EUR/USD and EURO crosses ready for pullback

EUR/USD Current Price: 1.3686 Daily Pivots:
S3: 1.3439; S2: 1.3520; S1: 1.3601; P: 1.3653; R1: 1.3734; R2: 1.3786;
R3: 1.3838

*EUR/USD:* Price action on the EUR/USD for the last two weeks has been
up. This is consistent with a move up in most of the EURO crosses:
EUR/GBP, EUR/JPY, EUR/AUD and EUR/CAD. If we look at each cross
individually, we see that all are trading at the upper end of the
Bollinger band with oscillator resistance. On the EUR/USD, while we
have not seen a reversal candlestick pattern emerge on the daily chart
yet, once we do, we should see a sell-off. In the mean time, when we
measure the FIB retracement of the last swing move down from 1.4283 on
November 4th to 1.2859 on January 10th, we are approaching the 61.8%
level at 1.3740. A breach of that level will target the 76.4%
retracement at 1.3945 which is also close to the 1.4000 psychological
barrier. Since the EUR/USD is stretched on the upside, along with the
previously mentioned EURO crosses, it seems likely that upside is
extremely limited without some kind of a pullback. On the downside,
watch the 1.3500 major support level. A sustained drop below that
level will signal a reversal.

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Wave analysis, please contact me. If you are interested in signing up
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Source: Fxstreet.com

READ MORE - EUR/USD and EURO crosses ready for pullback

Sterling strong against all but EUR

!! Today\'s Highlights !!
Central Banks to dominate the week
Sterling strong against all but EUR

!! FX Market Overview !!
Last week's data was lively enough to cause significant volatility.
The surprisingly strong UK inflation combined with lacklustre jobs
growth and a snow blighted December retail report to keep Sterling
traders on their toes. Whilst we are starting to see earlier interest
rate hikes factored in for the Pound, the poor employment data may
make that happen later than May as so many forecasters have predicted.
Sterling ended the week in a better position against the US Dollar and
the Australasian Dollars but lost ground against the Euro. This
week's major highlights are the release of the Bank of England
minutes and the Quarter 4 economic growth data. Both are potentially
trend altering.

The Euro's strength came after a record high in the German business
sentiment report and another bout of well received bond auctions.
Traders are also expecting today's industrial orders data to be
strong. Even the European Central Bank's monthly bulletin was more
upbeat than many had expected. The result was a recovery in the Euro
which picked itself up off the floor but barely made it above the
skirting board before sellers came back into the fray. We start this
week with the Euro at the top of its recent ranges against the Pound
and US Dollar but not managing to break out of those established
constraints. Other than business and consumer confidence indices,
there isn't a lot on the Eurozone data diary this week so the
influences on the Euro are likely to be external.

The diary does though include the release of the minutes from the last
Bank of England meeting which will be minutely examined for signs that
their resolve to keep interest rates at record lows may be slipping.
We will get the US interest rate decision; no change is forecast here
but there may be a bit of coded warning that the loose monetary
environment cannot continue forever; in plain speak, interest rates
will have to rise and/or the expansion of the money supply will have
to be reined in.

Overnight news that Australian producer prices rose slower than
expected and a warning from the Australian Treasury Minister, Wayne
Swan, that the country faces an enormous impact from the floods,
combined to weaken the Australian Dollar this morning. We saw the NZ
Dollar follow suit and push above NZ$ 2.10 at the interbank level for
the first time in 5 weeks. The Interest rate decision from the Reserve
Bank of New Zealand is this week's major release as far as the Kiwi
Dollar is concerned. We don't expect the RBNZ to move interest rates
at this point but they may start to shift in that direction so don't
be surprised if this morning's top of the range for the Sterling -
NZ Dollar exchange rate is the best of the week.

In an interesting aside to the Irish political storm, an online
article by a chap called Mike Shedlock suggests Ireland has printed an
extra €51 billion backed by so called 'other assets' in order to
fund support and expansion programs. The problem Ireland's
government faces is that it really doesn't have other assets worth
€51 billion so this money is pure cash expansion. At a time when
Irish banks are crying out for further funds but lack the collateral
to support such funding, this may well prove to be the undoing of the
Irish economy and - dare I say it - another nail in the coffin of the
Euro. I suspect the story will grow.

