forex Updated 03/03/11

EUR/USD

Consolidates beneath key resistance at 1.3862, and is looking to challenge Monday's low at 1.3712. However, corrective downside scope is limited to 1.3655, where bulls are likely to be gathered. Regaining ground above 1.3800 is required to re-open the key 1.3862 reaction high, and longer-term bulls still have the 1.3950/1.4000 target area in their sights. Only a clean break below 1.3655 concern bulls.

GBP/USD

Tuesday's bear hammer candle risks leaving a significant bull trap. The setback off Tuesday's 13-month high at 1.6329 is extending towards 1.6175, but only a push below projected support at 1.6085 would enhance the bull trap theory. While support at 1.6085 holds, the technical uptrend is still solid, and a return to the 1.6329 high would attract further gains towards 1.6458.

USD/JPY

Tuesday's setback off 82.24 will look to extend beneath support at 81.78. Bears are on course to retesting the 81.74 higher low and bringing Monday's low at 81.62 back into focus, where the support line of a four-month bear pennant line. A fresh wave of bear pressure is required to force a clean break through 81.62, exposing the Feb. 4 reaction low at 81.10. Only a sustained push above 82.00 would create room for a return to the 82.24 high.

AUD/USD

Extends the setback off Monday's bull trap high at 1.0203, to challenge key support at 1.0085. The 50% Fibonacci retracement level of the 0.9966/1.0203 rally lies in the 1.0085 area, which will look to prevent a more serious setback towards 1.0045. Regaining ground above 1.0150 is required to lift the tone, and threaten a return to the 1.0203 high.

The Swedish krona is like the bit-part actor that finally gets a stab at a more leading role. For years, the krona has languished in the background. Worthy, but hardly the star of the show. But as currency players continue to grabble with the fallout from the global financial crisis as well as the geopolitical tensions associated with the so-called spring uprising sweeping through the Middle East, the krona has come into its own. Not only has Sweden largely escaped the turmoil of the global crash but the krona is benefiting from being just what other major currencies aren't. It doesn't have the banking and sovereign debt problems that are dogging the euro zone. It doesn't have the deflation undermining Japan. It doesn't have the massive fiscal debts and unemployment problems preventing a recovery in the U.S. Nor does it have a central bank nervous about a strong currency like Switzerland. In fact, just the opposite. In recent weeks it has become apparent that the Swedish economy remains robust, with GDP growth this year expected to amount to a healthy 7%. Figures Tuesday showed that the economy managed to expand by an even stronger-than-expected 7.3% on the year in 2010's fourth quarter. The Riksbank has already raised interest rates this year to 1.5% and Swedish money markets suggest they could rise as far as 3% by the end of the year. However, the Riksbank's own governor has hinted that even more aggressive increases may be justified. For the krona, this should all be good news.

 EUROPE

The euro bounced back against the dollar in European trading hours Wednesday amid expectations Thursday's European Central Bank meeting will boost the case for interest rate rises in the euro area. The single currency rose against the dollar boosted by short-term flows, but also by expectations ECB President Jean-Claude Trichet will sound hawkish at Thursday's post rate meeting press conference. However, euro gains against the Swiss franc were more limited, reflecting consistent support for the safe-haven currency amid continuing ructions across the Middle East. "There is this feeling in the market that Trichet will play up the hawkish view," said Jane Foley a foreign exchange analyst at Rabobank in London. But there are risks, particularly since Portuguese yields remain at levels which the market feels are unsustainable. Nonetheless, the market is taking the view that Portugal's problems will be resolved at some point. "Yes, Europe has its problems, but at least it has begun to address them. The fact that it managed to get through the Greek and Irish crisis has sent the message to the market that it is going to get through the Portugal one as well. So that's cleared the way to focus on interest rate differentials," said Foley. The market's reaction to the violent anti-regime protests in Libya remained confusing. In other markets, the nerves were clear, with Saudi Arabian stocks falling by a chunky 5%, gold edging close to record highs, and the oil price also high. But in currencies, while the Swiss franc's safe-haven status pushed it close to a record high against the dollar, other currencies traditionally seen as risky, like the Canadian dollar, also drew on their commodities links to hold on to support. Analysts agreed that currency traders will keep a close eye on developments, particularly in the oil market. Still, "right now most people are taking the view this is going to be a temporary issue," said Foley at Rabobank. "If oil prices do remain elevated it could be a game changer, but for now the market is taking the view it probably won't be."

