Operate Forex

USD/CAD: Our overall outlook for the pair remains highly constructive and as such, any dips should be used as formidable buy opportunities. The 78.6% fib retracement off of the 2010 low-highs comes in by the 1.0300 area and although this level has been slightly exceeded, we would not expect to see the market establish below this key support for any extended period of time. Ultimately, only a close back under 1.0200 would give reason for concern. Initial resistance comes in by 1.0320 and a break above will help to confirm bias.

Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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USD/JPY: Has been very well supported on dips towards 88.00, and we look for the most recent sharp rebound to open additional upside over the coming weeks back above critical medium-term resistance at 93.75. Last Thursday and Friday’s impressive rally reaffirms our outlook and only a close back under 88.00 would ultimately negate and give reason for pause.

Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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USD INDEX GRAPHIC REWIND

Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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US Asis Japan Europe banks gold Moodys

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Oil and gold prices may decline amid expectations for a sharp increase in borrowing costs as the US Treasury’s monthly budget statement shows the largest monthly shortfall since records began nearly 33 years ago.

Commodities – Energy

Oil May Break Support as Monthly US Deficit Hits Record

Crude Oil (WTI) $81.25 -$0.24 -0.29%
Prices have pulled back from resistance at $82.23 to find support at a rising trend line established from the bottom in early February, with a break lower exposing $77.53. The percent-change correlation between the WTI contract and the MSCI World Stock Index has strengthened to 0.78, reflecting the increasing influence of risk trends. European shares and US index futures are going nowhere fast, leaving crude without a clear catalyst heading into the Wall St open. The US Treasury’s monthly budget statement may prove to be the most significant item on the calendar, with expectations calling for a monthly shortfall of -$222 billion in February – the largest since records began nearly 33 years ago. This send crude lower as investors bet that the unprecedented borrowing that will be required to finance the US’ public deficit will send borrowing costs sharply higher, snuffing crude demand along with overall economic growth. The US Department of Energy’s Weekly crude inventory and MBA Mortgage Applications figures are also on the docket.

Commodities – Metals

Gold, Silver to See Sellers Return on US Debt Outcome

Gold $1122.73 +$0.88 +0.08%
Gold prices found support at a rising trend line established from February’s swing low and rebounded to re-test support-turned-resistance at $1125.13. As with oil, the US monthly budget figures may weigh heavily on prices if they prove to fuel expectations of a sharp increase in borrowing costs that bears down on inflation. A break below the trend line will initially target the $1100 figure.

Silver $17.31 +$0.06 +0.32%
The outlook for silver is largely in line with its more expensive counterpart, with traders’ eyes trained on the US monthly budget statement. Prices have rebounded from support just below the $17.00 to re-test resistance near the previous swing high at $17.51, with a turn lower form here initially looking to challenge $16.86.

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The Euro tipped lower against the greenback on Wednesday, with the exchange rate slipping to a low of 1.3545 during the overnight trade, and the single-currency is likely to maintain the narrow range carried over from the previous week as policy makers in Europe aim to support the economies operating under the fixed-exchange rate system.

Talking Points
o Japanese Yen: Losing Ground Across the Board
o Pound: Industrial Outputs, Manufacturing Weakens in January
o Euro: German Trade Surplus Narrows More-Than-Expected
o U.S. Dollar: Monthly Budget Statement, Wholesale Inventories on Tap

Euro Holds Narrow Range, British Pound Extends Decline as U.K. Manufacturing Falters

The Euro tipped lower against the greenback on Wednesday, with the exchange rate slipping to a low of 1.3545 during the overnight trade, and the single-currency is likely to maintain the narrow range carried over from the previous week as policy makers in Europe aim to support the economies operating under the fixed-exchange rate system. Meanwhile, European Central Bank board member Jose Manuel Gonzalez-Paramo said the Governing Council “will say something about the third quarter” in June during an interview with the Expansion newspaper, and went onto say that normalizing policy “will be a gradual process” as the central bank aims to balance the risks for growth and inflation.

Nevertheless, the economic docket showed Germany’s trade surplus narrowed to EUR 8.0B in January from a revised EUR 13.4B in the previous month, led by a 6.3% drop in exports, while the current account slipped to EUR 3.6B from EUR 19.9B in December. At the same time, the final CPI report showed price pressures increased 0.4% in February amid an initial forecast for a 0.2% rise in inflation, while the annualized rate increased 0.6% after rising 0.8% during the month prior. As price growth remains subdued, the ECB likely to maintain a neutral policy stance going into the second-half of 2010, and dovish comments from the Governing Council would certainly lead investors to scale back expectations for a rate hike as policy makers expect to see an uneven recovery this year.

The British Pound pared the previous day’s advance and slipped to a low of 1.4872 as the slew of overnight data reinforced a weakened outlook for Great Britain, and the exchange rate looks poised to test the yearly low at 1.4782 as the GBP/USD maintains the downward trend carried over from the previous month. Industrial outputs in the U.K. unexpectedly slipped 0.4% in January after rising 0.5% in the previous month to mark the first decline since August, while manufacturing weakened 0.9% amid forecast for a 0.2% expansion. As policy makers continue to see a risk for a protracted recovery, the Bank of England is likely to hold a dovish outlook for future policy, and speculation for further easing would certainly weigh on the exchange rate going forward. Meanwhile BoE’s Adam Posen said that the central bank expects “growth will pick up from here” during an interview with Sky News, and noted that the MPC stands ready to take the appropriate steps “if something negative happens to the economy again.”

U.S. dollar price action was mixed overnight, with the USD/JPY retracing the decline from earlier this week to reach a high of 90.47, and the lack of clear direction could leave the greenback range-bound going into the North American trade as equity future reflect a neutral bias for the U.S. open. Nevertheless, the monthly budget report is expected to show a $222.0B deficit in February following the $193.9B shortfall in the previous month, while wholesale inventories are projected to increase 0.2% in January after contracting 0.8% in the previous month. The data could stoke increase volatility in the greenback as investors weigh the prospects for a sustainable recovery in U.S., and conditions are likely to improve over the coming months as the expansion in monetary and fiscal policy continues to feed through the real economy.

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To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com

DailyFX provides forex news on the economic reports and political events that influence the currency market.
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