And finally, ex Prime Minister Gordon Brown is now wondering whether
his phone calls were also hacked by the News of the World in the
scandal that brought down Andy Coulson the first time. It may be an
opportune time to stick another knife into the former Tory party head
of communications but I don't think the press needed to hack G Brown
did they. Just leave a mike on him when he departs a press conference
and he will do all the work for you. Or am I being bigoted?

!! Currency - GBP / Australian Dollar !!
When the Treasury Minister tells you to expect bad data, it probably
makes sense to listen. That is precisely what happened this weekend
when Australia's Treasurer, Wayne Swan, said Australia's economy
would feel an enormous impact from the Queensland floods. It entirely
overshadowed the softer than expected producer price data which was
released overnight and it pretty well guarantees we will see no policy
change from the reserve Bank of Australia when they meet next week. In
fact it probably puts the mockers on any chance of another interest
rate hike for quite some time despite some analysts saying that the
floods will have an inflationary impact and that could force the RBA
to act. The fact that any inflation would be identifiable as
extraordinary and likely to work its way out of the figures in the
months ahead would, I would guess, make it less likely for the RBA to
act in a knee-jerk way but I am not an economist. However, I still
think these recent events could well cause a continuation of the
weakness that we saw in the Australian Dollar last week. As long as
the Pound manages to maintain this exchange rate above A$ 1.5950, then
a push to A$ 1.63 is a real possibility.

!! Currency - GBP / Canadian Dollar !!
Throughout December, the Pound fell from roughly C$ 1.60 to C$ 1.53.
Through January, that fall has completely reversed as Sterling
recovers. There was no doubt that the Pound was oversold in the latter
part of December but there is more to this recovery than just profit
taking amongst Sterling sellers. The Canadian Dollar has been weakened
by flattening commodity prices, by slower data from America and by a
slowdown in Canadian economic performance as well. Sterling has been
boosted by 'not being the Euro', by better than forecast
employment figures and output data and by a sharp increase in
inflation, prompting increasing calls for an early Bank of England
interest rate hike. I think the possibilities of an early change in
BOE policy is being overplayed but I don't control the markets and
the general consensus is that investors are buying into the Pound
because they think UK interest rates will rise as soon as May and that
will bring further Sterling strength. So if Sterling can force its way
above C$ 1.60, then there is a real chance of a drive up to C$ 1.63, a
point which marks the top of the larger trading range and a level that
marked the top of this pair for the whole of the 2nd half of 2010.
However, if we fall back below C$ 1.58, then another dive to C$ 1.53
is the most likely scenario.

!! Currency - GBP / Euro !!
The good news for those who need to buy Euros, is that the Sterling -
Euro exchange rate is in an upward trend. The bad news is that we are
rapidly heading for the bottom of that trend channel and there is a
degree of trepidation amongst traders who aren't entirely convinced
this pair will stay in the uptrend. I mentioned last week that the
Euro was at the weaker end of its range and it has behaved impeccably,
strengthening to prove the point. That is bringing this exchange rate
down to the lower end of its range; the Sterling weakness end. We will
almost certainly see a test of €1.1690 and perhaps even a drop to
€1.1560 and the real question is whether the Pound has the strength
to remain supported at these levels or whether it will capitulate and
fall back to €1.14 or below.

!! Currency - GBP / US Dollar !!
The mixed pattern of US Data is making it hard for traders in the
Sterling - US Dollar exchange rate. This pair has long been referred
to as 'Cable' after the massive cable that was laid to link the
tickertape machines on either side of the Atlantic in the early days
of financial market trading. It appears to be more of a string these
days; stringing traders along as they assume we will see further US
Dollar weakness but fail to see it materialise. The inability of the
Pound to get above $1.6050 and the evident demand for US Dollars at
that level give us all pause for thought. In an environment where
interest rates are kind of irrelevant and growth is so unconvincing,
the only driving factor appears to be a fear factor; fear of further
US economic problems and fear of what may happen in the UK when the
full effects of the VAT hike, government spending cuts and slower
retail activity start to manifest themselves in the economic growth
data. The Pound is looking a little overbought at current levels so a
drop back to $1.57 wouldn't be at all surprising. This week's US
interest rate decision and the accompanying statement will be the key
to whether this happens or not.