ASIA

The dollar failed to rise above Y82 in Asian trading Wednesday as a fall in the region's share prices and a rebound in oil prices kept investors at bay despite cautiously optimistic remarks about the outlook for the U.S. economy by Federal Reserve Chairman Ben Bernanke. Still, the dollar found support at Y81.60 on expectations that the U.S. will eventually exit from its present ultra-easy credit sooner than Japan. "Now that Bernanke's testimony has been factored in, barring any surprises, the (dollar/yen) will likely suffer from further rises in oil prices or weakness in equities today," said Shuichi Kanehira, a senior dealer at Mizuho Corporate Bank. Kanehira also said that speeches by Fed Reserve Bank of Kansas City President Thomas Hoenig at 1300 GMT, and Atlanta Fed President Dennis Lockhart at 1915 GMT are unlikely to be major market movers unless either reveals any significant shift in tone. "The most likely scenario at this point is toward further yen strengthening." At 0450 GMT, the dollar was at Y81.92 against Y81.85 late Tuesday in New York, according to EBS. The euro was at $1.3756 from $1.3777, while the euro was at Y112.70 from Y112.76. Persistent speculation about an early rate hike in Europe has given a support to the euro against the dollar, with traders eagerly awaiting the outcome of policy-setting meeting by the European Central Bank on Thursday. "The ECB is facing a difficult balancing act," said Nobuhiko Akai, a senior foreign exchange manager at Bank of Tokyo-Mitsubishi UFJ. He added that the ECB "appears to be willing to normalize its easy monetary policy gradually" as signs of inflation emerge, "while the central bank is in no hurry to do so" since the overall economy can't justify a rate hike as worries about debt-refinancing problems in some European countries linger.

WORLD

The dollar rose against the euro Tuesday in New York on the back of robust U.S. manufacturing data and a cautiously optimistic economic outlook from Federal Reserve Chairman Ben Bernanke. Markets are still looking ahead to Bernanke's second day of testimony to Congress on Wednesday, and to European Central Bank President Jean-Claude Trichet's appearance on Thursday, after the ECB rate-setting meeting. "This is a pretty big week for central bank decisions around the major economies," said Aroop Chatterjee, foreign exchange strategist at Barclays Capital. Turmoil in the Middle East and North Africa, marked by ongoing violence in Libya and protests in Bahrain, Iran and Yemen, also shadowed riskier currencies. Stronger-than-expected U.S. manufacturing data helped boost the dollar, as the February reading for the Institute for Supply Management's manufacturing index hit its highest level since May 2004. The U.S. currency eked out gains against the euro during Bernanke's testimony, as he indicated that the Fed was ready to respond as needed to a surge in global commodity prices, caused partly by political upheaval in the Middle East. But he also signaled that the Fed's accommodative monetary policy will remain in place until the economy sees more sustained growth. Late Tuesday, the euro was at $1.3777 from $1.3806 late Monday, according to EBS via CQG. The dollar was at Y81.85 from Y81.78, while the euro was at Y112.76 from Y112.90. The U.K. pound was at $1.6260 from $1.6258. The dollar was at CHF0.9284 from CHF0.9290. Expectations that the euro-zone's interest rate hikes will outpace the Fed's monetary policy tightening has driven the euro's recent gains against the dollar. After the euro neared the top of the current trading range, just above $1.3850, it appeared that investors scaled back their long euro positions as doubts emerged whether Trichet will be as aggressive against inflation as some hope. "Just how much more hawkish he can get--just how much more support can he provide for the euro--I think is something that the markets are going to start asking themselves," said Shaun Osborne, head currency strategist with TD Securities. ***SOURCES:fxpro