaders will be able to find a final solution to the debt crisis then this wave of optimism might continue, increasing demand for riskier higher yielding assets, however if the summit will disappoint, it will weigh down on confidence and demand on safe haven will be reignited.

Markets will be eyeing today Germany’s industrial production expected to weaken in Oct., while in UK the manufacturing production fell more than expected to -0.7% in Oct. The US will be releasing its consumer credit and the EIA crude oil inventories.

The euro is enjoying today some bullish momentum, trading as of this writing around the 1.3410 level, while the pound is trading to the upside around the 1.5615 level. The USD is weakening trading around the 78.47 level. The yen is almost unchanged around the 77.68 level.

As the US dollar weakened amid rising optimism in markets that EU leaders will take strong actions to ease the European debt crisis, commodities managed to find some support, where oil is trading around $101.60 while gold is trading around $1730.10.

USD/JPY Forecast Dec. 08, 2011, Fundamental Analysis

The USD/JPY pair dropped for the third consecutive day as the dollar lost momentum against major currencies, as the current market sentiment indicates some stability before the EU summit in Brussels.

The greenback retreated against the euro and other major currencies, as expectations refer that the EU leaders may boost the stimulus in order to provide more liquidity to the financial market and contain the crisis.

The Japanese currency is considered a parameter for the confidence in the financial market and since the yen is falling against other majors, it considers a sign for confidence before the EU summit yet the gains are still seen against the dollar.

On Thursday at 23:50 GMT (Wednesday), Japan will release the Current Account Total for October, with a previous surplus of 1584.8 billion yen which is expected to retreat to a surplus of 1452.2 billion.

The Adjusted Current Account Total for October is expected to show a surplus of 941.0 billion yen from the prior reading of 1186.6 billion yen, while the Trade Balance is expected to show a surplus of 343.3 billion yen from the previous surplus of 373.2 billion.

At 23:50 GMT the Japanese Machine Orders for October will be published, where it’s expected to come at –7.1% from the prior -8.2%, while the annual Machine Orders is expected to come at 10.6% from the prior 9.8%.

Japan will issue Eco Watchers Survey: Current for November which had a prior reading of 45.9 and its expected to come at 46.5, while the Eco Watchers Survey: Outlook for November had a prior reading of 45.9.

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 402 thousand last week.

The Wholesale Inventories for October will be published at 15:00 GMT, where it’s expected to come at 0.3% compare to the previous reading of –0.1%.

USD/JPY Forecast Dec. 7th, 2011, Technical Analysis

USD/JPY had a negative session on Tuesday as traders continue to fade rallies in this pair. The 78 level continues to show itself to be resistive, as even the interventions can’t overcome it for any real length of time. The pair is currently being supported by the Bank of Japan in the form of interventions from time to time, even though the correct direction has been to sell over time. The rallies are to be sold, but only down to about 76 as the Bank of Japan gets involved below that level. Buying can’t be done until we close over the 80 mark on a daily chart.

USD/JPY Forecast Dec. 7th, 2011, Technical Analysis USD/JPY Forecast Dec. 7th, 2011, Technical Analysis

Mixed Sentiments Dominate, as S&P Warns Europe of Possible Debt Downgrade in Cautious Trading

Mixed feelings dominated financial markets on Tuesday amid the lack of economic data from the United States, as fears continued to dominate global financial markets over the outlook of the European debt crisis after rating agency Standard & Poor’s announced it could downgrade the credit rating of 15 euro zone countries including Germany and France. Standard & Poor’s also signaled it could downgrade the credit rating of the European Financial Stability Facility EFSF.

Nonetheless, better than expected factory orders from Germany provided some hope for investors, where factory orders increased by 5.2% in October, better than median estimates of 1.0%, while compared with a year earlier, factory orders increased by 5.4%, also better than median estimates of 1.9%. Moreover, GDP data from the euro zone for the third quarter came in line with median estimates.

Meanwhile, the Bank of Canada left the benchmark interest rates unchanged at 1.00% in line with median estimates, where the BOC signaled that the European debt crisis could weigh down on global economic growth. Nonetheless, the BOC signaled that rising economic activities in the United States represent a good sign for the outlook, since the United States is indeed Canada’s largest trading partner. Canada also released the Ivey PMI for November, which rose to 59.9, better than median estimates of 55.5.

