GBPUSD

Still Correctively Bullish

GBP - Sterling is lower against most of its major counterparts after a report showed that British consumer confidence fell last month as the economy slipped into a double-dip recession. The GBP fell for the first day in six against the EUR as signs the British economy is faltering prompted investors to increase bets that the BoE will ease policy further.

4HRS

USD - The dollar is headed into the weekend mixed against its major counterparts as financial markets close out a tumultuous week of trading. While stocks have staged a comeback from early losses, commodities remain under pressure on continued fears that the broader global economy is headed for contraction. Equities began the day sharply lower after JP Morgan announced a $2B trading loss with a warning of further shortfalls to come, thus raising questions about the health of the banking sector. However, data this morning has proved supportive as investors bet that the Fed will soon be spurred into action. After the unexpected drop in import prices earlier this week, PPI contracted by 0.2% versus a flat reading last month. Producer prices are on pace for a 2.7% gain this year, down from 2.8% in the previous reading. With next Tuesday's CPI report likely to reflect easing inflationary pressure, the Fed may have the room necessary to pursue another round of quantitative easing. Fed Chairman Bernanke told senators this morning that the economy faces serious challenges ahead with the scheduled end of tax cuts and extended unemployment benefits as well as a variety of budgetary cuts set to take affect at the beginning of next year. Bernanke stated that "if no action were to be taken...the fiscal cliff is so large that there's absolutely no chance the Fed would have any ability whatsoever to offset that effect on the economy." With such road bumps ahead, the Fed may become increasingly proactive in the second half of the year.

Chinese Data, UK Confidence, JPMorgan

Overnight Developments:

1. JPMorgan reported a $2 billion trading loss – that increased risk aversion.
   US bank stocks weaker – helped (JPY and USD overnight)
2. Chinese data shows harder landing at the moment.
   Also increases concerns and commodity currencies weaker.
3. UK confidence data poor, hurts GBP.

1. JPMorgan Loses $2 Billion via its Chief Investment Office

In a blow to risk appetite, JPMorgan said it will incur a $2 billion loss. That helped give a boost the the USD and JPY during the overnight session.

From Bloomberg: “Stocks and commodities fell after JPMorgan (JPM) Chase & Co. reported a $2 billion trading loss. Treasuries rose, heading for their the longest run of weekly gains since Russia’s default in 1998. JPMorgan’s Chief Executive Officer Jamie Dimon said an “egregious” failure on its synthetic credit securities led to losses in its chief investment office.”

2. China Data (April)

• CPI (Apr), at 3.4%, forecast was 3.4%.
• Industrial Production y/y: +9.3%, forecast was 12.1%, pr. 11.9% - Reflects sharper slowdown.
• Fixed asset investment (20.2% vs 20.5% expected) and retail sales (14.1% vs 15.1 expected) weaker as well.
• New loans and money supply growth slow.

Should worry those watching global growth trends (after trade data was soft) but does open up the possibility of more policy loosening by People’s Bank of China.

3. UK Consumer Confidence Slides Sharply

In a sign of weakness for the UK economy, we see consumer confidence falling by a sharp 9 points, reversing some of the positive momentum in this indicator. It could reflect that the headlines around a double-dip recession weighed on confidence and can become a self-fulfilling prophecy as households hold back on spending.

 Nick Nasad FXTIMES

GBP/JPY

GBP/JPY Weekly Outlook

GBP/JPY continued to gyrate lower towards 127.10 last week. Further decline is still expected with 129.57 resistance intact. Break of 127.10 will confirm resumption of whole fall from 133.48 and should target 61.8% retracement of 117.29 to 133.48 at 123.47. However, downside momentum is so far rather weak. A break of 129.57 will indicate that fall from 131.79 has finished and flip bias back to the upside for this resistance and above instead.

In the bigger picture, we're like to point out that GBP/JPY has been the relatively stronger yen cross. The choppy decline from 163.05 should either be a diagonal triangle or the second leg of a consolidation pattern from 118.81. In either case, 116.83 is a medium term bottom and fall from 133.48 should be contained above this level. And, rise from 116.83 should eventually resume and pass through 140.02 resistance towards 163.05 key resistance level. We'll maintain this view unless the structure of the fall from 133.48 suggests otherwise.

In the longer term picture, fall from 251.09 is treated as resumption of multi decade down trend. A medium term bottom is in place at 116.83 and we'd anticipate stronger rally ahead in medium term. But there is not clear sign of trend reversal yet and hence, even in case of stronger rally, strong resistance should be seen near to 163.05. Further decline is expected in the long run for 100 psychological level and the down trend resumes.

Forex Technical Update

Previous: GBP/JPY in a Possible C Wave with 125.35 in Sight (5/8)
GBP/JPY 4H Chart 5/10/2012, 10:01 AM EDT

The BoE held the benchmark interest rate at 0.50% and did not expand the asset purchase program. Along with a relief against risk aversion, the GBP/JPY is rallying alongside the GBP/USD. The 4H GBP/JPY chart shows a market rallying from the 127.77 wedge support to above 1.29, and above a declining wedge resistance. The bearish scenario is shelved for further medium term consolidation with development of short-term price bullish action.
If the market can hold above the 128.50 level, preferably staying above 129.00, there is upside risk toward the origin of the wedge near 131.70-131.80. Before that, there is going to be challenge against the rally around the 130.00 area. 130.25 is about 61.8% retracement, and also support for the topping pattern that formed under 131.8

GBPAUD

Australia Employment Data

• Economy adds 15.5K jobs, beats forecast of -4.8K drop (+20.3K upside beat).
• Look at it closer,
  Full time work: -10.5K
  Part time work: +26.0K.
• Unemployment Rate fell to 4.9% from 5.2% Forecast was an increase to 5.3%.