!! Currency - GBP / New Zealand Dollar !!
I may read like a stuck record but the major themes in the NZ Dollar
exchange rate are the effects of the Australian floods and the
decisions being made within China to slow their economy and therefore
their demand for imports. There is another factor though and that is
the debate over whether the Reserve Bank of New Zealand has any need
to hike interest rates from the current base of 3.0%. I can't
imagine that, while all these negative factors are weighing in the NZ
economy, the RBNZ would deem it essential to make things tougher still
but there is an outside chance they may act to stem pent up
inflationary pressure. Either way, we don't envisage the Reserve
Bank of New Zealand changing its base rate when it meets on Thursday
and we believe they will continue to tread a cautious path in the
months ahead. However, having managed to push the NZ Dollar up to NZ$
2.10 again, there is the possibility that Sterling could break to
slightly higher levels if (and it is a big IF) we can get above NZ$
2.11. There is a trend line which has been in place since October 2010
which caps this pair and until it breaks, we have to assume the Pound
will dip back again; perhaps as low as NZ$ 2.05.

!! Currency - GBP / South African Rand !!
The markets liked the fact that the South Africa reserve Bank left its
base rate on hold at 5.5% when it last met. True, exports of gold,
diamonds and other metals and minerals are fetching good prices on the
international market but the recent strength of the South African rand
has made SA exporters a tad uncompetitive. The fall in the strength of
the Rand we have witnessed since the turn of the year have eased that
pressure and the relatively low interest rates will help. So, as
perverse as it may seem, the weaker currency may well cause a bit more
confidence amongst SA business and that will strengthen the Rand.
Foreign exchange trading is as near as you can get to yo-yoing but
without a string and spinner. However, as the Sterling - Rand exchange
rate was topped by a trend line which started in November 2009 and was
only broken a week ago, we would have to assume that when Sterling
does step backward - and it will at some stage - the drop will make it
as far as that trend line. R11.00 is essentially where that line is
now situated and that, I suggest, will be the support for this pair.
If the Pound can find sufficient support at that level, then we are
set for a proper rally in this pair. If not, then there is little to
stop us heading for R10.20 again.
Source: Fxstreet.com

READ MORE - Sterling strong against all but EUR

Euro-zone Data Showing Strong Fundamentals, But Euro Starts Week Lower

Overnight, we had two reports showing that the Euro-zone economy - and
especially Germany - posting strong levels of activity in
manufacturing and services.

We had the preliminary readings come out for January in both of those
sectors. The manufacturing PMI for the Euro-zone came in at 56.9, a
bit lower 57.1 reading we had in December, but it still shows modestly
strong growth in activity. The surprise was a jump in the Euro-zone
services PMI to 55.2 from December's 54.2. It was therefore the
services sector that helped push the "Composite Output Index" - a
combination of both manufacturing and services - to a six-month high.
Germany led the gains as its services sector PMI climbed to 60.0 in
January from 59.2 in December.

In a second report we had industrial new orders for the month of
November rise 2.1% from a 1.3% rise in October. Here, Germany led the
way and it shows that new orders picked up in the middle of the 4th
quarter.

What today's data tells us is that if Euro-zone politicians can come
together to put a lid on the sovereign debt crisis, then there may be
some positive fundamental macro-economic data in the Euro-zone that
could help support the Euro currency.