The U.S. dollar fell slightly against a basket of major currencies on Tuesday, where the U.S. dollar index was trading at 78.62, compared with the opening level at 78.71. The Euro was little changed against the Dollar, where the EUR/USD pair traded at $1.3383, compared with the opening level at $1.3386, the British Pound also fell against the Dollar, where the GBP/USD pair traded around $1.5601, compared with the opening level at $1.5642, and the U.S. dollar fell slightly against the Japanese Yen, where the USD/JPY pair was trading around 77.75, compared with the opening level at 77.80.

Stocks in the United States were mixed by opening on Tuesday, as the Dow Jones Industrial Average was up by nearly 0.25% to trade around 12,129, while the S&P 500 index was down by nearly 0.05% to trade around 1256. European stock indexes were also mixed before closing on Tuesday, where FTSE 100 was higher by nearly 0.20% to trade at 5579 and the DAX was down by nearly 1% to close around 6043.

Gold prices remained under pressure and dropped to trade now around $1709 an ounce and crude oil prices were little changed to trade around $100 a barrel.

USD/JPY Forecast Dec. 07, 2011, Fundamental Analysis

The USD/JPY pair dropped for the second day as demand increased for safe assets, after Standard & Poor’s announced it may cut the credit ratings for France, Germany and other countries from the EU region.

The Japanese yen strengthen against of its major counterparts as a safe haven currency, due to concerns over the gloomy outlook for the euro area.

On the other hand, the greenback advanced against other major currencies, as risk aversion returned to the market during the Asian session pushing the higher-yielding currencies to the downside.

On Wednesday at 05:00 GMT, Japan will issue the preliminary reading for Leading Index for October, where it’s expected to come at 91.5 the same inline with the previous reading.

The preliminary reading for the Coincident Index for October had a prior reading of 89 and it’s expected to come at 90.2.

The U.S. economy will release the Consumer Credit for October at 20:00 GMT, where it’s expected to come at $7.00 billion compare to the previous reading of $7.386 billion.

Risk Aversion on S&P’s Downgrade Warnings to Europe

Pessimism was seen across the broad markets today after Standard & Poor’s warned it might downgrade 15 European nations including Germany and France, spreading concerns in markets and boosting demand for lower yielding assets.

If European leaders will fail to decide on a credible plan during Friday’s summit that would solve the region’s debt crisis, six nations might lose their AAA credit ratings, spreading pessimism over the outlook of the European economy.

This ended the rally seen since last week in the global equity markets, as risk aversion increased demand on safe haven. Investors must be cautious over the coming period ahead of the ECB meeting and the EU summit later this week.

As uncertainty continues to surround the outlook of the European debt crisis the Australian central bank cut its interest rate by 25 basis points to 4.25% to sustain growth, signaling that Europe’s efforts to end the debt crisis are still not enough.

We expect markets to remain under pressure since more pessimism might be spread among traders ahead of the ECB’s meeting and EU’s summit. US lack the economic data today. While in Europe the GDP was unrevised at 0.2% in Q3.

In Asia stocks fell as the regions is facing “much greater downside risks”, and Nikkei 225 ended lower 1.39%, while Hang Seng closed 1.24% down. InEurope, FTSE 100 fell 0.23% while DAX fell 1.09%.

The euro is trading with some bearish momentum around the 1.3390 level, while the pound is hovering around the 1.5650 as of this writing. The USD is almost unchanged around the 78.55 level. The yen is rising trading around 77.65.

Oil is almost unchanged trading around $100.88 on the euro zone downgrade risks, while gold is trading around $1719.50. The AUD fell today trading around 1.0225 after the RBA lowered rates to 4.25%.

USD/JPY Forecast Dec. 6th, 2011, Technical Analysis

USD/JPY fell during the Monday session as the 78.00 level acted as a massive resistance barrier to the pair. The pair has been decidedly bearish as of late, and unless the Bank of Japan is intervening, this pair is either sideways or down in direction. The pair can’t be bought until we break above the all-important 80.00 level, and as that being the case – we only sell rallies at this point.

