ASIA/EUROPE FOREX NEWS WRAP

The past several days have been marked by nothing short of disgust for the antipodean currencies, and in May the Australian and New Zealand Dollars have been the worst two performing majors versus the US Dollar (AUDUSD -1.65%, NZDUSD -1.95%). While no one single data print can be blamed for the weakness, we can point to two assailants who have berated their currencies: the Reserve Bank of Australia and the Reserve Bank of New Zealand.

While the RBA’s rate cut decision has been widely covered, the actions taken by the RBNZ represent a more concerted effort on behalf of one of the smaller major central banks to fight currency’s appreciation. RBNZ Governor Graeme Wheeler, apparently after not finding the reaction he had hoped when he warned investors that the Kiwi wasn’t a “one way bet” in February, has issued a more formal stance on his currency’s rapid appreciation: the RBNZ is “on-the-record that it is prepared to intervene in the exchange rate.” With the commentary coinciding with a break of an ascending trendline off of the March and April lows, the NZDUSD looks like it could be poised for a run underneath 0.8300 in the coming weeks.

Elsewhere, and once again in Europe, investors are taking the bait on stronger than expected March German data, this time of the Industrial Production variety. The EURUSD has subsequently broken the threat of a three-consecutive Inside Days, but that doesn’t mean bearish sentiment is just going to up and dissipate. I maintain: “it is worth pointing out that a significant detractor from German firms’ competitive edge – the Japanese Yen’s weak exchange rate – truly didn’t materialize until late-March/early-April, when the Bank of Japan announced its full throttle easing policy. Thus, the impact of a higher EURJPY exchange…hasn’t been quite felt yet by exporters for a long period.”

Taking a look at European credit, mixed yields have had little impact on the Euro, although the Italian 2-year note yield diving back towards all-time lows is certainly supportive. The Italian 2-year note yield has decreased to 1.218% (-2.2-bps) while the Spanish 2-year note yield has increased to 1.551% (+1.3-bps). Likewise, the Italian 10-year note yield has decreased to 3.837% (-2.3-bps) while the Spanish 10-year note yield has increased to 4.098% (+1.3-bps); lower yields imply higher prices.

RELATIVE PERFORMANCE (versus USD): 10:45 GMT

EUR: +0.34%

AUD: +0.11%

GBP: +0.10%

JPY:+0.07%

CHF:-0.01%

CAD:-0.03%

NZD:-0.84%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.12% (+0.73%past 5-days)

ECONOMIC CALENDAR

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TECHNICAL ANALYSIS OUTLOOK

EURUSD: The triple Inside Day threat is gone and the EURUSD is breaking to the upside, laying the groundwork for what could be an oddly placed Bullish Morning Star candle cluster (ideally, these bullish reversal patterns form at a low, not in the midst of a sideways congestion). Still, with key levels untouched, I maintain that “there’s clearly significant selling interest above 1.3200, as a Double Top has formed coinciding with price contained twice at the 66 level in RSI. The high for May came on the first trading day of the month (just like in February), so technically I have a bearish bias…a print above 1.3245 would negate the bearish bias, while a move below 1.3030 (last week’s low) should spur further selling.”

USDJPY: No change: “As has been the case in the USDJPY pullbacks throughout 2013, the most recent sell-off in the pair saw the 8-/21-EMA structure compress close to the point of flipping to bearish, but price firmed and turned higher ahead of such an event. Accordingly, a move back towards 100.00 is in the cards, and a less-dramatic Bullish Ascending Channel appears to be forming once more. I like USDJPY higher now that US data has started to improve, and a move above 99.95 would warrant a long entry in the pair for a quick move towards 102.00.”

GBPUSD:The GBPUSD threatened to slip below congestion support at 1.5485/505 yesterday but has since posted a modest rebound, regaining position above the 8-EMA. Price no longer is holding near the top rail in the ascending channel that’s been in place off of the March 12 and April 4 lows; instead, it is resting in the middle of the channel. Although near-term momentum has turned higher for the Pound, rejuvenated US data could be the spark for a return towards channel support, likely found near 1.5400 (mid-April swing highs) by the end of next week. While channel support today comes in at 1.5330/50, a move towards these levels seems unlikely at present time. In either case, I’ll be watching for a move above 1.5600/10 or below 1.5475/500 before a trade is taken; and a sell-off towards 1.5400/20 is worth a look from the long side.

AUDUSD:The rate cut spurred a break of the 1.0200/20 level, and sellers have indeed been inspired to continue the push towards yearly lows just above 1.0100. The near-term bearish bias would be negated if price trade above 1.0385, the topside limit of the Bearish Evening Star candle cluster. Additionally, the uptrend off of the June 2012 and March 2013 lows broke today, suggesting a retest of 0.9850/900 (the mid-December 2011 swings lows and the ascending trendline off of the October 2011 and June 2012 lows) for the AUDUSD might be in the cards over the coming weeks.

S&P 500: No change: “The headline index remains strong although there is some theoretical resistance coming up (this is unchartered territory, so forecasting price relies heavily on valuations, mathematical relationship, and pattern analysis). As first noted in mid-April, 1625 should be a big figure where sellers come in: channel resistance off of the February 25 and April 18 lows (drawn to the April 11 high) aligns neatly with the 100% Fibonacci extension off of the December 28 (fiscal cliff) and February 25 (Italian election) lows. It’s hard to be bearish risk right now, but it is worth noting that the divergence between price and RSI continues, suggesting that few new hands are coming into the market to support price (recent volume figures would agree).”

GOLD: No change: “Price has rebounded nicely following the dramatic sell-off in the beginning of April, yet remains contained by the crucial 61.8% Fibonacci retracement at 1485/90. This “Golden Ratio,” if achieved with a weekly close above, would suggest that a major bottom is in place, setting up for a rally back towards 1565/70 at a minimum. If the US Dollar turns around, however (as many of the techs are starting to point to), then Gold will have a difficult gaining momentum higher.”

Price & Time: Trend Resumption in the Precious Metals?

This publication attempts to further explore the concept that mass movements of human psychology, as represented by the financial markets, are subject to the mathematical laws of nature and through the use of various geometric, arithmetic, statistical and cyclical techniques a better understanding of markets and their corresponding movements can be achieved.

Foreign Exchange Price & Time at a Glance:

USD/CHF:

Charts Created using Marketscope – Prepared by Kristian Kerr

-USD/CHF has rebounded strongly over the past few days since finding support from just under the 3rd square root progression of the year-to-date high in the .9275area

-Our bias remains higher in the exchange rate with immediate focus on the 3x1 Gann angle line from the year-to-date high near .9415

-Traction over the 1st square root progression of the year’s high at .9470 is really needed to signal the a resumption of the broader uptrend

-A minor cyclical turn window is seen over the next couple of days

-The 1x1 Gann angle line from the year-to-date low at .9360 is immediate support, but only weakness under .9275 level turns us negative

Strategy: Favor the long side while over .9270.

USD/CAD:

Charts Created using Marketscope – Prepared by Kristian Kerr

-USD/CAD has come under steady downside pressure over the past few days and touched its lowest level since mind-February on Tuesday

-Our bias is lower, but the exchange rate is approaching a key support zone in the 1.0015/35 area as this marks a convergence of the 3rd square root progression from the year’s high and several key retracements

-Weakness below this key zone is needed to maintain the downside tack

-Near-term time cycle analysis suggests the end of the week is a medium-term turn window

-The 1x1 Gann angle line from the year-to-date high in the 1.0100 area is now resistance and only strength above this level undermines the immediate negative technical tone

Strategy: Short positions favored while under 1.0100. Caution required, however, as we apporach potentially pivotal support in the 1.0015/35 area.

GBP/USD:

Charts Created using Marketscope – Prepared by Kristian Kerr

-GBP/USD has found formidable resistance over the past week at the 50% retracement of the year-to-date range in the 1.5585 area

-We remain positive on Cable, but a close over 1.5585 is needed to trigger another push higher towards 1.5650 and above

-Near-term focused time cycles are a bit muddled, but a turn window is seen around the first half of next week

-The 38% retracement of the April advance in the 1.5450 area is immediate support

-However, weakness below the 50% retracement of the same move near 1.5405 is needed to signal a broader downside resumption

Strategy: Looks to be nearing an important juncture. A break of 1.5585 is needed soon if this counter-trend move is going to continue.

Focus Chart of the Day: Silver

Several cycle counts we follow suggest the next couple of days will be important for spot Silver and a turn could materialize. Given the metal is in the midst of a minor counter-trend move higher this turn window should lead to a resumption of the broader downtrend. The 38% and 50% retracements of the late April decline at 24.40 and 25.10 look like key resistance as does the 6th square root progression of the year-to-date low at 24.80. On the downside the 50% retracement of the 3-week long advance near 23.45 looks like immediate support with weakness below there needed to signal the start of a downside resumption.

Euro Outlook Weighed By ECB Policy- ABS Purchases on Horizon ?

Talking Points

• Euro: German Industrial Outputs Increase- ECB to Look at ABS Purchases
• British Pound: Eyes 38.2% Fib as BoE Poised to Maintain Current Policy
• U.S. Dollar: To Consolidate on Light Economic Calendar

Euro: German Industrial Outputs Increase- ECB to Look at ABS Purchases

The Euro climbed to 1.3146 as Industrial Production in Germany unexpectedly increased another 1.2% during the month of March, but the single currency may continue to carve a lower top in May as the European Central Bank (ECB) looks to further embark on its easing cycle in 2013.

