My Forex Analysis

I am certain you all noticed the vast opportunities in the FX markets so far. Take USD/JPY for example.

As you can see a double top (if you don't know what a double top is please drop a comment here) has formed when the graph tackled a solid resistance. I followed it, opened a short position and left it open for a couple of hours (approx):

I think those who paid attention to the moves noticed an attractive market, enriched with constant opportunities. The market will be extremely interesting tonight (CET) and throughout tomorrow's session due to the heavy releases.

Let's analyze them together and see why is tonight session (CET) and tomorrow are so attractive.

Let us first look at GBP

Nationwide HPI m/m:

It is simply the change in the selling price of homes with mortgages backed up by Nationwide. Rising house prices will appeal investors thus giving us a good picture of the housing market in The UK. So far so good, let's refresh ourselves with last November's Data:

The Graphs are available for all from The Nationwide official web site.

To summarize, the price in November fell to -0.4%, the pressure on the housing market may intensify due to poor economic conditions but big rate cuts may cushion the impact. So, we can see the high rate cut in November was supposed to cushion the impact. British mortgage approvals for house purchases fell to their lowest level in November since records began. Mortgage approvals are an important indicator for the housing market as it reflects housing demand. The Mortgage approvals fell to a shocking 27,000 in November as we discovered last Friday, which forced GBP down against a basket of currencies.

Therefore, the Nationwide HPI for December is very important. We are going to see whether the previous rate cut did the trick despite the grim expectations, which are not positive at all and have the strength to crush GBP.

Time of release: 07:00am GMT

Now lets see what is happening so far with The GBP?

One can easily note GBP is on the move, riding with the bulls. This trend may be reversed via the aid of the Nationwide HPI and Services PMI or they will not become an obstacle and ride with the GBP on the bullish trend, depending on the actual figures, worse or better then expected.

The new interest rate that will be released this Thursday may unleash a new reality to The GBP, which will definitely create a window of opportunities for us, the traders.

Now have a look at USD

ISM Non-Manufacturing PMI & Pending Home Sales m/m

If you followed the market today you would have noticed the sudden burst of USD, gaining against a basket of pairs until tackling solid resistance in some pairs, which forced the graph down although I believe those resistance levels may be to the test again.

Both financial indicators are expected to be negative; the new home sales are not expected to blossom and neither does the non-manufacturing PMI. These figures will be released simultaneously and are likely to impact all the major pairs, I will eye out JPY pairs as well such as GBP/JPY and EUR/JPY at time of release.

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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).

Equities opens new year with positive sentiment

I hope you all enjoyed the holidays. The FX market is reopened already but I would like to use the fact you are all off work to update you on some vital events. There are two of them actually, The Manufacturing PMI in the UK (GBP) and The ISM Manufacturing PMI. Above 50.0 indicates industry expansion, below indicates contraction.

Equity Headlines:

• Stock market sentiment in Asia is positive as speculation that government policies will help shelter the region from global recession.

• Crude Oil dropped in New York on concern that the contracting global economy will spur off a further drop in demand.

• Expectation is that ISM Prices Paid will be out at 20.0. This will be the lowest level since 1949.

Forex Headlines:

• EURUSD: Ranging within a near term down-channel. Resistance at 1.4046, support 1.3825.

• EURJPY: Prefer short play. Target at 125.38. S/L at 127.032.

• USDJPY: Little higher. Support at 90.28, Resistance at 91.29

• GBPUSD: Retracing after gapped higher on opening. Next support at 1.456, resistance on 1.462.

• AUDUSD: Trading lower. Next support 0.692, resistance at 0.696.

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