In today's trading, we had the Euro decline a bit, probably a
correction to the strong gains we finished up with to end last week.
There are no US fundamentals today, so let's keep an eye on technical
factors and how equities open this week.
Source: ActionForex.Com

READ MORE - Euro-zone Data Showing Strong Fundamentals, But Euro Starts Week Lower

Euro Still Strong In The Beginning Of A New Week

The euro's upward rally continues as investors appear more confident
over the euro zone sovereign debt situation. The single currency rose
as high as 1.3645 against the US dollar today as investors' demand for
the euro increased to its highest in two months. The pair was last
traded at 1.3591 dollars. Hopes that the euro zone policymakers will
take decisive steps in defending the euro and talks of an increase in
the bailout fund, added strength in the euro. Also, ECB President Jean
Claude Trichet's comments on the euro zone increased optimism on the
euro. Further supporting the euro, is the fact that Japan and China
expressed their willingness to step in and help the single currency.
Today, the currency market is focusing on Europe's Purchasing Manager
Index and Industrial New Orders data.

The Australian dollar fell against the dollar during the Asian session
as the Purchasing Manager Index failed to meet expectations. The
Aussie fell as low as 0.9864 versus the dollar but then recovered some
of its losses in the EU session to trade at 0.9893. Investors now
anticipate tomorrow's Consumer Price Index and expect an increase of
0.8%.

Against the Japanese Yen, the euro extends its gains after it hit a
two month high at 112.70. The pair was last traded at 112.46. The euro
also hit a two week high at 0.8529 against a weaker sterling after
poor retail sales data in the UK disappointed investors. The pair
eased its rally today to trade around 0.85.

Gold jumped on Monday after it plummeted for two straight days. Gold
prices rose as high as 1353.05 from 1337.55 as a weaker US dollar
raises demand for the precious metal.

*Currency to watch out for: EURUSD & USDJPY*
The EURUSD pivot point is at 1.3540 with a preference to enter into
Long positions at 1.3550
The USDJPY pivot point is at 82.50 with a preference to enter Long
positions at 82.55
*Today's calendar and market movers:*
Europe Purchasing Manager Index Manufacturing in January is forecasted
to remain unchanged
Europe Industrial New Orders in November is forecasted to gain 2.3%
*Equity Markets:*
US equities closed positive on Friday with the S&P500 traded up 0.24%
and the DJIA traded up 0.41%. The European bourses are also positive
with the FTSE trading up 0.48%, the DAX trading up 0.54% and the CAC
up 1.33%. The NIKKEI and the HSI at the time of writing are trading up
0.69% and down 0.34% respectively.
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Source: ActionForex.Com

READ MORE - Euro Still Strong In The Beginning Of A New Week

EUR/USD gained sharply last week

!! Last Week Recap !!
*EUR/USD* gained sharply last week as worries about the sovereign debt
situation in Europe lessened and the prospect of rate hikes to combat
inflation in the Eurozone became increasingly more probable. The rate
began the week on a soft note, making its weekly low of 1.3243 seen on
Monday as the United States observed the Martin Luther King Jr. Bank
Holiday, and markets prepared for the ECOFIN meeting of Eurozone
finance ministers in Belgium on Tuesday. EUR/USD then reversed and
began trading sharply higher on Tuesday after rumours that most EUR
shorts had covered after the previous week's successful debt
auctions in Portugal and Spain. In addition, finance ministers of the
stronger European nations in Brussels pledged to strengthen and
perhaps even expand the European financial safety net from its current
€750B. ECB President Trichet stated that the fund should be "as
flexible as possible" regarding the quality of the fund. Also
supporting the Euro, was the successful auction of 5.5B in Treasury
Bills by Spain, €4.5B in 12-month bills, which yielded 2.95%, while
€1B in 18-month bills yielded 3.36%, both yields were lower than the
3.45% and 3.72% yields respectively from the previous auction. In
economic releases, German ZEW Economic Sentiment came out at 15.4,
more than double the market consensus of a 6.5 reading, and Eurozone
ZEW Economic Sentiment, which showed a reading of 24.4, also
considerably better than the 17.3 reading the market was anticipating.
In U.S. numbers, TIC Long Term Purchases came out at +85.8B,
considerably higher than the +43.4B expected. EUR/USD continued
trading sharply higher on Wednesday, breaking the 1.3500 level after
news that U.S. Housing Starts had dropped to 529K versus 550k
expected, its worst level since October of 2009. Also out on Wednesday
were U.S. Building Permits, which increased to 640K versus 560K
expected. In European releases, the Eurozone Current Account came out
showing a deficit of -11.2B versus a consensus of -10.2B. On Thursday,
EUR/USD consolidated with the Greenback trying to recover as the price
of gold dropped to the $1,350 level and news came out that Irish Prime
Minister Brian Cowen was forced to call an early election after an
effort to reshuffle his cabinet backfired and a third of his cabinet
walked out. In economic releases, German PPI increased by +0.7% month
on month, beating the consensus of a +0.5% increase. In U.S. numbers,
Initial Jobless Claims came in at 404K, beating the consensus of 422K
and its lowest level in 21 months, while U.S. Existing Home Sales came
out at +5.28M, that was considerably better than the +4.88M expected.
Friday saw EUR/USD make its weekly high of 1.3623 after the German Ifo
Business Climate Survey came out at 110.3, edging the consensus of a
110.0 print, and its ninth consecutive rise. EUR/USD then went on to
close at 1.3613, a gain of +1.8% from its previous weekly close.

