Forex Market Updates & Commentary

Downgrade in Japan? Weak US data sends USDJPY back down instead
US Consumer Confidence falls sharply too
Chicago PMI comes in weaker at 56.6 versus expectations of 62 (last 67.6)
NZDUSD keeps bullish bias but watch 0.8260 above.
USDCAD falls below the support at the 0.9698
Bank of Canada keeps rates unchanged
US Case Schiller due at 9:00 AM ET, Chicago PMI at 9:45 AM and Consumer Confidence at 10:00 AM ET
Canada Industrial Product Prices rise less, but Raw prices surge
The Traders Course TODAY at 4pm – Technical Indicators
BOC Interest Decision at 9:00 AM
The NY Opening Forex Commentary is available for viewing
Spanish Finance Minister says half of Spains regions not on track for budget targets
ECB’s Tumpel-Gugerell
USD/CAD hourly support @ .96984
Irish minister says markets will not start funding ireland until ECB has new financing structures

Downgrade in Japan? Weak US data sends USDJPY back down instead

Posted: 31 May 2011 07:09 AM PDT

Earlier today, Moody’s warned that Japan might be downgraded. This led to a sharp rise in the USDJPY.

Now the weak US data has led to a reversal in the pair as focus comes right back on the weakening US economy.

The pair fell back down to the 100 hour MA at the 81.28 level. The 50% of the move up from the low today comes in at the 81.23 level. The low has reache 81.24. A move below these levels will open the door for further downside potential now. Watch the 81.36 level for close upside resistance now. Above that a move above the 81.46 level would be a signal that the trading waters are muddy.

US Consumer Confidence falls sharply too

Posted: 31 May 2011 07:02 AM PDT

Falls to 60.8 from 66 revised from 65.4 originally. The expectations for this month was for a rise to 66.

Present situaion 39.3 vs 40.2
Expectations: 75.2 vs 83.2
Labor Differential: -38.3 vs -37.3 (Jobs plentiful minus jobs hard to get. A more negative says that jobs are harder to find)

Business Conditions (Present):

Good 14.6% vs 15.5%
Bad: 37.1% vs 35.9%
Normal: 48.2% vs 48.6%

Business Conditions (Expectations – 6 months forward)

Better: 17.0 vs 19.2%
Worse: 15.5% vs 14.0%
Same: 67.5% vs 66.8%

Chicago PMI comes in weaker at 56.6 versus expectations of 62 (last 67.6)

Posted: 31 May 2011 06:45 AM PDT

Prices paid  78.6 vs 81.8 last month
Production  56.0 vs 70.0 last month
New orders  53.5 vs 66.3 last month
Order backlogs 51.7 vs 62.4 last month
Inventories   61.6 vs 53.5 last month
Employment  60.8 vs 63.7 last month
Supplier deliveries 63.8 vs 68.4 last month

NZDUSD keeps bullish bias but watch 0.8260 above.

Posted: 31 May 2011 06:37 AM PDT

The NZDUSD surged higher today after consolidating during holiday trading on Monday. The pair continues to make new highs and although the headwinds exist from the large currency gains on economic exports, there are benefits from lower import prices and demand for NZ exports. In a trending market like the NZDUSD, you need a “reason” to sell. If the reason does not pan out (i.e., an old high, a trendline broken, etc), the trade should be closed as trends are directional and trending markets tend to move fast.

Looking at the daily chart, the price has reached a target level at the 50% Fibonacci Expansion at the 0.8260 level. This is derived from measuring the move up from the March low to the May high and measuring Fibo extensions from the corrective low. In short, half the move up from March, added to the corrective low in May, measures to the 0.8260 level. The high today has reached 82.59. This could be a clue that a top may be in place. However, a move above 0.8260 will negate the bearish clue. The bull trend will resume.

Looking at the hourly chart, the move to the high today also corresponded with the underside of channel trendline (broken as a result of the non-trending move yesterday- see chart below) . The ability to hold that level is a clue that profit takers entered the market. The correction came down to the parellel trendline off the channel from the May 24th low (again see chart below). So although there is a “reason” to sell against the 0.8260 level off the daily and hourly charts, the inability to break the channel trendline below, keeps the bulls in charge.

Sellers against the 0.8260 level have a few “reasons” to sell. A break above the level, however, should lead to further momentum (this is a key level for today with price above bullish/price below bearish) and should not be ignored. If the price level can hold, a move below the channel trendline on the hourly chart currently at the 0.8217 level will be needed to confirm the potential for further downside momentum.

Until then, the bulls are likely to remain in charge of the trend.

USDCAD falls below the support at the 0.9698

Posted: 31 May 2011 06:13 AM PDT

Although the BOC reiterated its assessment that the higher C$ was a headwind, the USDCAD has moved lower. Oil prices are up over $2.50 which is contributing to the decline as well. The price fell through support at the 0.9698 which reflected the 38.2% retracement of the move up from the May 11th low to the high. That level will now act as resistance with the 0.9662 level being the next target for the pair.