There have been several interventions by the Bank of Japan lately, and every time it happens, the market will simply fade those moves. The whole pair is set up as such: to sell any pops in price. The trend has been viciously to the downside since the financial crisis of 2008, and should continue to have massive headwinds to any serious attempt to the upside.

The pair has a definite trading range form the 76 handle up to the 80 handle, and we will continue to trade it as such. The higher we get, the more interested we are in selling this pair as the moves simply do not have the strength to continue above that 80 level. If we ever do, we would become buyers, but that seems to be very far down the road.

We like selling rallies, especially ones that are over 50 pips as it gives us a decent amount of room from which to trade. However, we are not keen to hang onto trades for too long as the 76 level has seen a couple of interventions recently, and we do not want to be on the wrong side of a central bank intervention. There are few things that can wipe your account out quicker than that mistake. Because of this, we sell, but are willing to take 50 – 100 pips at a time, and then wait for another thrust higher form which to sell again. Someday we will be proven wrong as this pair finally gets traction to the upside, but until then – we are willing to continue with this strategy as it has served us so well.

USD/JPY Forecast Dec. 6th, 2011, Technical Analysis USD/JPY Forecast Dec. 6th, 2011, Technical Analysis

EU Optimism Boosts Demand for Higher Yielding Assets, as USD Falls against Major Currencies

A wave of optimism dominated global financial markets on Monday, where traders were already encouraged by the unexpected drop in U.S. unemployment reported last Friday, while optimism that EU leaders could be able to reach a resolution to the debt crisis in Europe, boosted confidence in markets and supported demand for higher yielding assets, as the U.S. dollar fell against major currencies, while equities, commodities, and major currencies rallied.

Investors are optimistic that EU leaders could reach a plan to ease the euro zone debt crisis at this week’s EU summit, while the ECB is expected to loosen its monetary policy as well in order to help in easing the deepening debt crisis. Moreover, reports signaled that Germany and France have reached an agreement on reforms to solve the debt crisis and prevent another situation in the future, which also supported confidence in markets.

Nonetheless, the U.S. ISM services index signaled that activities in the services sector eased in November below projections, where the ISM services index eased to 52.0, compared with the prior estimate of 52.9 and below median estimates of 53.9. Nevertheless, investors were focused on the developments in Europe, which overshadowed the worse than expected ISM services index.

The U.S. dollar fell sharply against a basket of major currencies on Monday, where the U.S. dollar index was trading at 78.23, compared with the opening level at 78.61. The Euro gained against the Dollar, where the EUR/USD pair traded at $1.3459, compared with the opening level at $1.3416, the British Pound gained strongly against the Dollar, where the GBP/USD pair traded around $1.5699 compared with the opening level at $1.5605, and the U.S. dollar fell against the Japanese Yen, where the USD/JPY pair was trading around 77.82, compared with the opening level at 78.09.

Stocks in the United States rallied by opening on Monday, as the Dow Jones Industrial Average was up by nearly 1.20% to trade around 12,165, while the S&P 500 index was up by nearly 1.60% to trade around 1264. European stock indexes were also higher before closing on Monday, where FTSE 100 was higher by nearly 0.45% to trade at 5577 and the DAX was up by nearly 0.60% to close around 6116.

Gold prices fell to trade now around $1740 an ounce and crude oil prices gained to trade around $101-$102 a barrel.

Confidence Boosted by Italy’s Austerity program

A slight wave of optimism was seen across the broad markets, as Italy’s Prime Minister Mario Monti will unveil today a 30 billion euro package of austerity measures to parliament, boosting confidence ahead of the European Summit later this week.

Investors targeted higher yielding assets as European leaders extend their efforts to solve the debt crisis that threatens the euro unity, where French President Nicolas Sarkozy and German Chancellor Angela Merkel will meet today in Paris to overcome their differences till Friday’s summit.

Confidence is also boosted by the improved outlook for the U.S .economy after the jobs report last week showed unemployment dropped unexpectedly to 8.6%, while the ECB is expected to cut rates this week  to help ease the mounting tensions from the debt crisis.

