Early Monday brings events, which could determine the intermediate-term fate of the Australian Dollar. First, the inflation data in form of the Producer Price Index for Q1 is set for release. The forecast calls for annual decline to 2.2% from 2.9%. Falling inflation makes it easier for central bank to cut interest rates, thus be detrimental to the AUD as carry trade instrument. However, the real market mover is the Manufacturing PMI from China, coming one hour later. Even though this is a flash, or preliminary reading, markets will pay attention. In recent months, this indicator created a lot of volatility in the AUD, with spreads often jumping to 20-30 pips at the release and immediate moves in range of 60-80 pips. Even though this is a flash, or preliminary, reading markets will pay attention. If the PMI rises above latest result of 48.3, preferably above 50.0, the Australian Dollar should rally. At the same time, if the PMI disappoints, the AUD could go into a sharp selloff.

Interestingly, from technical perspective the Australian Dollar is at important level. In case of the AUD-JPY, it is trying hard to turn bullish. The price is right at the key, multiple resistance of 84.75. If today’s data forces a successful breakout above this resistance, the price could rally about 200 pips, with time of course. However, if the breakout fails immediately, a significant selloff under 84.00 is likely to happen fast. The story is similar across most of AUD pairs.

The AUD-USD is a little further behind, but after establishing a solid resistance at 1.0300, it is trying to rally. Here, the immediate resistance is at 1.0390, which, if broken, should clear the path for advance to 1.0450 in the short-term. On even more ambitions note, if today’s data proves to be truly positive, the AUD-USD could easily extend gains to about 1.0600 within days. Alternatively, a failed breakout above 1.0390 will probably sink the price back to 1.0300 or even below. Either way, early trading today could be volatile.

Mike K.

Recently, officials from Australia started to complain about strength of the Aussie. No threats of intervention yet, but it was a change in attitude, following months of no comments on the subject. If Mr. Stevens expresses some concerns, the AUD could respond with a selloff. This would be in line with short-term technical picture in some of the AUD pairs. The AUD-CAD, for example, advanced about 170 pips in the last two days and could be ready for a correction (AUD-USD is virtually identical). On this chart, I would like to see a bearish reversal candlestick pattern to provide entry, with objective of 30-40 pips. That would be a case of fundamentals lining up with technicals.

From a longer-term perspective, the AUD-CAD just completed a major correction, falling from 1.0781 to 1.0335. Now we need to see if this is a major reversal or only a big pullback within the uptrend. That will be decided when (if) the price returns to 1.0335. A bearish breakout there will probably send the AUD-CAD towards the parity, or at least 1.01. Of course, this will take some time, so in the meantime I will also look for a potential bearish reversal on 4 H chart, which , so far, does not show anything of value to me.

The Swiss Franc reacted in manner contrary to what most would expect. It got weaker before the SNB meeting, but recovered after the announcement. The central bank confirmed its intentions to defend the 1.20 level and the EUR-CHF promptly pulled back to that general area. I would expect the price to start moving much slower, in tight ranges and quietly form a bottom before another price run up. There is no trade here yet, but I will be on a lookout for one. In addition, opening gaps are always possible and could create opportunities. Have a great trading week!

Mike K.

We have to wait until tomorrow to see what steps, if any, the SNB will take, but following today’s development clearly many traders expect some action. As things stand now, the interim chief Thomas Jordan could be officially nominated the chairman next month. Perhaps it is important that he shows some resolve in this matter. The focus is on the 1.20 floor in the EUR-CHF, which has been threatened lately. This changed today, as markets took the possibility of further weakening seriously and bought this pair heavily, sending it above 1.21.

Earlier this week I suggested a long trade in the EUR-CHF, with entry at 1.2064. Trading ranges here were so tight, that a breakout soon was very likely. I was looking at the latest minor high as the entry level, with the objective at 1.2100. The trade worked out as planned, bringing 36 pips. Now I am going to wait and see what happens after the announcement tomorrow, before making more trades in this pair, or other CHF crosses for that matter.

The GBP-NZD may be finally reversing its long-term downtrend. I had a good trade in this pair last week and not another potential buy is emerging. The price is rising fast, trying to reach the high of 1.9485. In a perfect world, I would like to see another pullback from that level before the eventual breakout happens. Meanwhile, I have buy order at 1.9505, with a target of 300 pips. Since this is the intermediate term chart, this trade can easily take days or eve a couple of weeks.

Mike K.

That leaves the Swiss National Bank. In Switzerland, financial authorities are under intense pressure to weaken the Franc. Recently, though, the CHF became stronger across the board, except the EUR-CHF where it is stuck at just above 1.20. It is the “floor”, which the SNB promised to defend. The central bank is likely to threaten additional actions in order to keep the EUR-CHF above this level. It remains to be seen exactly what the bank might do, but chances are the SNB will act before the other CB’s do.

