Cheers Turn to Jeers as D-day Nears!

EUR

The Euro gained early in Tuesdays session only to give it back later on as the US markets opened and investors began taking profits and returned to the safe haven Dollar in advance of Thursday’s US stress test release and the European Central Bank’s decision on interest rates and stimulus. The past few sessions saw the Euro benefit from the positive sentiment on the street as traders took advantage of good economic news to come out from hiding behind the stalwart Dollar and Yen. However, as Thursday’s ECB meeting comes close, investors who traded the Euro in recent days are cashing in and taking cover once more. We, forex online traders can expect to see strength in the Euro should there be signs that the ECB will not adopt and aggressive policy – a topic that has been widely debated in recent weeks and seemingly dominated the market news.

At 11:00PM GMT, the Euro was trading down .4% to the Yen to 131.88, down 1.1% to the Sterling to .8831, down .4% to the Canadian Dollar to 1.567, down 1.2% to the Australian Dollar to 1.7926 and flat to the Swiss Franc after an up and down session to 1.5102.

USD

Federal Reserve Chairman Ben Bernanke said that it was his assessment that the economy is “turning the corner” and that the US could see growth in the second half of this year. This testimony in front of the US Congress contradicted his last month’s report when he declared that it could take until mid-2010 before any growth is seen. What should have been good news was muted by jitters over the release of the stress test this coming Thursday and an announcement by President Obama that he intends to raise business taxes by 5% in the short term to help cover the ever growing national debt. It is thought that 10 of the 19 banks that submitted to the US Treasury’s stress test will have to raise additional revenue in order to remain solvent, however to what degree these companies are struggling was the source of much debate on Tuesday.

At 11:20PM GMT, at broker trading boards, the US Dollar was down .7% to the Euro to 1.3315, up .22% to the Yen to 98.68, down .45% to the British Pound, down .2% to the Canadian Dollar to 1.1746, up .6% to the Swiss Franc to 1.1325, and down .8% to the New Zealand Dollar to .581.

AUD

The Reserve Bank of Australia held interest rates today at 3% after the members said that signs that the recession has grown in Australia are not present and in fact, there are positives that can be interpreted as strength. The Australian Dollar has benefitted lately as investors tested their risk appetite and moved to the higher yielding Aussie Dollar in order to lock in some larger profits.

At 11:40PM GMT, in addition to being up to the Euro, the Australian Dollar rose .45% to the US Dollar to .7421, up .65% to the Yen to 73.52, down .06% to the Pound to 2.034 and down .3% to the New Zealand Dollar to 1.2791.

Currency updates

For whatever reason, the pound is seeing the majority of volatility among the major currencies over this holiday period, with EURGBP having swung wildly from all the way above 0.9800 to as low as 0.9440 in the Asian session before rallying sharply again in the European session to 0.9600 as of this writing. UK Mortgage Approvals for November were an anemic 27k - down an unbelievable two-thirds from year ago levels and even more from the highest numbers of the last couple of years. The housing crunch has descended on the UK even more swiftly than it did on the US. Still, looking forward, we wonder how much longer the pound can maintain its recent downside momentum after losing an astounding 15.6% vs. the Euro and 16.0% vs. CHF in December alone. For the year, the loss in value ran to about 30% vs. the EUR and CHF. The next Bank of England meeting is already up on Thursday of next week and one has to wonder if this meeting might be the pivot point for the pound. Certainly, the clip at which the pound has been losing ground has better odds of giving the MPCs pause for rapid further cuts. Already at the last meeting, a hundred-basis point cut was rejected due to fears of its effects on the pound.

EURUSD attempted a move below the recent 1.3915 line in the sand, but found support a few notches lower as the pair seems to want to remain in consolidation/range mode rather than starting a downward move in the thin holiday trading. Watch out for the US ISM report later today. Another slightly decline to 35.4 is expected after 36.2 in November. the lowest level for this survey ever measured in this report's 60-year history was 29.4 in 1980 in the desperate days of stagflation and drastic action taken by Carter and the Volcker Fed to fight inflation (almost the diametric opposite of the kind of action going on today, ironically enough). At some point in the coming few months, however, this survey will begin to rise due to its "comparative" nature - in other words, things can stabilize at a bad level and then the survey can return to 50. All of the regional surveys surprised to the upside slightly this month, and the Philly Fed and Chicago PMI actually rose slightly last month. EURUSD still looks too expensive relative to interest rate differentials, but let's see if the market is paying any attention to these.

JPY crosses have rallied on further signs of strength in equity markets, and perhaps as the world is looking for a rally in risk to start the year now that the books have been closed on the old year and many are sitting around either still with their old troubled assets or large piles of cash. The theory goes that some will want to put those piles of cash "to work". We'll see - certainly risk often tries to anticipate better times before they occur, but things look awfully dim at the moment and we would expect any broad based rally in risk to quickly founder on continued waves of bad news. See the benchmark USDJPY in the chart below.

Chart: USDJPY

USDJPY has been in a very well organized downtrend for some time and appears to be threatening a couple of key levels that suggest it may be moving into a consolidation/ranging environment if it continues higher. 90.95 was the old low and this gave way today. As well, the falling trendline is under threat here, as is the 21-day moving average (in blue).

Chart Analysis: EURJPY

The EUR finally turned tail late yesterday on the ECB's latest moves and the ugly developments in equity markets are pressuring the JPY crosses again, despite the BoJ shaving rates to near-zero levels. It's a bit of hubris, perhaps, to want to find ways to short the strongest currency around, perhaps, but we wonder if EURJPY may have topped out for now and we look for confirmation in the short term that the pair is ready to dive deep back into the old range toward 120.00 to start.

Forex Best Market Analysis Visit: http://www.finexo.com/marketReview

Forex Tutorials: http://www.finexo.com/infoCenter/5553 and http://www.finexo.com/infoCenter/5548