Forex rebates on every trade - win or lose!

LONDON (Dow Jones)--The dollar is mostly lower in Europe Wednesday as risk aversion rises and the market continues to speculate on how large a rate cut the U.S. Federal Reserve will deliver later in the day.

The dollar had ended U.S. trading Tuesday in relatively positive mood - encouraged by stronger-than-expected U.S. durable goods data, shrugging off a larger-than-expected fall in consumer confidence and boosted by a 0.8% rally in the Dow Jones Industrial Average.

However, sentiment started to turn sour again during Asian hours. Mizuno raised its subprime provisions to Y130 billion, helping to push the Nikkei down 1% on the day, and UBS reported a fourth-quarter writedown of a massive $14 billion.

This was against a background of reports that the U.S. FBI is launching an investigation into improper subprime lending.

Currency strategists at ABN-Amro said investors were made more risk averse by news that Japan's industrial output rose only 1.4% last month instead of the 2.1% that had been expected.

As market sentiment sank, the yen rose against the dollar.

Now, the focus is very much on what the Fed does after its FOMC meeting ends. Although the strong durable goods data initially lifted expectations of a 25 basis point cut, rather than a 50-basis point one, forecasts soon fell back as the data failed to indicate improved consumer activity.

Fed fund futures are now indicating an 80% chance of a 50-point cut and a 28% chance of a 25-point cut, according to Sue Trinh, a currency strategist with RBC Capital Markets in Sydney. She noted that there is also still some speculation over a 75-basis-point reduction.

Currency players are also keen to get some measure of whether the Fed will cut rates again next month. Analysts reckon that if the Fed fails to suggest further easing, this could knock equities and prove negative for the dollar.

Apart from the Fed, the market also faces the latest gross domestic product and ADP employment numbers.

The former is expected to show fourth-quarter growth slowed sharply, to 1.2% from 4.9% in the third quarter.

Strategists at UniCredit Markets and Investment Banking warn that an even sharper slowdown could "ignite" dollar bears even before the FOMC decision.

The ADP employment data is expected to show a 40,000 increase in January, the same as in December.

At 1032 GMT, the dollar had fallen to Y106.91 from Y107.04 late Tuesday in New York, according to EBS. The euro was at Y158.35 from Y158.20, and at $1.4807 from $1.4777.

The dollar was down at CHF1.0890 from CHF1.0927, while the pound has risen to $1.9920 from $1.9892.

LONDON (Dow Jones)--In a busy week for U.K. data, attention will be focused on whether the Bank of England's Monetary Policy Committee will cut interest rates Thursday.

All 11 economists surveyed by Dow Jones Newswires expect the MPC to announce Thursday a cut in the key interest rate from 5.5% to 5.25%.

"The main question appears to be not whether the Bank of England will cut interest rates next Thursday, but rather by how much," said Howard Archer, an economist at Global Insight.

"But despite calls for a 50-basis-point reduction, we expect the Bank of England to trim interest rates by 25 basis points to 5.25% on Thursday," he said.

The key indicator next week is the purchasing managers index for the U.K.'s dominant services sector released Tuesday. Economists expect the index to lose momentum, softening to 52.0 in January from 52.4 in December.

Manufacturing output and industrial production figures for December are released Thursday and economists are expecting a modest rebound. Going forward, however, economists expect the manufacturing sector to struggle as it is buffeted by the credit crunch, slowing domestic demand and elevated oil prices.

DATE GMT INDICATOR PERIOD FORECAST PREVIOUS
Feb 05 0930 PMI Services Jan 52.0 (9) 52.4
Feb 06 0001 Nationwide consumer Jan N/A (-) +85
Feb 07 0930 Manufacturing Dec +0.1%MM (8) -0.1%MM
Feb 07 0930 Manufacturing Dec +0.2%YY (8) +0.1%YY
Feb 07 0930 Indus Production Dec +0.1%MM (9) -0.1%MM
Feb 07 0930 Indus Production Dec +0.7%YY (9) +0.4%YY
Feb 07 1200 MPC Feb 5.25% (11) 5.5%
Due in week Halifax Index Jan N/A (-) 1.3%MM
(Figures in parentheses refer to number of economists surveyed.)

I'm still indecisively short

Hey ho

should have closed at 1.94 like Hils said - problem is I'm working with no access to trade!