Although Cyprus is expected to receive the first tranche of the EUR 10.0B bailout in mid-May, EU Economic and Monetary Affairs Commissioner Olli Rehnsaid ‘Slovenia has excessive macroeconomic imbalances both as regards problems in its banking sector and in its public finances,’ and we may see the governments operating under the fixed-exchange rate system become increasingly reliant on monetary support as they struggle to get their house in order.

As the euro-area remains mired in recession, ECB board member Joerg Asmussen floated the idea of purchasing asset-backed securities to encourage lending to small and medium-sized firms, and went onto say that the Governing Council stands ready to act again as the fundamental outlook for the euro-area remains clouded with high uncertainty.

As the EURUSD persistently fails to close above 1.3120 – the 38.2% Fibonacci retracement from the 2009 high to the 2010 low – the pair may continue to carve a lower top below the 1.3300 pivot, and the single currency remains poised to face additional headwinds over the near to medium-term as European policy makers maintain a reactionary approach in addressing the risks surrounding the region.

British Pound: Eyes 38.2% Fib as BoE Poised to Maintain Current Policy

The British Pound appears to be regaining its footing ahead of the Bank of England (BoE) interest rate decision, with the GBPUSD advancing to 1.5515, and the sterling may track higher over the remainder of the week as market participants scale back bets for more quantitative easing.

Although we anticipate the BoE to refrain from releasing a policy statement, the neutral policy stance held by the Monetary Policy Committee should help to prop up the sterling, and we may see the central bank slowly move away from its easing cycle over the coming months as the U.K. skirts a triple-dip recession. As the region is expected to face above-target inflation over the next three-years, the BoE Minutes due out on May 22 may further dampen speculation for additional monetary support, and the central bank may start to lay out a tentative exit strategy towards the end of the year as the central bank continues to operate under its dual mandate to ensure price stability while fostering full-employment.

In turn, we should see the upward trending channel in the GBPUSD continue to take shape, and the pair may make a run at 38.2% Fibonacci retracement from the 2009 low to high around 1.5680 amid the shift in the policy outlook.

U.S. Dollar: To Consolidate on Light Economic Calendar

The greenback is struggling to hold its ground on Wednesday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)tumbling to a low of 10,498, and the reserve currency may continue to consolidate throughout the North American trade as the economic docket remains fairly light for the remainder of the day.

In turn, we may see the USDOLLAR continue to pare the rebound from earlier this month, but the bullish sentiment surrounding the greenback should gather pace in the days ahead as the economic docket is expected to show an improved outlook for the U.S. economy.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
NZD	22:45	18:45	Unemployment Rate (1Q)	6.8%	6.9%
NZD	22:45	18:45	Employment Change (QoQ) (1Q)	1.0%	-1.0%
NZD	22:45	18:45	Employment Change (YoY) (1Q)	-0.7%	-1.4%
NZD	22:45	18:45	Participation Rate (QoQ) (1Q)	67.9%	67.2%

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

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Chart of the Day for May 7th, 2013 – AUD/USD

Prices are testing support at 1.0246, the 38.2% Fibonacci expansion. This barrier is reinforced by the bottom of a falling channel set from mid-April. A break below that initially exposes the 50% level at 1.0204. Channel resistance is at 1.0357, with a turn above that aiming for the April 30 high at 1.0384.

Trade Idea for May 7th, 2012 – Short AUD/JPY

Good morning, Traders. In the April 19th article I issued orders to go short AUD/JPY at 103.00. As we trade 210 pips lower I would love to say that we’re short, but unfortunately the entry was missed by 5 pips! Not to worry because I’m back with plan to re-enter based on a classic Elliott pattern. But first, a word about the fundamentals behind the trade.
Last night the Reserve Bank of Australia came through with a surprise rate cut of 25 bps. This rate cut was only expected by roughly 50% of market analysts and was the first rate cut since December. The cause of the rate cut was likely the elevated price of the Australian Dollar, low levels of domestic inflation, and the lingering slow-down in China. In my opinion the RBA is likely to leave rates lower for a longer period of time than markets expect as I see this commodity sell-off continuing and am positioned for it in the gold market. This will obviously impact the Australian dollar.
On the other side of the trade is the Japanese yen, which has seen a period of strength on the lack of any real catalyst to advance the yen selloff. Actually, the yen was provided a catalyst to breakdown with last Friday’s NFP, but even the strong jobs report failed to punch USD/JPY through the key 100 level.
The fundamentals are in place to allow for continued downside movement in AUD/JPY, but what about the technicals? The AUD/JPY wave count has changed since my article on April 19th, but doesn’t mean an entry around the 103.00 level would not have quite profitable. I see the predominant pattern as a 4-th wave Elliott triangle, which is not unlike a traditional consolidation pattern you would see in the markets. The triangle guidelines provided by Elliott makes those tradition technical patterns useful to the active trader by providing form, structure, and projected distances of the components legs. These features are invaluable to a trader by projecting entry, stop loss and take profit levels based on the pattern. Here is a model of 4th wave Elliott triangle.