What explains this big drop? The number of people looking for work (full time) fell by 22K and the number of people looking for work (part time) fell by 6.8K.

It’s a positive report for the AUD from fundamental perspective – in that economy added jobs and unemployment rate fell – but underneath the data is not that great.

UK – Bank Of England Pauses QE Program

• The BOE Monetary Policy Committee, with new quarterly economic forecasts (to be published next week) on hand, halted their QE program at £325 billion.
• Bank more concerned with inflation, and expectations around inflation (that the BOE isn’t doing what’s necessary to get inflation back to target).
• Mervyn King, will defend the actions at a presser on May 16th, and will face questions from lawmakers in coming weeks.
• Confirms what we have seen in GBP (strength) over the last 2 months.

FOLLOWING ON

I TWITTED THE SHORT 

AudUsd 14/05/2012

Daily looks like a bounce to sell rallies

fx times below


Previous: AUD/USD Slows Up its Sell-off Ahead of Employment Data (5/9)
AUD/USD 1H Chart 5/11/2012 11:45AM EDT

The AUD/USD was in a corrective rally trading in an upward channel during the 5/9-5/10 trading session. As we entered the 5/11 trading session, the market fell below the correction pattern and cracked this week’s low at 1.0019, but only barely. It held above 1.0015 and is now back to the 1.0070 area, which was a pivot during the 5/9-5/11 period where the decline slowed up.
It should be noted that the latest bearish swing failed to push the RSI below 30, which would have confirmed bearishcontinuation momentum. Instead, it shows that although the short-term momentum is still bearish, it is losing strength.
AUD/USD 4H Chart 11:50AM EDT 5/11/2012

The 4H chart shows a market in a declining channel. The RSI in this time-frame also failed to tag 30 in the latest swing. It is also showing an extended bullish divergence between price and RSI. Also, the price has been tagging the lower bollinger band which is a showing of strength to the downside, but also a shorter-term sign that the market may be oversold. Now price stays within the band, showing another sign that there could be exhaustion from the bear run.
Furthermore, price action shows that a double bottom might be forming. Right now, the resistance for this double bottom will be at 1.0143. A breakout projection using the width of the pattern points toward 1.0270. However, we should also monitor the 50% retracement at 1.0244 as well as the previous support zone to be tested as resistance in the 1.0225-1.0240 area.
A break above 1.03, and thus the 61.8% retracement of the latest downswing in the 4H chart, would suggest shelving the bearish outlook.

The Japanese currency

Tradervox (Dublin) - The Japanese currency was one of the beneficiaries of the election results in Europe as safe haven demand increased the currency’s demand in the market. The yen gained against most of its most traded pears as investors ditched higher yielding currencies for safety. This was fueled by the poor payrolls in the US which were poor than forecasted and the election results in Europe which show a shift to anti-austerity leadership in France and Greece.

As the euro was falling against major currencies on elections in the region, the US dollar lost favor among save haven seekers as US employers were reported to have added the least jobs in six months, which fueled concerns that the world’s largest economy is faltering in its recovery efforts. This also added concerns that the Fed may consider making another round of asset purchases. Investors were more attracted to the yen, causing it to strengthen against major currencies in the market.

Forex analysts have also added their concerns, saying that the US economy seem to be deteriorating hence bringing back to the table the possibility of a third round of quantitative easing. Further, they are adding that the risks associated with the elections in Europe have forced traders to move to the sidelines as they await for signs from the regions; all these events have led to investors choosing the yen as the best bet for the moment.

The Japanese currency strengthened against the greenback by 0.4 percent to trade at 79.85, breaking the resistance level of 80. The yen might be headed to 79.64, which it touched in May 1 and is the strongest it has been since February 21. The yen registered a weekly gain of 0.5 percent last week. Against the euro, the Japanese currency rose 0.9 percent to trade at 104.49.

CAD/JPY

d 180 pips.

The CAD/JPY has already reclaimed about 50% of its decline from the middle of March to the middle of April and the CAD has strengthened on the back of a more hawkish central bank and the market pricing in a rate hike later this year by the Bank of Canada.
As a result the Canadian dollar has a stronger fundamental bias and if we have a fundamental catalyst where the BOJ does announced further easing – especially the higher amount of ¥10 trillion – the pair here is also likely to push higher towards the 84 level and then the highs from March around 84.90.
We should remember that these moves could be quite swift – similar to what we saw in the middle of February when the Bank of Japan first announced its inflation target and increase its bond purchase program – and we would also want to be cognizant of the sentiment factors which currently favors a weaker Japanese yen (looking at the action in S&P500 in Thursday’s NY session).

What if BOJ Doesn’t Ease?

If we do not see further easing from the Bank of Japan – which is a possibility – then we don’t necessarily have a reason to target these levels for either pair and we would have to trade the Japanese yen based on what is happening in equity and commodity markets and general risk appetite.
In fact the Japanese yen will likely strengthen as the BOJ would lose credibility from market participants that it is determinant to meet its inflation target (of 1%). We would however target some other currencies to long the JPY against – perhaps theEUR or AUD as they have a weaker fundamental bias currently. But, even the GBP and CAD are likely to weaken vs the JPY in such a scenario.