This is the 4 hour cable chart since the end of last year. The indicator is a stochastic of MACD which does everything that MACD does as well as measuring how overbought or oversold the market is.

You can use it to easily identify the highs and lows of the legs. It's pretty clear that since November it's been making progressively lower highs and lows.



This most recent high last week was higher than the previous high. It remains to be seen yet whether the overnight low can be confirmed as a higher low on the H4 chart because the indicator hasn't yet started to move up. If it does start to inch up today, we're certainly in for a retest of the 1.9950 level and it could easily sail on past this if the MPC don't cut rates this week. They're a law unto themselves and the market has clearly priced in a cut, but I don't see any reason for them to cut just to appease Joe Public all the time that inflation (which is the primary part of their mandate) is not going down.

hi everyone, hope your all keeping well.

Havent looked in for quite a while, been having an excellent time enjoying life as a saisonaire. Had a bit of a nasty fall last week, split my calf muscle, see the doctor tomorrow and find out what the ultrasound scans show. Might be back trading sooner than I thought!

cc notice not much mention of candles, theres some excellent education stuff on interpreting candles for fx which I found a great help and gave me alot more information on the chart i was looking at. Unfortunately the information is on a computer thats in spain. One of the guys was dan gramza(auwful voice), think they were education webinars on cbot, certainly one of the american exchanges

Would be really keen to attend an fx getogether if thats still on the cards, out here until end of season unless its bad news tomorrow. Near airport would be good for me.

Goforit, my wife tore/separated calf muscle skiing on Christmas day 2001 (no alcohol involved). Key to still skiing (age nearly 54) was MUSCLE MASSAGE rather than any physiotherapy etc

still short

Still pondering!

What time is the bank decision?

Closed it at last 1.9440

Watch it fall now!

Sue,

I'm sure that there will be an opportunity to short cable down for a longer term trade from a higher level over the coming days/weeks. The tell-tale signal will come from when the 4 Hour chart has risen to a point of being overbought and then starting to tick down.

For now though, the 1 hour chart continues to make lower highs and lows and, as oversold as the 4 hour chart is, it won't start to push up from a low until the 1 hour chart has bottomed itself. The 1.9336 low from 22nd Jan has not been breached yet and that represents the last low on the 4 hour chart for the time being.

I've tried to explain my point with a couple of pretty pictures.

1 Hour chart

4 Hour chart

Hils thanks - I had quite a funny exit actually as I have 2 accounts & I accidentally bought a position in the other account instead of closing my short - at 1.9463. It then dropped to 1.9440 so I closed the short & then closed the long when it went back to 1.9470

My gut reaction is that longer term it's a short but I don't want to sit out another rise to 2.15 - so happy with nothing open at the moment - I will look for a new short entry.

I love your charts with the explanations - many thanks. All I can see is a big head & shoulders which looks complete!!

NEW YORK (Dow Jones)--The euro strengthened against the dollar early Tuesday in New York after billionaire investor Warren Buffett revealed an offer to reinsure municipal bond portfolios, and on the back of some grit from euro-zone officials.

The euro reached an intraday high of $1.4585 and Y156.56 early Tuesday morning. The dollar also hit Y107.54 after Buffett, in an interview on CNBC, said his Berkshire Hathaway (BRKA BRKB) holding company offered up to $800 billion in municipal bonds to bond insurers Ambac Financial Group Inc. (ABK), MBIA Inc. (MBI) and FGIC. Buffett says one firm rejected his offer and he is still waiting to hear from the other two.

Sentiment was also boosted by news that six major mortgage lenders, including Citigroup (C) and Bank of America (BAC), have a plan to ease foreclosures. That helps currencies with higher interest rates to gain against their lower-yielding competitors as investors take riskier bets.

But the scope of the euro's lead indicates a bias for dollar buying and demonstrates that the single currency is under pressure from actions to stimulate the U.S. economy by the Federal Reserve and U.S. government, said Stuart Bennett, senior foreign exchange strategist at Calyon Credit Agricole CIB in London.

Early Tuesday in New York, the euro was at $1.4538 from $1.4522 late Monday, while the dollar was at Y107.37 from Y106.91. The euro was at Y156.10 from Y155.26 late Monday. The U.K. pound was at $1.9523 from $1.9505, according to EBS, while the dollar was at CHF1.1026 from CHF1.1018 late Monday.