Investors will continue to focus on the new developments from Europe this week, since strong resolutions that would end the debt crisis are more than welcomed. Italy’s austerity program brought gains in Asia and Europe today, where Nikkei 225 ended higher by 0.60%, while DAX rose 0.87% as of this writing.

Today’s’ economic data however was not that cheerful, since in China the services PMI fell to 52.5 in Nov., the weakest growth in three months, confirming that the economy is slowing quickly. In Germany and EU the services PMI also fell below expectations, while in the US the ISM services may rise to 53.8 in Nov.

The euro is trading with bullish momentum around the 1.3444 level as of this writing. The pound gained today after UK reported a better than expected PMI services report, where the currency is trading around 1.5630. The AUD is trading with some bullish momentum too around the 1.0254 level.

As investors felt some appetite for risk, the safe haven USD is weakening, trading around the 78.40 level as of this writing. The Yen is trading around the 77.95 level, while the commodities are almost unchanged, where oil is trading around $101.75 per barrel, while gold is trading around $1744.50 per ounce.

USD/JPY Forecast Dec. 06, 2011, Fundamental Analysis

The USD/JPY pair retreated with the beginning of the week after it reached its highest level in four weeks during last week. The Japanese currency is trying to gains some momentum against the dollar after its lost ground against other major.

The euro and other major currencies advanced against the yen, as the new Italian prime minister announced a plan to cut the nation’s debt where the cabinet approved the 30 billion euros austerity and growth measures and now going to the parliament.

The new Italian plan helped risk appetite to control the FX market, and pushed the European currencies to advance against the dollar and the yen, as demand increased for higher-yielding currencies.

On the other hand, the U.S. unemployment rate retreated to 8.6% during November, which is better than the previous and the expected reading of 9.0%. Where the optimistic data fueled the risk appetite and forced the dollar to dropped against most of its major counterparts.

Both economies will not release any fundamentals on Tuesday, where the pair’s movements will depend on the market sentiment.

USD/JPY Forecast for the Week of December 5th, 2011, Technical Analysis

USD/JPY had a bullish week over the last five sessions, but continues to sit below the crucial 0.8000 handle. The area is where we consider the trend to have changes, and we have a long way to go if we are going to reach it. The Bank of Japan is sitting under this pair currently, and probably the only reasons we aren’t talking about a 60 handle at this point in time. Until we get a close above 0.800, we aren’t willing to take any longer-term buy positions. We don’t like selling for longer-term trades either as the intervention threat is also there. Selling this pair on the shorter time periods seems to be the best route at the moment.

USD/JPY Forecast for the Week of December 5th, 2011, Technical Analysis USD/JPY Forecast for the Week of December 5th, 2011, Technical Analysis

USD/JPY Forecast December 5th, 2011, Technical Analysis

The USD/JPY pair got a boost on Friday as traders continue to buy the Dollar against the Yen at the moment. However, there is a ton of selling in this pair overall and the 0.8000 level is still massively resistive. With this in mind, we prefer selling at higher levels as this pair will continue to be a “sell the rallies” type of pair. The trade going forward will be in that vein, and we aren’t willing to buy at this time. Any sign of weakness gets us short again.

USD/JPY Forecast December 5th, 2011, Technical Analysis USD/JPY Forecast December 5th, 2011, Technical Analysis

USD/JPY Weekly Forecast Dec. 5-9, 2011, Fundamental Analysis

The USD/JPY pair fluctuated last week but it was able to end with gains for the second straight week. The Japanese yen lost momentum against most of its major counterparts due to the optimism that dominated the market.

The EU finance ministers announced the expansion means of the EFSF in order to prevent the debt crisis from spreading to other countries, the move that was coupled with many questions if it will achieve its purpose or not.

On the other hand, global equities rallied last week to cover some of the previous losses, as market sentiment helped investors to increase demand for risky assets on the back of safe haven investment, such as the Japanese yen.

In a coordinated central banks intervention, six major central banks led by the Federal Reserve lowered the borrowing dollar swap rate by 50 basis points for banks, in order to support banks and provide more liquidity into the financial system.

The Central banks intervention eased some concerns regarding the gloomy outlook for the market and the global economy.

The USD/JPY pair’s outlook remains a big puzzle for investors, as any intervention from the Bank of Japan will take the pair higher, while risk aversion could return to FX market as strong as before, which will increase demand for the yen as a safe haven and push the pair to the downside.

