Currency Markets, an apparent calm…

Posted by on Mar 10, 2013

By Dino Zannoni


This post in italian

CURRENCY MARKETS, AN APPARENT CALM

  

WAITING FOR THE FED

 The American sequester has become a reality, but this was not relevant to the American markets, due to the new highs on the Dow Jones Industrial. Macroeconomic data such as the ISM manufacturing confirmed what the share indices were already serving, or an ongoing recovery, and now we are waiting for the FOMC of the Federal Reserve on March 19th – 20th to see if the central bank is still capable to provide money at zero cost and unlimitedly to the markets. Probably, the pre FOMC statements of the members of the Fed will be able to move the foreign exchange market and the price of gold, but in the meantime we must not lose sight of the economic conditions in which the Fed is moving. So, we will have to pay attention to retail sales on March 13th, the current account deficit and producer prices on March 14th and finally, on March 15th, the inflation, the net cash flows from abroad (TIC), the industrial production and the consumer confidence. The technical setting of EurUsd is not so bad in our opinion, and its technical conditions seem to be favorable to a technical rebound hypothesis. The 14-days RSI has entered the oversold area in conjunction with the test of the 200-days moving average. From July 2012, the negative 1 month Roc combined to the oversold RSI, have led to the formation of two primary lows at 1.2042 and 1.2661; for this reason, we believe that trying to enter long on EurUsd with stop at 1.2850 is not so risky. 

 

A PLASTERED EUROPE

In Europe,  the situation is stalling and waiting to see if Italywill be able to form a new government and new prospects. However, there are many other European troubles, such as the need for financial aid from Cyprusand Slovenia. After the decision of the ECB to keep interest rates unchanged, this week the industrial production data (March 13th ) and inflation (March 15th ) will attract the whole attention.

  

THE SCANDINAVIAN FREE RISK

 Still in Europe, but going north towards Scandinavia, we can find currencies such as the Swedish and Norwegian Krona that are continuing their strengthening against the Euro; at the moment, the seasonality could put a stop to the rise of the Sek  that fell in 9 cases out of 10 in the last 10 years against Euro. We can see very good opportunities to enter long on a particular cross such as NokSek. In fact, as we can see from the graph, the NokSek cross offers a unique opportunity to enter with the test of the 20 years support during these days. The strategy to go long on Nok and short on Sek could be successful in the medium long term and  the month of April will be exceptional from this point of view; in the last 10 years NokSek has increased in 9 cases.For these reasons, great attention has to be paid to the macroeconomic data coming from these two areas. In Sweden, on March 12th,the inflation data  will be released and on March 14th the one on the unemployment. In Norway, on March 11th, the inflation, on March 14th the decision on interest rates and on March 15th the trade balance.

 

 

Emerging Countries Calendar

  • South Africa: retail sales (March 13th )
  • Brazil: retail sales (March 14th
  • India: industrial production and inflation (March 12th )

 

Trade of the week: LONG XAGUSD

We are now approaching an ideal condition to enter long on Silver with a quite acceptable risk. As we can see from the chart, the price of Silver has recently returned into area 28, realizing a third low on the support line that connects the two previous lows of2012. Inorder to reinforce this condition, we can quote the technical signal coming from the RSI: in the last few days, the RSI is out of the oversold and the green vertical bars show us what happened in the last two years when this event occurred. In practice, buying XagUsd at this level seems to be a trade with a very high probability of success and acceptable risks,  limited thanks to the closeness of very important supports such as 26/27. The ideal target for this long on silver could be 33/34.

 

Have a good trading week!