UBS data signal that clients' demand for the dollar is growing and the greenback is just one of three major currencies, along with the Canadian dollar and U.K. pound, enjoying long positioning on a four-week net basis.

"These trends support our view that clients seeking protection from a more pronounced global downturn will increasingly turn to dollar funds for safety," said Alina Anishchanka, currency strategist at UBS in London. Investors are favoring "the currencies with central banks that are ahead of the curve and are cutting rates to support growth," she said.

At the same time, currency markets are also subdued in the absence of major economic releases Monday or Tuesday. January retail sales out Wednesday will be the week's first big data event.

In a meeting of finance ministers Tuesday, the current euro-zone president, Slovene Finance Minister Andrej Bajuk, said economic growth in the European Union is slowing but will be close to potential in 2008.

Slovenia holds the rotating presidency of the E.U. for the first six months of the year.

The E.U.'s finance ministers were again quick to highlight the economic differences between the euro zone and the U.S.

"There are no big macroeconomic imbalances in the European economy," Bajuk said. "The housing sector, the capital markets are not facing the same issues as in the U.S."

Also, a survey released Tuesday from the Center for European Economic Research, or ZEW, showed sentiment among German financial analysts and institutional investors unexpectedly improved in February, albeit slightly.

The ZEW think tank's economic expectations index increased to -39.5 points from -41.6 points in January - above economists' forecasts of -45.0 points.

A day earlier, St. Louis Federal Reserve Bank President William Poole acknowledged that the risks of a recession have increased in the U.S., but said that the "best bet is that we won't have a recession."

A new plan encouraged by the Bush administration, dubbed Project Lifeline, is part of the effort. The lenders promise to seek contact with homeowners who are 90 or more days overdue on their mortgages. In some cases, homeowners will be given the chance to "pause" their foreclosure for 30 days while lenders try to work out a way to make the loans affordable. Lenders could begin sending letters to these borrowers as soon as this week. Homeowners wouldn't qualify for the program if they are in bankruptcy, if they already have a foreclosure date within 30 days or if the loan was for an investment or vacant property.

Unlike the bailout plan announced in December, this latest effort is to involve all kinds of home loans, not just subprime mortgages.

Overnight, the biggest mover during the European session was the U.K. pound, which fell sharply on news that U.K. inflation rose less than feared to 2.2% last month, from 2.1% in December, despite forecasts of a rise to 2.4%.

This will help to ease some of the recent pressure on the Bank of England not to cut interest rates. Not only did the latest producer price figures Monday show that factory gate prices rose by 5.7%, instead of just by 5.1% as expected, but the latest retail sales survey from the BRC showed a 2.6% rise on a like for like basis, the largest increase since September.

Elsewhere, Japanese markets re-opened Tuesday after a national holiday.

Late Tuesday, the regional San Francisco Fed president will speak at 11:05 a.m. EST (1605 GMT) and the January Federal Budget will be released at 2 p.m. EST (1900 GMT).

Hmmm ... that Mr Buffett - he's a one.

Did you know that the advice of the good old guardians of our well-being, those nice UK government people, limits an adult's salt consumption to no more than 6g a day :o)

Call options, anyone?

The 4 hour cable chart shows that it is still rising and there could easily be a fair bit more mileage in it yet. There is, however, resistance at around 1.9740 (red line on piccie) which could pose a bit of a problem first. If it can get through that then a retest of the 1.9950 region representing the previous 4 hour high has got to be on the cards.

I want to go short again!!!

I suspect you'll get a good opportunity to sell into the rally back up above 1.97 at the beginning of next week, Sue.

Hilary, if there is going to be a rise up back over 1.97 next week why did the /$ rate fall so much last night?
My rudimentary understanding of economics accords with what you say. With a lower interst rate in the US than here and reduced liklihood of early cuts in the UK the should be rise in vs $. This indicates a rise back over 1.97 but not yesterday.
Thoughts?

It's got naff all to do with economics, TT. It's what the traffic lights and the squiggly lines on my chart suggest.

edit: Did it fall last night? I'm sure it was 1.9720 at about 7am. That's only a handful (actually two handfuls and a footful) off yesterday's high.

I'll be back next week or the week after - just a bit too busy with my business atm.

Should I go short yet???????????????????????????????????????


Isn't anyone trading Fx?

By these charts, I would say not short just yet. But then again, I am a complete novice.