Bank of Canada keeps rates unchanged

Posted: 31 May 2011 06:01 AM PDT

Some stimulus to be eventually withdrawn
Commodity prices to remain high
Rate rise to be carefully considered
Economy still has material excess supply
Increased risk from peripheral Europe
Economic recovery is largely as expected
Risk of greater headwinds from strong C$
Inflation to be above 3% in the short term

Below is the press release that accompanied the announcement

Ottawa -

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

The global economic recovery is proceeding broadly as expected in the Bank's April Monetary Policy Report (MPR). The U.S. economy continues to grow at a modest pace, limited by the consolidation of household balance sheets. Growth in Europe is maintaining momentum, although the risks related to peripheral economies have increased. The disasters that struck Japan in March are severely affecting its economic activity and causing temporary supply chain disruptions in advanced economies. Commodity prices have declined recently but are expected to remain at elevated levels, supported by tight global supply and very strong demand from emerging markets. These high prices, combined with persistent excess demand conditions in major emerging-market economies, are contributing to broader global inflationary pressures. Despite the challenges that weigh on the global outlook, financial conditions remain very stimulative.

In Canada, the economic expansion is proceeding largely as expected in the April MPR. The economy grew at an annual rate of 3.9 per cent in the first quarter, reflecting continued strong business investment, smaller contributions from household and government spending, and a modest drag from net exports. Although temporary supply chain disruptions are expected to restrain growth sharply in the current quarter, this is expected to be unwound in subsequent quarters.

While underlying inflation is relatively subdued, the Bank expects that high energy prices and changes in provincial indirect taxes will keep total CPI inflation above 3 per cent in the short term. Total CPI inflation is expected to converge with core inflation at 2 per cent by the middle of 2012 as excess supply in the economy is gradually absorbed, labour compensation growth stays modest, productivity recovers and inflation expectations remain well-anchored.

The possibility of greater momentum in household borrowing and spending in Canada represents an upside risk to inflation. On the other hand, the persistent strength of the Canadian dollar could create even greater headwinds for the Canadian economy, putting additional downward pressure on inflation through weaker-than-expected net exports and larger declines in import prices.

Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. To the extent that the expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be eventually withdrawn, consistent with achieving the 2 per cent inflation target. Such reduction would need to be carefully considered.

US Case Schiller due at 9:00 AM ET, Chicago PMI at 9:45 AM and Consumer Confidence at 10:00 AM ET

Posted: 31 May 2011 05:52 AM PDT

Housing prices continue to show weakness as foreclosed homes continue to keep pressure on the prices. Data due at 9:00 AM ET

CHICAGO PMI is due at 9:45 with the expectations of a decline down to 62.5 from 67.6

Consumer Confidence is expected to show a rise to 66.30 from 65.40. Michigan Consumer Confidence rose to 74.3 from 72.4 in the preliminary report. Keeping US confidence is important for growth to continue its upward trajectory.

Canada Industrial Product Prices rise less, but Raw prices surge

Posted: 31 May 2011 05:32 AM PDT

The Industrial Product prices for April rose by 0.5% vs 0.7% while the Raw Material price Index rose by 6.8% which was much higher than the 3% expected. The Raw Material Price increase is a reflection of higher commodity prices and comes on the back of a large 5.8% increase in March.

The Bank of Canada will announce its interest rate decision at 9:00 ET.

The Traders Course TODAY at 4pm – Technical Indicators

Posted: 31 May 2011 05:28 AM PDT

The Traders Course TODAY at 4pm – Technical Indicators and what to do with them. Join Greg Michalowski and Shawn Powell for an informative class on the basics of using technical indicators in MT4. Today at 4pm. Register now

BOC Interest Decision at 9:00 AM

Posted: 31 May 2011 05:26 AM PDT

The BOC interest rate decision is due at 9:00 AM. The expectation is for a no change in rates. The comments accompanying the announcement will be eyed by the market.

The comments from the last report included the following highlights:

the global economic recovery is becoming more firmly entrenched and is expected to continue at a steady pace
Robust demand from emerging-market economies is driving the underlying strength in commodity prices, which is being further reinforced by supply shocks arising from recent geopolitical events
Broader global inflationary pressures
Recent economic activity in Canada has been stronger than the Bank had anticipated, the profile is largely consistent with the underlying dynamics outlined in the January Report
Aggregate demand is rebalancing toward business investment and net exports, and away from government and household expenditures
Business Investment should continue to rise rapidly
Consumer spending is expected to evolve broadly in line with disposable income
Net exports should be restrained by ongoing competitiveness challenges which has been reinforced by the recent strength of the C$
GDP 2.9% in 2011
GDP 2.6% in 2012
GDP 2.1% in 2013
Temporary factors to increase inflation to around 3% in the 2nd quarter before converging to the 2% target i 2012
Core inflation has fallen further in recent months in part due to temporary factors. Core inflation is expected to rise to 2% in the middle of 2012 as excess supply in the economy slowly absorbed
The persistent strength of the C$ could create even greater headwinds for the Canadian economy, putting additional downward pressure on inflation through weaker than expected net exports and larger declines in import prices

The NY Opening Forex Commentary is available for viewing

Posted: 31 May 2011 05:11 AM PDT

Spanish Finance Minister says half of Spains regions not on track for budget targets

Posted: 31 May 2011 04:47 AM PDT

Tax receipts up 4% through April
The reiterate that they stand by the budget deficit targets

ECB’s Tumpel-Gugerell

Posted: 31 May 2011 02:50 AM PDT

Not the case that ECB will soften stance on restructuring, re-profiling not an option.
Have new forecasts soon, but confident inflation expectations remain anchored.
Major part of money market gone back to normal functioning.

USD/CAD hourly support @ .96984

Posted: 31 May 2011 02:41 AM PDT

With the past 3 hourly candlesticks, the pair has found possible support from the .96984 level; we have not seen trading below this level since May 20th. If support holds, .9739 is our target.