Week beginning 30th April 2012

THIS WEEKS KEY DRIVER’S:

§  US employment news this week (this could suggest the feasibility of QE3).

§  Spanish economic condition.

§  Spanish and Italian bond yields.

§  Any data coming out from China confirming hard landing (could trigger risk off mood of markets.)

Fundamentals:

This week’s focus again remains the US employment data that could suggest the future of largely expected QE3. Last week has been really choppy with first round of FOMC meeting and Bernanke’s comments on the possibility of QE3 if essential, however also raised a point of rising inflation which could overthrow the possibility of QE3.

Deteriorating economic condition in Spain is again a question. With 25% unemployment rate and rising economic uncertainty will force the government for fiscal loosening causing further deterioration in its budget trajectory. This was conceived at S&P and hence downgraded Spanish sovereign debt rating from A to BBB+ with a negative look. Spain’s generous unemployment package is making the matter worst as now the unemployed are de-incentivised causing the unemployment rate to even look worst. Overall, situation in Spain is looking grim especially when the youth unemployment rate is around 50%.

Around the world we are expecting more stimulus from BOJ in order to tackle deflating economy. Although BOJ Governor Shirakawa has mentioned that he is not willing to carry on stimulus every month however is keen to see inflation level reaching 1% target level. However the government may pass a law to increase its influence on bank and would like to raise its inflation target to 2%. Hence we expect potential weakening of yen for prolonged period.

Weak economic projects from the US has affected the greenback drastically across the board, USD has been weaker against all major counterparts including Gold. USD was certainly affected as a result of risk sentiment caused due to weaker economic data from the US. The charts below shows both EURO and USD against major currencies, we can see that USD was weaker against all major currencies however the similar is not true for EURO as despite of the rising sovereign debt crises EURO has appreciated vs. USD.                                                                                                                                                      

Technicals:

·        Support and Resistance levels:

R3 – 1.3380

R2 – 1.3310

R1 – 1.3282

Now – 1.3250

S1 – 1.3130

S2 – 1.3060

S3 – 1.3000

        

•       The trading system suggests to go long for this week on the pair hence forecasting more dollar weakness in coming week.
•         Looking at the 30 Minutes Chart, it looks like the market is experiencing a short-term resistance at 1.3270 level. Hence if broken then would place my trade at that level for take profit at second resistance.
•      USD Index dropped more than half a percent in on 27th which was mainly experienced during European and North American trading session. Hence this must also be noticed in Asian session as they didn’t trade the weaker US fundamentals. Hence we would experience dollar weakness in early Asian session.
•      Although it looks like risky trade to go long at the moment on this pair, considering the weakness in the single currency unit. 

Summary:

Overall, the markets are poor condition and the rising sovereign debt crises is causes shift in the market. Despite of Euro being weak against other counterparts, it still weighs higher on USD due to fundamental weakness.

Trade for this week is to go long when the Asian markets open and ride the wave caused in the Asian markets. Trade position is according to the above support and resistance levels.




(Please accept my apologies. Due to technical difficulty, I was unable to upload the charts.)