Posted: 12 Aug 2010 01:38 AM PDT

EUR USD has taken serious damage after the Fed decision and bottomed out at a lower support level. Now, the pair is on the rise. After losing the steep uptrend channel, the direction seems down.

The Fed decision on Tuesday evening was digested on Wednesday, and the results were devastating. Fear of a global slowdown, or even a global double-dip recession sent stock markets tumbling down and forex traders flocking into “safe haven” currencies. The yen reached a fresh 15 year high against the dollar, and the dollar in tun made the highest daily gain in a long time. This first big wave is over. What now?

EUR/USD, that collapsed by over 300 pips, found support around the 1.2880 minor support line and managed to climb above 1.29. Further gains are capped by 1.30, the round number, and by 1.3114 that served as a clear line of resistance and later as a line of support.

Further on the road, 1.3267 provides further resistance. It was a support line in April, turned into a resistance line and was only temporarily breached after the disappointing US Non-Farm Payrolls.

But the direction seems down.

Technicals: Looking at the charts, we can see that the steep uptrend that characterized the pair’s trading in the past two months has been violently broken. After steep gains, this breakdown signals a sharp fall. Indeed, a steep downtrend channel is beginning to form.

If 1.2880 is convincingly broken, the next important support line for the pair appears at 1.2720. This is a rather new line. It capped the Euro’s gains during the strong rise for a comparably longer time than other lines.

Below, 1.2670 is the next line of support, followed by 1.2520 and 1.2460 – another strong line that capped the pair. Beyond this horizon there are more lines, with 1.2150 being the most important one.

Fundamentals: The FOMC Statement was a groundbreaking event. For many investors and analysts, it gave an official stamp to the worries about the US plunging into a double dip recession and taking the whole world with it. It has the same magnitude as their decision 17 months beforehand, in March 2009, when massive dollar printing was announced. The latest decision didn’t announce fresh dollar printing, but ignited deep fear.

This fear changed the paradigm once again. In the past two months, we’ve seen ”normal” market behavior – when the US dollar weakened on weak US data. This has changed with the Fed decision – weak US data is expected to create more fear, strengthening the US dollar. Risk aversion is back. Big time.

European fundamentals aren’t too good. The debt crisis isn’t really behind us. The stress tests skipped the big issue of sovereign debt and eventually weren’t taken seriously.

We’ll get an important look at European fundamentals on Friday – GDP will be released, first for Germany. The Euro-zone’s locomotive holds high hopes of strong growth in Q2 – 1.3%. Will it live up to these expectations?

For the rest of the Euro-zone, expectations stand on a nice growth rate of 0.7%. Such growth rates haven’t been seen in a long time. Also here, a disappointment can be destructive.

Later on Friday, we get US retail sales, CPI and finally the consumer sentiment indicator from the University of Michigan. All figures are expected to be modest. Any disappointment will push EUR/USD lower, as the risk aversive trend is very strong.

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Aussie Consolidates After Mixed Job Data

Posted: 11 Aug 2010 11:46 PM PDT

Australian employment data was somewhat confusing – with a rise in the unemployment rate but a nice gain in jobs. After the blow AUD/USD got from the Fed decision, together with other currencies, it managed to consolidate. Update.

The Australian unemployment rate unexpectedly rose from the low level of 5.1% back to 5.3%. Australia’s rate is still one of lowest in the West. It stood on 5.1% in the past two months, and in the previous two months it was at 5.4%. There were also good news:

Australian Unemployment Change showed a gain of 23,500 jobs, slightly higher than 20,100 that was expected. All in all, the situation in Australia continues to be good.

Together with the job market’s pause in rises, the Aussie paused its retreats. AUD/USD, together with other “risk” currencies such as the Euro, lost a lot of ground after the markets digested the Fed decision.

AUD/USD already lost the 0.9135 support line before the Fed decision. On Wednesday, “the day after”, it dropped from 0.9117 to 0.8968, almost 150 pips in one day, after already dipping to 0.8932.

The 0.90 support line was lost on the way. The initial reaction to the employment figures was bad, with an immediate fall to 0.8918, but the Aussie was quick to recover and consolidate just under 0.90, which now serves as a resistance line.

If the dollar storms continues, the pair will meet the 0.8870 support line, which worked as a resistance line a few weeks ago. It’s followed by minor support at 0.88 and then by the 0.8735 line, which a swing low in December 2009.

On the upside, 0.90 now works as resistance, followed by 0.9135 which also changed its role. The resistance line of 0.9220, that capped the pair just last week, will probably remain in the distance.

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Forex Daily Outlook – August 12 2010

Posted: 11 Aug 2010 02:00 PM PDT

U.S. Unemployment Claims and Industrial Production in the Euro-Zone are today’s highlight. Here is an outlook to the market moving events.

In the US, Unemployment Claims rose to 479K last week worse than anticipated a drop to 465K is expected now.

More in the US, Import Prices predicted 0.4% rise following two months of drops may affect inflation rates.

Later in the US, Federal Reserve Governor of the Federal Open Market Committee Elizabeth Duke delivers opening remarks at the public hearing on the Community Reinvestment Act, in Chicago. May affect interest rates and provide info regarding future monetary policy.

Finally in the US, Natural Gas Storage expected to rise to 35B following 29B in the previous week.

In Europe, Industrial Production, the main gauge of industrial activity is forecasted to increase at a slower pace by 0.7% in July from 1.0% in June, but after the unexpected drop in German industrial production, there may be a reassessment of the market's optimistic outlook on the Euro-zone economy.
More in Europe, European Central Bank Monthly Bulletin is released revealing the statistical data that the ECB Governing Board evaluated when making the latest interest rate decision, and provides detailed analysis of current and future economic conditions from the bank’s viewpoint.

Finally in Europe, Italian Trade Balance deficit forecasted to decrease to 1.41B from 1.96B in May.

For more on the Euro, read the EUR/USD forecast and Casey Stubbs' latest analysis.

In Australia, Employment Change added 45.9K jobs in June a smaller rise of 20.1K is expected now and Unemployment Rate is predicted to remain 5.1% as in the previous month.

More in Australia, Melbourne Institute Inflation Expectations reached 3.3% increase in the previous month. A similar increase is anticipated now.

For more on the Aussie, read the AUD/USD forecast.

In New Zealand, Retail Sales the primary gauge of consumer spending is forecasted 0.6% rise following a disappointing 0.4% rise in May and Core Retail Sales also expected the same rise following 0.2% decrease.
In Japan, Monetary Policy Meeting Minutes a detailed record of the BOJ Policy Board’s meeting, providing in-depth insights into the economic conditions that influenced their decision on where to set interest rates.
More in Japan, Industrial Production, the main gauge of industrial activity is expected to reveal signs of economic slowdown in Japan and confirm the 1.5% month-over-month decline in industrial production as shown in the preliminary estimate released in July and Household Confidence index based on a survey of about 5,000 households which asks respondents to rate the relative level of economic conditions is expected to rise to 44.2 points from 43.5 in June.

That’s it for today. Happy forex trading!

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