Bob's Currency Focus - 17:30 GMT

EUR/USD
Another shocking set of economic reports from the US Thursday has seen the dollar on the defensive and pushed the pair above the 1.48 price handle. The Philly Fed business index for February printed at -24 against a forecast -10 and it suggests next week’s ISM national manufacturing index could contract, i.e. return a reading of less than 50. Gold hit a new milestone of $950 today and with oil trading at $100 it signals major funds are being stockpiled on traditional dollar hedges. If the dollar continues to depreciate, inflation is going to become more of a problem in the US and stagflation will grow to more extreme levels. The Fed (from the minutes released yesterday) is interpreted as having gone soft on inflation and the FOMC is expected to continue to cut interest rates, even against a backdrop of rising inflation. The euro is now just 1.5 cents away from the lifetime high but it is difficult to see the single currency having a chance in taking out 1.50 in the absence of major data releases or key monetary policy announcements. There are no further data releases in the US this week. But the euro has a risk event of its own Friday, when the preliminary PMI readings for the area’s manufacturing and services sectors are released. If either reading comes in below 50 (contracts), the immediate theme will shift from US interest rates to euro growth and the euro will likely encounter heavy selling pressure. The euro looks inflated in value at any price above 1.48 as it is and it offers a live sell-down opportunity - the euro’s invincibility is much less now than it was when the currency previously occupied these lofty heights. Strategy: Sell EUR/USD on prices above 1.4820 with downside limit prices of 1.4750, 1.4710, 1.4670 and 1.4620.

GBP
Sterling earned a stay of execution thanks to a firm retail sales reading for January – sales rose 0.8% on the month against the 0.2% forecast. When one looks into the detail, the headline number was less impressive as shoppers were enticed into buying through aggressive discount campaigns operated by retailers. Nonetheless the report does suggest the Bank of England may not cut rates at their March meeting, although there are still some key economic releases between now and the next meeting in a fortnight’s time. Sterling has risen 2 cents against the dollar today, but only made a modest 0.25 pence gain against the euro. If the dollar’s demise continues though, the pound has plenty more scope to the upside against the greenback than the euro has, something which might benefit the UK currency against the euro in the coming days. But risk aversion looks to be on the rise this evening on the US session and cable will struggle to make it much past 1.9650 in this environment. I remain bearish on sterling and prefer to sell down cable on prices close to 1.9650 with limit prices of 1.9550, 1.95, 1.9440 and 1.9380.

JPY
I said yesterday the Philly Index was the last major event risk for USD/JPY this week. The Index printed much worse than expected and has again raised fears the US economy may be in recession. The sharp dollar sell-off has seen the dollar retreat 100 points from the high of Y108.31 recorded this morning. The yen needs a sustained sell-off on Wall Street this evening if it is to hold or even extend these gains. The Japanese currency is virtually unchanged against the euro today while it is down 0.4% to the pound. The best value continues to be on offer against the euro which is trading just above Y159. It is difficult to see the euro sailing past Y160 in a recessionary environment and after a few weeks in recovery mode, we could soon see reversal to the downtrend for this pair. Strategy: Sell EUR/JPY on prices close to Y160, with limit price targets of 158.80, 158, 157.50, 156.80 and 155.50.

CAD
A second successive day of gains for the loonie against the greenback, although trading has been choppy and directionless, so the pair could yet settle anywhere before the close later today. There was no data out in Canada but US data printed negative and the loonie benefited from a broad dollar sell-off. The loonie was also aided by a further rise in commodity prices with extreme price levels being breached on a number of the metals Thursday - Canada is one of the world’s largest exporters of both precious and industrial metals. If the loonie can manage to hold the greenback below 1.01 to the close, a strong retail sales report Friday could give the loonie a final opportunity to retake the parity line ahead of the Bank of Canada meeting on March 4. It is unlikely the loonie will attract significant buying support the closer we get to that key interest rate decision. The loonie should also have earned muscle today from the transfer of this month’s oil contract funds, i.e. conversion of $US oil revenues for Canadian oil companies into Canadian dollars. The risk for the loonie remains very much to the downside over the next 10 days, with sharp moves likely if Canadian economic data prints weak. Overall there is the prospect of a USD/CAD rally to at least 102.20 within the next few days. Strategy: Buy USD/CAD on dips to 1.0080 with upside price limits of 1.0135, 1.0170, 1.0195, 1.0215 and 1.0245. Warning: an upside surprise in Friday’s retails sales numbers will spark a loonie rally.