While on the subject of the EUR-CHF, we can see that it stopped making lower lows. In fact, it the price is drifting slightly higher, suggesting a possible bullish move ahead. The price has been trying to turn north for some time, without much luck. It could happen soon, with the volatility here pathetically low (the ATR on 4H chart about five pips)! I am interested in buying it at 1.2064, with objective of 1.2100. The target is small, but so are the risks, thus making it a trade with some merits.

During hours following the opening, I will look for a possible short-term reversal in the GBP-USD. Friday brought a strong selloff in this pair, closing near the low for the day. A rebound in early hours is likely, triggered by a bullish candlestick pattern on the hourly chart. Objective will be in the 40-50 pips range, depending on details once the set up is formed. In addition, gaps are always possible, something I am always looking for. Have a great trading week!

Mike K.

Of course, nothing is ever guaranteed when it comes to money dealings. Earlier this week I discussed a trade in the EUR-CHF. It was a buy, entered late last week at 1.2044, with about 50 pips objective. While I did not expect a speedy resolution, the snail pace of price movement is discouraging. Basically, the EUR-CHF is frozen, reminding me of what happened in the USD-JPY not that long ago, so I decided to get out. At 1.2059, the trade made 15 pips, not much, but at least it is positive.

Thursday was relatively quiet, following large moves yesterday, which leads me to believe that Friday will be very active. I will focus on short-term trading at the start of the London session, something that has been discussed here many times before. The best candidates are the majors, with likely objectives of 20-40 pips, depending on particulars. BTW, here is useful guide to Spread Betting, for traders outside the USA.

Mike K.

No surprise meant no big moves. The immediate impact was limited, with small rally in Euro and other currencies. Things did change during Ben Bernanke’s Q and A and Capitol Hill. Probably the most important part, or at least the one that moved currencies, involved more easing. FED Chief said that current policies were highly accommodative, so no new easing steps are expected in the near future. This proved to be good for the Dollar, which gained broadly, in some cases as much as 100 pips in short order.

I did not pay real attention to Mr. Bernanke, as his speeches had little impact recently. However, the markets froze of sorts before that, with bullish breakouts not really going anywhere, so I decided to short the EUR-USD in one of my secondary Forex accounts. Entry was at 1.3465, with a loose objective of 40-50 pips. After seeing how currencies behaved, I decided to sit on it for a little longer. About an hour later, I closed it for 99 pips gain. Unorthodox trade for me, but it worked, although the size was too small…

The AUD-NZD is trying to reverse. It is a slow process, following the long downtrend in this pair. On the 4H chart, the price made several attempts, but failed every time. Now this chart shows a minor top at 1.2856, which could be a good entry if the reversal indeed happens. I have buy order at 1.2865 in case the AUD-NZD makes a run here. There are couple of possible objectives here, with the lower one more likely to be reached. It is about 65 pips above the entry.

Mike K.

This time around, we could expect more extensive participation of banks from other countries. Even banks that do not need additional capital may be tempted with the prospect of borrowing money at 1% rate and using it to purchase bonds yielding 3-5%, depending on the country. Most expect tomorrow’s operation to be similar in size to the first one, or about EUR 0.5 trillion, although opinions vary widely, including some projections of EUR 1 trillion allotment. The ECB is believed to be accommodating all requests, as long as banks provide proper collateral. This collateral is secured through the bank’s own national central bank, meaning each country vets the collateral for the loans given to their banks. Since these requirements have eased somewhat from previous offering, we could see more borrowing.

Combined LTRO and MRO (main refinancing operations) by the ECB to date.

Markets anticipate this even on par with interest rate decisions from central banks, meaning it is important and could create massive volatility. Reaction in currencies will depend first on how much money is borrowed and then by which banks. If the ECB distributes similar amount to the previous operation, in the EUR 400-600 billion range, the reaction could be muted. Should the banks borrow less than expected, say EUR 300 billion, the EUR-USD could fall. On the other hand, subscription above the projected upper range, EUR 700 billion and above, is likely to start a rally in the EUR-USD and spill over to other currencies.

Personally, I will treat this event like interest rate decisions from central banks and sit it out. I consider reaction to this type of announcement as unpredictable, with rewards not worth the risk. At the same time, should new trends emerge, I will probably join in that direction. That however, must be no sooner than 15 minutes after the release, and maybe as long as 1 hour. After all, if results are surprising, the new trend for real, it should last longer than several minutes offering more opportunities. I might even consider using binary options for a short-term play, if the move has legs.

Mike K.