Major highlights for this week that will affect the USD/JPY pair’s trading:

Monday December 05:

On Monday at 15:00 GMT the U.S. economy will release the ISM Non-Manufacturing for November, where it’s expected to come at 53.5 from the previous reading of 52.9.

On the other hand, Factory Orders for October will be released at the same time and expected to remain flat following 0.3% rise the previous month.

Tuesday December 06:

Both economies will not release any fundamentals on Tuesday, where the pair’s movements will depend on the market sentiment.

Wednesday December 07:

On Wednesday at 05:00 GMT, Japan will issue the preliminary reading for Leading Index for October, where it’s expected to come at 91.5 inline with the previous reading.

The preliminary reading for the Coincident Index for October is expected to rise to 90.2 from 89.

The U.S. economy will release the Consumer Credit for October at 20:00 GMT, where it’s expected to come at $7.00 billion compare to the previous reading of $7.386 billion.

Thursday December 08:

On Thursday at 23:50 GMT (Wednesday), Japan will issue the Current Account Total for October and expected to shrink to a surplus of 1452.2 billion from a surplus of 1584.8 billion yen.

The Adjusted Current Account Total for October is expected to show a surplus of 941.0 billion yen from the prior reading of 1186.6 billion yen, while the Trade Balance is expected to show a surplus of 343.3 billion yen from the previous surplus of 373.2 billion.

At 23:50 GMT the Japanese Machine Orders for October will be released, where it’s expected to come at –7.1% from the prior -8.2%, while the annual Machine Orders is expected to come at 10.6% from the prior 9.8%.

Japan will issue the Eco Watchers Survey Current for November which had a prior reading of 45.9 and expected to come at 46.5, while the Eco Watchers Survey Outlook had a prior reading of 45.9.

At 13:30 GMT the U.S. economy will issue its weekly initial jobless claims numbers, where the number of people filing for first-time claims for the state unemployment insurance increased 402 thousand last week.

The Wholesale Inventories for October will be published at 15:00 GMT, where it’s expected to come at 0.3% compare to the previous reading of –0.1%.

Friday December 09:

On Friday at 23:50 GMT (Thursday), Japan will release the final reading for the third quarter Gross Domestic Product where the previous reading showed that the Japanese economy grew by 1.5%.

The U.S. economy will release the Trade Balance for October, where it’s expected to show a deficit of $44.0 billion widening from the previous deficit of $43.1 billion.

The University of Michigan Confidence for December will be released at 14:55 GMT and expected to slow to 63.0 from 64.1.

USD/JPY Forecast Dec. 05, 2011, Fundamental Analysis

The USD/JPY pair ended last week with gains, despite the fluctuations during the week, where the market sentiment forced the Japanese yen to drop against other major currencies, opening the way for the greenback to record gains against the yen despite its weakness.

The USD/JPY pair’s outlook remains a big puzzle for investors, as any intervention from the Bank of Japan will take the pair higher, while risk aversion could return to FX market as strong as before, which will increase demand for the yen as a safe haven and push the pair to the downside.

On Monday at 15:00 GMT the U.S. economy will release the ISM Non-Manufacturing for November, where it’s expected to come at 53.5 from the previous reading of 52.9.

On the other hand, Factory Orders for October will be released at the same time and expected to remain flat following 0.3% rise the previous month.

USD/JPY Forecast Dec. 2nd, 2011, Technical Analysis

The USD/JPY had a fairly quiet day on Thursday as traders pared volume ahead of the Non-Farm Payroll reports later today. The US job market will certainly have an effect on the rate in each currency, but the headlines out of Europe will certainly continue to weigh on sentiment as well. The USD/JPY pair looks a bit heavy at this point, but the reaction to the Non-Farm Payroll announcement will be what drives this pair for the day. The most pressure is to the downside in this pair, and if we get closer to the 80 handle, we are much more interested in selling at that point.

