Forex - Markets Bearish but No Meaningful Direction in FX

Forex News and Events: For the start of the week, markets have taken a “wait and see” approach. After last week's scheduled weak economic data and unscheduled events, market participants seem to be wary of moving the market in any direction. Asian equity markets drifted lower with the Nikkei falling 1.2% and closing at its lowest level in 26 years. The USD still is firm, but lacking the bounce it has benefited from risk aversion trade we have seen in the past. Last week non-farm payrolls shed 651K jobs, and manufacturing payrolls fell by 168K and the unemployment rate advanced to 8.1%. Yet the EURUSD failed to penetrate meaningfully below 1.2500 levels (then rallied to 1.2570). Overall, G10 currencies have been in a tight range. With no solution to the global financial crisis in sight, concerns over Eurozone banking sectors exposure to eastern European banks and overriding probably of a negative event the greenback should benefit from risk aversion flows. In addition, with the BoE opening the flood gates of Quantitative Easing and President Trichet saying that nothing should be ruled out prompting new QE speculation, markets are moving into uncharted territory. However, the upward USD trajectory seems to be slowing and the possibly of a risk reversal is high (particularly ahead of the April G20 where policymakers will discuss coordination of their stimulus plans). In Japan, a drop in exports have caused the current account into a deficit of -$1.8bn for the first time since January 1996. While the cheaper Yen should have some positive effect we don’t see the trend shifting significantly. On another note, data on foreign and domestic securities trading in Feruary showed that Japanese investors remained hefty net buyers of foreign shares and bonds, while foreign investors continued to liquidate Japanese holdings. The RBNZ will be meeting this week and is expected to cut the official rate by 75bp to 3.25%. But in light of the RBA decision to hold rates steady, there is some risk that the RBNZ goes with a smaller 50bp cut. In a nut shell the economic outlook in New Zealand continues to deteriorate, while the global backdrop has not stabilized and past monetary easing have not produced the desired results. We expect the AUDNZD to trend higher. Today there are no market significant scheduled events. Market will be focused on the performance of the equity markets and ECB's Stark comments for any indication of additional monetary policy movement.

Today's Key Issues (time in GMT): 06:45 CHF Unemployment rate, % (sa) Feb 2.9 prior 09:00 EUR MFI interest rate statistics published Jan 09:00 EUR ECB Executive Board member Stark speaks at the Luxembourg Chamber of Commerce 21:00 NZD NZIER Business Confidence Index Q1 -64.0 prior

The Risk Today: EurUsd Remains vulnerable below 1.2750 but uptrend will direct the near-term focus on 21d MA at 1.2728 resistance. Fundamental events should exert downward pressure on Euro near term targeting 1.2527. GbpUsd Currently breaking 1.3929 support, a convincing close will trigger renewed weakness likely to target 1.3503 trend lows. UsdJpy Rebound from 96.58 above 98.51 resistance eases pressure on 96.36 key support; targets 99.68 ahead of psychological 100.00. UsdChf Lack of direction give the pair a neutral tone. Waning upside momentum eases pressure on Key resistance at 1.1884 focus should return on 1.1462 pivotal support.

Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.2900 M 1.4385 M 100.55 S 1.1925 S 1.2810 M 1.4305 S 100.00 S 1.1810 M 1.2755 S 1.4185 P 99.70 M 1.1725 M 1.2639 1.4075 98.42 1.1611 1.2525 S 1.3930 M 97.20 M 1.1510 S 1.2424 S 1.3855 S 96.55 M 1.1460 M 1.2330 S 1.3780 S 95.55 P 1.1315 S S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot