Daily Market Analysis: Currency Report

The pair came to life after China reported that its economy grew at a strong pace. The euro defied all the bad news about an upcoming Greek default and the downgrade of the EFSF. It seems that investors are just in shock, like a deer staring at headlamps.

China grew at a pace of 8.9% (annually) in Q4 according to its quick figures beating expectations. The biggest problem facing the euro and the EU is the situation in Greece as it continues to worsened The talks about a 50% private sector  write down for Greek bonds broke down, this is a key element for Greece’s second bailout program. At the same time reports about Greek banks showed a shortfall of 15 billion euros, worse than estimated. Economists are also reviewing the amount of money that Greece will need, at this time, analysts are thinking that the total will far exceed earlier expectations. The euro currency strengthened after the ZEW Centre said that its index of German business sentiment recorded its largest ever monthly increase in January, indicating that the euro zone’s largest economy is performing strongly despite the effects of the region’s debt crisis. Germany needed this boost as the EFSF is going to fall on their shoulders.

Surprisingly Spain auctioned EUR4.9 billion of short-term government debt at lower yields, indicating that investor sentiment has not been hit by last week’s sovereign ratings downgrade. Short term debt is fairly safe and the mid-terms bonds are what the markets are worried about.

Support Levels at S1: 1.2979 1.2857 1.2824
Resistance Levels 1.2723 1.27 1.2627

The pair is currently trading at 1.2749 right between the current levels of support and resistance.

This one is a hold tight. It looks like the pair will dance up and down between the current levels

The EUR/USD pair rose over the session on Tuesday as the markets were in the “risk on” mode for most of the day. The Euro is simply far too weak and toxic at the moment to own for any length of time. The Spanish had a decent debt auction, and perhaps this was a reaction to that. However, the downtrend is obvious and undeniable – so we are not willing to buy. In fact, the selloff in the later hours of the day has us thinking sell now. A breakdown below the lows would have us selling and a break below the 1.26 handle would have us selling aggressively down to 1.19, which we see as the next major support area. Buying isn’t a thought until we close well above the 1.3050 level.

USD/CAD: The USD/CAD pair dropped on Tuesday as the USD lost strength after markets turned optimistic, as the Chinese GDP showed an expansion in fourth quarter growth better than expected, adding that markets continued the sharp rebound after the upbeat European economic sentiment and the slowdown in inflation in addition to the Spanish bond sale.

On the other hand, sentiment continued to be positive after the European Financial Stability Facility (EFSF) sold the targeted amount of bills at an auction today which was met with strong demand.

And as already strongly expected the Bank of Canada left its benchmark rate unchanged as it did for this long past period to continue on supporting its stable and gradual growth and present economical conjuncture since that overall global and local conditions remain mixed and the global recession continue on limiting its sectors activities enhancement.

The USD/CAD pair could still rise if pessimism continues to dominate markets, as uncertainty remains the main theme in markets, and that could also lead to deep fluctuations for the USD/CAD pair.

Wednesday January 18:  

Canada will be absent over the session tomorrow, so fluctuating trading in the CAD/USD pair is expected, and eyes will be focused on Europe and the crisis that could cause any change in trading.

USD/CAD fell for the Tuesday session as the oil markets continued to grind higher. However, much like the oil markets, this pair has found itself winding up in a tighter and tighter manner as it has formed a daily triangle. The triangle is symmetrical, which of course shows real indecision. The oil markets are certainly to blame for this, and as a result this pair has to be traded while following the oil markets as well. On a daily close outside of the triangle, we are willing to take a trade. The 1.01 level below is the start of a massive support area, and as a result, we feel longs are probably more likely to do well over shorts going forward. However, you cannot buy at this point – you need some kind of proof. The daily candle is a hammer, and this shows support as well. Because of this, we think it goes higher, and would be willing to take a short-term small position to reach the top of the triangle. However, no larger positions can be taken until we are out of the pattern.

GOLD: Gold rallied to its best in more than a month, relying on a weakening U.S. dollar and ongoing concerns about Europe’s recent debt downgrades. Gold futures for February were up $24.80, or 1.5%, to $1,655.60 an ounce on the Comex division of the New York Mercantile Exchange. This was gold’s highest close since Dec. 13. Gold was also riding the coattails of sharp increases for U.S. stocks and oil. Moreover, gold investors are worried about currency devaluation and loss of purchase power.The downgrades of the euro-zone countries means fiscal stimulus is not far behind. Economic data is also helping moving markets as news that China’s output rose in the fourth quarter. Data released earlier showed that China’s fourth-quarter GDP rose 8.9% from the year-ago period, beating estimates.

Support and Resistance levels for tomorrow

S:1628.20 1609.30 1593.40
R:1697.20 1664.10 1659.00

Gold continues to be a strong buy, adding on the dips.