Moving to the AUD/JPY chart I see the purple E-wave of blue wave-(iv) triangle in progress. To take advantage of next sub-100 test, I will look to establish shorts at 101.25 with stop losses above the triangle invalidation level of 102.50, and downside take profits at the triangle pattern objective of 99.50.
I know of no other trading methodology out there that has built in risk/reward objectives, which are imperative to a trader’s methodology, like Elliott Wave. The motto of my company is Plan Your Trade, Trade Your Plan, and Elliott Wave allows us to do just that. See you on the next update.

About Todd Gordon  Founder – TradingAnalysis.com

Todd Gordon is the Founder of TradingAnalysis.com, and a cast member of CNBC’s Money in Motion.  TradingAnalysis.com provides actionable market analysis and clear trading strategies in the  currency, commodity, and equity markets for the amateur and professional trader alike.   Most recently, Todd served as managing partner for 2 ½ years at Aspen Trading Group , a trading and research company focused in the foreign exchange markets. Prior to that he served a 6 year stint as the Sr. Technical Strategist for FOREX.com, while at the same time trading for GAIN Capital Asset Management, the parent company of FOREX.com. The fund specialized in trading in the G-10 currency markets and managed over $25 million.
Valued as one of the most respected Elliott Wave practitioners in the industry, his international following comes from his ability to translate the wave theory into clear and concise trade strategies.  His highly enthusiastic, easy-to-understand presentation style and TV presence has sent him to regions including the Middle East, Europe, Asia, Australia, and the US, and appeared on CNBC, Bloomberg, Sky News, BNN, and  Fox news .  His research clients value his clear and concise analysis as he preaches, and demonstrates, discipline by consistently applying the written analysis to trading in his personal accounts. Todd lives by the mantra Plan Your Trade, Trade Your Plan.

Why EUR Refuses to Fall

Once again, the euro is trading higher this morning despite the attempts of European policymakers to jawbone the currency. ECB member Weidmann said today that they must work to improve the competitiveness of the Eurozone as a whole and two ways to achieve this goal would be through easier monetary policy and a weaker currency. Since last week’s central bank meeting, policymakers have used every opportunity to make it clear that they are committed to increasing stimulus again if economic data continues to weaken and yet the euro refuses to fall.
Investors Do Not Want to See EUR Below 1.30
One reason why 1.30 continues to be rock solid support for the EUR/USD is because this morning’s economic reports were better than expected, easing concerns about a continued pullback in the German economy. As we can see by the recent price action of the EUR/USD around this key level, investors either don’t want to see euro below 1.30 or they are fighting hard to protect orders below that level from being triggered. For this reason, positive economic reports are having a more significant impact on the euro that weaker data and therefore this morning’s surprise increase in German factory orders sent EUR/USD soaring. Economists had been looking for a 0.5% decline but growth in March matched the 2.2% growth in February. Previously, the drop in PMI manufacturing numbers raised concerns about one main component of Germany’s economy and the latest rebound helps to ease those fears. However France is still suffering according to their industrial production report, which saw activity declined 3 times more than expected. Nonetheless, Germany has carried regional growth for the past few years so the focus remains on the health of the Eurozone’s largest economy.
Record High in DAX Supports EUR
Euro is also benefitting from the persistent rally in European and U.S. equities. The German DAX hit a record high today and U.S. stocks are also poised for additional gains. While economists have many concerns about the outlook for the Eurozone, investors are optimistic and willing to assume risk, which translates into less concern and more complacency about the outlook for the euro. At the end of the day, EUR/USD is still a risk currency and with risk appetite improving, investors are brushing off the ECB’s warnings. As long as stocks continue to rise, the EUR/USD will be able to hold above 1.30 but once equities turn, watch for a steep slide in the currency.
Credibility of ECB’s Threat to Do More
Finally, investors don’t think the ECB’s threat to do more is very credible. With some policymakers saying that the market over interpreted Draghi’s recent comments, investors realize that the central bank is really trying to do is send a message to the market that they maintain an easing bias and are flexible enough to consider additional ways to stimulate their economy. In reality however, the bar for another rate cut let alone negative deposit rates is high and it will take a significant slowdown in regional growth for them to consider easing again.