Bob B - Feb 21

Bob's Currency Focus - 23:50 GMT

EUR/USD
The dollar started Wednesday strongly and had pushed the euro back by a full cent before a spectacular reversal during the US session. The pair closed the day at 1.4720, virtually the same price at which it started early this morning. As global stocks declined in Asia and Europe, the dollar attracted safe haven funds and pushed the euro back to 1.4616, after economic data revealed US inflation rose by more than expected in January. The annualised core rate now stands at 2.5%, well above the Fed’s comfort zone. Oil prices rose to an incredible $101 a barrel this evening raising further inflation concerns. However the Fed minutes of the January 30/31 meeting, released today, portrayed a dovish Committee, one more concerned about sluggish growth than spiralling inflation. Indeed the minutes signalled further interest rate cuts are on the way. It is unlikely the Fed would have sounded so soft on price concerns were the Committee in possession of today’s inflation figures, or looking at $101 oil, but markets seized the minutes to force a dollar sell-off. The irony is Wednesday’s data will restrict the extent to which the Fed can cut rates and should prove dollar positive in the medium term. US Housing Starts and Building Permits for January, also released today, were in line with forecast and didn’t have a market impact. The euro offers little immediate value above 1.4750 and it will come under selling pressure on prices around this level. The euro’s counter-rally today was more of a knee-jerk reaction to the day’s events and I would not be surprised to see the single currency forced back to 1.46 again tomorrow, especially if risk aversion returns. Strategy: Sell EUR/USD on prices close to 1.4750 with limit prices of 1.4680, 1.4640, 1.4620, 1.4590 and 1.4550.

GBP
Sterling plunged again Wednesday, cable coming perilously close to the year’s nadir of 1.9337, hit in early January. Cable hit 1.9362 before it then recovered to 1.9420 by the close. The Bank of England minutes showed all 9 members of the MPC voted for a rate cut 2 weeks ago, but perennial dove Mr Blanchflower wanted a 50 basis point cut. The Bank did cut rates by 25 basis points at that February 7 meeting. The pound needs a strong retail sales figure Thursday to earn a much needed bounce. Although I remain bearish on the currency, I see little value in selling it down at current prices. A strong retail sales figure could trigger a cable rally up to 1.96, while it could help the pound push the euro back below the 75 pence mark. The BRC retail sales figure last week points to a possible upside surprise tomorrow, but if retail sales disappoint, then cable could flirt with the year’s low. Wait for a better price on cable before re-entering the market. Strategy: Sell cable on prices close to 1.9650 with limit prices of 1.95, 1.9430 and 1.9380.

JPY
A late surge on Wall Street was bad news for the yen, which retreated sharply as carry trades returned en masse late in the session. The euro hit a high of Y159.27 its highest level since Jan 30. The dollar returned to Y108.35, having traded as low as 107.48 in the morning. Complacency has crept into the market and the yen is vulnerable to a near term retreat to Y110 against the dollar and Y160 against the euro. Direction is going to be determined exclusively by risk aversion and Thursday’s Philly Fed Index in the US could prove to be the last major risk event of the week for USD/JPY. I see better value in the yen against the euro, particularly on prices close to Y160. Strategy Sell EUR/JPY on prices near Y160 with limit prices of Y158.50, Y157.50, Y156.80 and Y155.70.