The G-20 club is trying to line up a deal in April on a second global rescue package worth nearly $2 trillion. It is intended to stop the Eurozone sovereign debt crisis from spreading, threatening what some see as global recovery under way. At first, Europe must agree to merge its temporary and permanent bailout vehicles. That would create a $1 trillion fund and enable other G20 countries to meet the IMF’s request for $500-$600 billion in new resources, on top of its current $358 billion in funds. Combined, this would total around $1.95 trillion in resources. Germany is the key player to combining the two European funds, something they have been long opposed to do. Now country officials say that Germany will make a decision on the matter sometime in March. Once that happens, the Group of 20 members will be obligated to put additional money into the International Monetary Fund. Unless they find a new reason to not to do it…

The Japanese Yen was among the biggest stories in the Forex market last week. It is finally falling against the US Dollar, something that has been happening in relation to other currencies for some time now. Last week brought acceleration in these trends, with the AUD-JPY advancing to 86.85. Because the price closed at the daily extreme on Friday, I will be looking for a short-term reversal here, using the hourly chart. My sell signal should be a bearish reversal candlestick, with objective of at least 50 pips. Details will have to be worked out once the trading gets under way. Virtually all of JPY pairs are similar, so all of them are possible candidates for this trade.

Another currency that made waves recently is the Swiss Franc. It appears the Swissy is regaining its status as a safe haven, the only one around, registering strong gains. Even the Euro, in spite of own rally, was not immune and fell to about 1.2040 versus the Franc. This creates a major headache for the SNB, now faced with a prospect of making good on its promise of defending the 1.2000 floor. I bought the EUR-CHF shortly before Friday closing, expecting the support to hold. Objective is 50 pips, but the position is of very small size as is normal for “gut feeling” trades. Have a great trading week!

Mike K.

While many in Switzerland support these meassures, some are warning about unintended consequences, saying that Franc limit against the Euro may cause the country’s economy to overheat if authorities are not vigilant to its effects. For example, property prices have increased in Switzerland, aided by near zero rates and demand from foreigners looking for employment. This could be mitigated to some degree by increasing the benchmark rate in order to prevent a property bubble. However, such move would put upward pressure on the Swiss Franc and jeopardize the 1.20 EUR-CHF limit introduced in September to fight deflation. Clearly, the SNB will have to walk a fine line.

The EUR-CHF is in a precarious position, having just left its prolonged trading range. At present, there is no real support on the daily chart, other than the psychological importance of the 1.20 level, backed up by the SNB’s threat. If the central bank does not act, or only delays its involvement, the price can easily slip to 1.16 in short order. While this is playing out, I will focus on short-term trading on Friday, mostly in the USD pairs at the start on the London session. They show good volatility and could offer decent opportunities.

Mike K.

The BoJ will be followed on Wednesday with policy meetings in the USA and New Zealand. While the RBNZ announcement has the highest probability of some action, all eyes will be on the FED. Nobody expects a change this time, but it will be the first meeting when the central bank releases its interest rate projections. It goes without saying that everybody wants find out when FED expects the first interest rate hike and how much tightening is projected in the following years. Also, in recent few weeks public comments by regional FED presidents seem to signal a willingness to ease monetary policy further this year, the so-called QE 3. Latest fundamental data has been mostly positive, indicating economic growth, well, recovery in the USA. That does not rule out any action, but it probably pushes any announcement of a major policy move out to meeting later in the year. We will find out in few days.

Recently the uptrend in the AUD-CHF has become very choppy, as if ready to reverse. Corrections are bigger, volatility is higher, possibly building a top on the intermediate term chart. I would like to short it if the price dips under the recent low of 0.9695, with entry at 0.9690. This trade, if filled, will attempt to capture 120 pips. Alternatively, if the AUD-CHF continues higher and makes a new high, it is likely to form a divergence with the MACD. In such event, it could offer a decent shorting opportunity.

Another currency pair of interest is the EUR-CAD, also on the 4H chart. Here the price already bounced from the low of 1.2875 to 1.3147, perhaps forming a bottom. I want to go long on a bullish breakout with entry at 1.3155. The target is 1.3300. There is a small complication; I would like to see a little more pullback first. Not necessarily much lower, but I do not want to enter into a trade if the EUR-CAD rises right after the open. Initial opening moves often lead to false breakouts, something I want to avoid. After the first few hours, the order becomes valid.

While waiting for those trades, which could take some time because of relatively large time scale, I will look for shorter-term opportunities. One of them could materialize in the GBP-USD, among others. After a sharp rally on Friday, the cable is likely to go through a correction. Preferably, I would like to see a little continuation, but the signal itself will be a bearish reversal candlestick pattern on the hourly chart. Objective will be 50 pips, although details will have to be worked out once the entry is confirmed. Have a great trading week!

Mike K.