*USD/JPY* lost some ground last week as the U.S. Dollar weakened on
mixed economic data. The pair began the week on a soft note, as the
United States observed the MLK Bank Holiday and despite the Japanese
Household Confidence survey coming out at a disappointing 40.1 with
the market expecting 41.7. On Tuesday, USD/JPY continued heading lower
after Japanese Revised Industrial Production came in at +1.0% month on
month, as widely expected and despite a favourable U.S. TIC Long-Term
Purchases number. USD/JPY then fell sharply on Wednesday making its
weekly low of 81.84 after the Japanese Tertiary Index rose a
seasonally adjusted +0.6% edging the consensus of a +0.5% rise and
better than the +0.3% gain made in October. USD/JPY then reversed on
Thursday and traded sharply higher making its weekly high of 83.11, in
response to a positive U.S. Initial Jobless Claims number and to
better than expected U.S. Existing Home Sales. On Friday, USD/JPY gave
back part of the previous day's gains despite Japanese All
Industries Activity falling by -0.1% month on month, considerably
worse than the consensus of a rise of +0.2%, with the previous number
revised from -0.2% to -0.3%. USD/JPY then went on to close the week at
82.55, showing an overall loss of -0.5%.

*GBP/USD* continued gaining last week as the United Kingdom reported a
slew of favourable economic numbers. The week began on a positive note
as the United States observed the MLK Bank Holiday and news that the
U.K. Rightmove HPI that increased by +0.3% month on month, versus a
previous reading of -3.0%. Tuesday saw Cable make its weekly high of
1.6058 after U.K. Headline CPI rose by +3.7% year on year, which was
significantly better than the +3.3% consensus, also, Core CPI rose by
+2.9% year on year, versus a consensus of a +2.6% rise. The numbers
indicate increasing inflation that may increase the likelihood of a
BOE rate hike. GBP/USD continued higher on Wednesday after the U.K.
Claimant Count Change showed a drop of -4.1K, which was considerably
higher than the -0.3K decline expected. On Thursday, the Greenback
strengthened after U.K. CBI Industrial Order Expectations came out at
-16, which was significantly worse than the -1 expected. Also
supporting the Greenback were encouraging U.S. Existing Home Sales and
Initial Jobless Claims. On Friday, GBP/USD recovered all of
Thursday's losses despite U.K. Retail Sales declining by -0.8% month
on month, versus an expected -0.2% drop, and U.K. Preliminary Mortgage
Approvals at 40K versus 49K that was expected, nevertheless, the
previous number was revised upward from 45K to 48K neutralizing some
of its impact. GBP/USD went on to close at 1.6002 showing an overall
gain of +0.7% from its previous weekly close.