USD/JPY Forecast Dec. 2nd, 2011, Technical Analysis USD/JPY Forecast Dec. 2nd, 2011, Technical Analysis

USD/JPY Forecast Dec. 1st, 2011, Technical Analysis

The USD/JPY pair fell on Wednesday as the central banks of the world have struck a coordinated play on driving the cost of borrowing Dollars down for some of the larger banks. The flooding of Dollars into the market drove this pair down, and the trend would have suggested it was going to fall to begin with. Of course, the Bank of Japan is below, so we would sell on a break of the lows for the day, but would also be quick to take profits as there will certainly be high risk for intervention in the lower part of the previous consolidation area – roughly at 76.

USD/JPY Forecast Dec. 1st, 2011, Technical Analysis USD/JPY Forecast Dec. 1st, 2011, Technical Analysis

Markets Over React to the Central Bank Annoucement.

Strategists said Europe’s sovereign debt problems will continue to be the key driver for the euro. The EU and IMF must now do something positive to help the debt crisis and protect the euro.

Markets Over React to the Central Bank Annoucement.

The news today can be best interpreted from what investors and analysts are saying this morning.

“As Europe dithered, monetary policy makers acted, even if their ‘actions’ have more symbolism than significance,” said strategists at RBC Capital Markets. “Markets breathed a huge sigh of relief.”

Yesterdays move by the Central Banks signaled leadership and direction. This is what the markets are looking for. Investors jumped head first into the markets.

The move is an attempt to “ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the banks said in a statement.

“It’s the first time we’ve seen this type of global coordination since November 2008,” said Michael James, a senior equity trader at Wedbush Morgan. “The degree of coordination sends a message to the markets that global leaders are going to do whatever they need to do to instill confidence in the markets.”

“The fundamentals just keep marching forward despite the market turmoil,” said Doug Cote, chief investment strategist at ING. “The real economy seems indifferent to the EU debt headlines.”

Central banks are “hoping the rate is so attractive that hitting the swap line makes business sense as opposed to signalling vulnerability,” he said. “They hope if they draw enough institutions, the stigma will decline, stresses on the liquidity front will ease and that will ease some of the bearish demeanor towards the euro.”

“The price action was because the market was short, not being bought by people entering new long positions in euros and equities,” he said. “It’s people closing shorts.”

This morning’s coordinated action also implies that the central banks feel conditions are much worse than they would otherwise lead us to believe, which is why more liquidity is needed immediately,” said Kathy Lien, director of currency research at GFT. “The markets are always relieved to see central banks put up a unified front, especially on the heels of a similar increase in liquidity from China.”

Removing the risk of liquidity problems increasing further as year-end approaches provides a major relief to financial markets,” said Greg Anderson, senior currency strategist at CitiFX in New York.
“The level of cooperation and responsiveness being shown by the G7 central banks suggests that policy makers are now highly engaged and likely to come forward with further measures in coming days.”

“The big deal is just saying they are going to be involved. It’s not like they brought out the tank, they brought out the six shooter,” he said.

“It’s not enough. It’s a temporary liquidity initiative which is good, but it won’t solve the problem, because in a couple of days, the problems will put on their hats again,” De Leus said.

 

USD/JPY Forecast Nov. 30th, 2011, Technical Analysis

The USD/JPY pair fell during the Tuesday session as the recent surge ran into the 78.50 resistance area. The pair is undoubtedly in a downtrend, and this looks to remain the case until we can get over the 80 level. In fact, we aren’t buying at all until we get over that level. The pair falls every time it rallies, and as a result – we like fading these rallies at this point. The breaking of the lows on Tuesday sends this pair lower. We don’t buy at this point as it would be chasing the trade.

USD/JPY Forecast Nov. 30th, 2011, Technical Analysis USD/JPY Forecast Nov. 30th, 2011, Technical Analysis

USD/JPY Forecast Nov. 29th, 2011, Technical Analysis

The USD/JPY pair rose during the “risk on” rally Monday, but gave up some of their best gains towards the end of the session. The pair has come under pressure anytime it has risen, and we think that theme should continue going forward. In fact, it would take a rally to above the 80 handle for us to consider buying this severely beaten down currency pair. With this in mind, we are fading rallies and not buying at all.

USD/JPY Forecast Nov. 29th, 2011, Technical Analysis USD/JPY Forecast Nov. 29th, 2011, Technical Analysis