Forex Analysis

Asian shares mostly rose Monday. This comes as investors hoped for progress in stemming Europe’s debt crisis in what could be a crucial week for the troubled region.
 
Hong Kong’s Hang Seng Index is up 0.5%, while the Shanghai Composite index lost 0.9%.
 
Japan’s Nikkei Stock Average rose 0.5%, South Korea’s Kospi traded flat and Australia’s S&P/ASX 200 index rose 1.1%.
 
There are some signs of progress in Europe over the weekend, after Italy outlined a €30 billion ($40.2 billion) three year austerity plan over the weekend. This came ahead of a meeting of French and German leaders Monday.
 
A move to lower the cost of US dollar funding for European banks along with monetary policy easing in China provided fuel for global equity markets last week, including those in Asia.

The Nikkei, for example, gained 5.9% last week, while the Kospi rose 7.3% and the S&P/ASX 200 rose 7.6%.


Daily Forex Analysis: GBP/JPY Might be Forming a Base

GBPJPY: This market might be in the process of establishing a base following the September break to record lows.
 
However, the latest round of setbacks will need to hold above 119.00 (78.6% fib retrace) on a weekly close basis for this newly adopted constructive outlook to remain intact.
 
Look for a daily close above 122.70 to confirm successful defense ahead of 119.00. This might open the door for a bullish move.
 
Otherwise, we could test below 116.80.




Daily Forex Analysis: The Euro Hits a Wall

The EUR/USD failed to continue its bullish correction on Friday. The market fell back below 1.3420 support area after the US NFP data.
 
The model appears to be bearish in the short term, However, we should take note that as the market is moving inside the bullish channel, see the hourly chart below, price appears to be in a bullish correction phase. We need a clear break below the bullish channel and at 1.3300 – 1.3270 support to possibly end the bullish correction which started from 1.3211, possibly testing 1.3145 even lower.
 
Looking up, immediate resistance is seen at 1.3420/50. A break above that could lead price to neutral zone in the short term, possibly testing the double top formation near 1.3520/30.




Daily Forex Analysis: The USD/JPY is Above 77.80

The USD/JPY was able to maintain its bullish intraday model last week.
 
Although we have not seen significant bullish momentum, so far, by staying above 77.80 the intraday technical model might test 79.52 as the nearest bullish target. A break above that could see the market testing 80.00 and 81.00 resistance area.



Daily Forex Analysis: The Cable Appears to Have Stalled

GBP/USD: The market correction from the recent lows at 1.5420 appears to have stalled and we will be looking for a daily close back under 1.5575 on Monday to confirm and maybe accelerate declines.
 
A close below 1.5575 might accelerate declines and test 1.5420, below which will open an even deeper setback to retest critical support by the October lows at 1.5270.
 
Looking up, only back above 1.5800 might delay.





Italian Bond Yield Fall on Austerity News

Italian government bonds gained ground Monday. This move ended up pulling the 10 year yield down, end comes a day after Prime Minister Mario Monti unveiled additional austerity measures.
 
The yield on 10-year government bonds fell 9 basis points to 6.47%.
 
Yields fall as bond prices rise. A basis point is a hundredth of a percentage point.
 
Monti's cabinet approved the package of additional economic measures totaling €30 billion ($40.2 billion) on Sunday. The prime minister is expected to present the plan to Italy's Parliament later today.


Euro Zone PMI Shrinks Again

Private sector activity across the 17 nation Euro zone continued to shrink in November. However, at a slower pace than in the previous month; this is according to a final composite purchasing manager’s index reading compiled by Markit.
 
The composite PMI rose to 47.0 from 46.5 in October, but was down from a preliminary reading of 47.2. A reading of less than 50 indicates a contraction.
 
The November data showed the Euro zone's four largest nations in contraction, with Germany joining France, Italy and Spain in posting a sub 50 reading.
 
The figures show activity in the Euro zone contracted for a third consecutive month. This is putting the region on course for a 0.6% contraction in Q4.

British PMI Beats Expectations

Activity in Britain's dominant services sector picked up in November. This is according to the latest Markit/CIPS purchasing managers index released today.
 
The index rose to 52.1 from 51.3. Economists had forecast a decline to 50.7. As we have mentioned before, reading of more than 50 points to growth in activity, while a figure of less than 50 signals contraction.
 
Although the service sector is growing, it is doing so at a modest rate.