*AUD/USD* ended with little change last week despite a drop in the
price of gold and news out of China that the PBOC was raising reserve
requirements for the fourth time. The pair began the week on a
positive note as the U.S. observed the MLK Bank Holiday and Australian
New Motor Vehicle Sales increased by +0.8% month on month, with the
previous number revised significantly higher from +0.2% to +0.5%. On
Tuesday, AUD/USD continued higher as the price of gold and other
commodities increased and despite the Australian Westpac Consumer
Sentiment survey showing a reading of -5.7%, versus a previous reading
of +0.2%. The lower reading is in part due to the previous week's
flooding in Queensland. The pair continued trading higher on Wednesday
making its weekly high of 1.0076 after news that China's GDP grew by
+9.8% in the last quarter versus +9.3% that was expected. The pair
then began selling off after positive U.S. numbers and the Australian
MI Inflation Expectations coming out at +4.6%, versus a previous
reading of +2.8%. Thursday saw AUD/USD make its weekly low of 0.9831
as the price of gold dipped below the psychological $1,350 level and
the U.S. reported positive Home Sales and employment data. In
addition, Australian Import Prices declined by -3.8% quarter on
quarter, considerably worse than the consensus of a +0.9% rise. On
Friday, AUD/USD recovered somewhat in the absence of any significant
economic data out of either country. The pair went on to close at
0.9897, a mere two pips higher than the previous weekly close and
practically unchanged on the week.

*USD/CAD* traded higher last week on dovish comments from the BOC
after leaving rates unchanged. The week began on a quiet note with the
U.S. observing the MLK Bank Holiday on Monday. Nevertheless, the rate
drifted lower despite Canadian Foreign Securities Purchases, which
came out at 8.01B versus 10.42B that was expected, with the previous
number being revised upward from 9.51 to 9.71. On Tuesday, the rate
made its weekly low of 0.9835 before it began climbing sharply after
the BOC left their benchmark Overnight Rate unchanged at 1.0% as was
widely expected. The central bank said in their accompanying statement
that "the cumulative effects of the persistent strength in the
Canadian dollar and Canada''s poor relative productivity performance
are restraining this recovery in net exports and contributing to a
widening of Canadas current account deficit to a 20-year high."
USD/CAD continued stronger on Wednesday after Canadian Manufacturing
Sales declined by -0.8% month on month, which was significantly worse
than the increase of +0.6% the market was expecting. On Thursday, the
rate made its weekly high of 1.0030 despite the Canadian Leading Index
increasing by +0.5% month on month, edging the consensus of a +0.4%
increase, and Canadian Wholesale Sales increasing by +1.2%, that was
significantly higher than the +0.3% expected, while the previous
number was revised from a flat reading to +0.3%. Friday then saw
USD/CAD sell off after Canadian Retail Sales increased by +1.3% month
on month, versus +0.5% expected, while Core Retail Sales increased by
+1.0% month on month, versus +0.6% expected. USD/CAD then went on to
close at 0.9952, a gain of 0.6% overall from its previous weekly
close.

*NZD/USD* gave back its gains made the previous week last week as the
commodity currencies got hit hard with falling commodity prices,
including the price of gold, which dipped below $1,350 per ounce
level. The week stared on a positive note with the U.S. observing the
MLK Bank Holiday on Monday. On Tuesday, the rate held steady as the
U.S. reported some positive economic numbers. Wednesday saw the rate
make its weekly high of 0.7785 as the price of gold rallied to $1,379
per ounce. NZD/USD then began dropping sharply as gold sold off later
in the session. The rate continued getting hammered on Thursday after
New Zealand CPI came out +2.3% as was widely anticipated, and U.S.
employment and housing numbers weighed on the pair. On Friday, NZD/USD
made its weekly low of 0.7523 before rallying after New Zealand Retail
Sales showed an increase of +1.5% month on month, versus an expected
+1.3% increase; however, Core Retail Sales dropped by -0.2% month on
month, versus an expected increase of +0.6%. NZD/USD then went on to
close at 0.7583, a loss of -1.5% for the week.

!! The Week Ahead !!
*USD:* This week's U.S. economic calendar is moderately active, and
it will feature the U.S. Rate Decision and accompanying FOMC Statement
due out on Wednesday. Monday starts the week out with the tentatively
scheduled release of the Treasury Currency Report. Tuesday then offers
the S&P/CS Composite-20 HPI (-1.4% y/y), CB Consumer Confidence
(54.5), the HPI (-0.1% m/m) and the Richmond Manufacturing Index (23).

READ MORE - EUR/USD gained sharply last week