CAD
The loonie had a very volatile day, being up, then down then up again at the finish. The greenback had rocketed to a one-month high of 1.0196 before $101 oil sparked a loonie rally that saw the pair close the day at 1.0125. USD/CAD has however turned bullish in the short-term and the pair is being bought on dips and it is difficult to see this trend change unless Friday’s Retail Sales figures for Canada print better than expected. The Bank of Canada will be cutting rates on March 4 and the only question now is by how much, 25 or 50 basis points. Loonie shorts will stack up in the run up to this meeting and a close above 1.02 this week will pave the way for a crack of the year’s high before the Central Bank meeting. The Leading indicators for January printed at +0.2%, above the 0.1% expected and against a flat reading in December. Also boosting the loonie today was a report which revealed a positive capital inflow into Canadian securities in December. 1.02 and 1.0250 look vulnerable to further upside pressure from USD/CAD bulls and dips close to 1.01 are likely to attract plenty of buying support. A strong rally on stock markets over the next 24 hours will be the loonie’s best form of defence Thursday. Strategy: Buy USD/CAD on dips to 1.01 with upside price targets of 1.0170, 1.0190, 1.0215 and 1.0245.

Bob B - Feb 21

Bob's Currency Focus - 17:30 GMT

EUR/USD
US markets returned after the long weekend and whereas we have seen an initial burst of optimism on US equity markets, on currency markets the dollar has fallen sharply against the euro. The euro was boosted by remarks from the latest bulletin out of the Bank of France which seemed to criticise the Fed for being too aggressive in its monetary policy and suggests policy easing on the part of the ECB is some way off. No data to move markets Tuesday and we must wait for Wednesday’s US consumer prices and housing data releases to get some direction. Oil prices are back near $100 a barrel and gold is trading close to $930 an ounce, primarily because of a weakening dollar. Some of the high-yielding currencies have hit extremes today and traders should be on alert for a potential major sell-off of commodities and high-yielding currencies, given current inflated prices. Such a sell-off will benefit the dollar. The euro will run into immediate resistance above 1.4770 and the pair does not offer any bid value at current prices. Wednesday also sees the release of the preliminary PMI readings for the euro area’s manufacturing and services sectors. Any contraction in either reading (index <50) could trigger a sharp sell off of the single currency and we could see a quick return to 1.46. I’m inclined to sell the euro on prices around 1.4750 as it is difficult to see the euro making a run on 1.50 in the absence of Central Bank meetings or any change in the underlying fundamentals. Strategy: Sell EUR/USD on prices around 1.4750 with limit prices of 1.47, 1.4660, 1.4640, 1.46 and 1.4580. Place a stop loss above 1.4825.

GBP
Sterling has had another bad day Tuesday, even if it has held its own against the dollar. The story about Northern Rock and its nationalisation by the British Government has set a very negative tone for the pound, which has seen it capitulate by 2% against the euro over the past 36 hours. Sterling has failed to benefit from a renewed bout of interest in high-yielding currencies with traders choosing to opt for the Australian and New Zealand dollars, ahead of sterling. Although I retain my bearish stance with respect to sterling, I do believe the sell-off against the euro is overdone in the short term and can see the pound pushing the euro back towards the 0.7550 price mark in the coming days. We have to wait until Thursday and January’s retail sales figures before getting any genuine market-moving data for the UK currency. There is also no value in selling down cable at current prices and I prefer to see a bounce back to over 1.96 before re-entering cable shorts. Strategy: Wait and then sell down cable at prices around 1.9650 with downside price targets of 1.9550 and 1.95.

JPY
The yen has made moderate gains Tuesday against the dollar, while still trading close to the recent low at 159 against the euro. With markets closed in the US Monday, traders went on an equity buying spree and the resultant surge in risk tolerance brought with it a new wave of carry trades, with the low-yielding yen the major loser. There has been a determined effort to push global stock markets higher in the past week, so backing the yen in this climate is dangerous. However some of the yen carry trades are approaching critical milestone points (Y160 on EUR/JPY and 100 on AUD/JPY) and these levels may act to serve a warning to the market that the recent build-up in carry trades is too aggressive and is not sustainable. Given the weight of the build-up, a sudden shift in risk aversion would see the yen strengthen sharply, particularly against the euro and the Australian dollar. A disappointing set of economic releases in the US Wednesday, particularly with respect to housing, could trigger such a move. I do not see the euro offering value above Y160 in an era of economic uncertainty so there is value in selling down EUR/JPY on any rallies close to this level, even if it means the positions have to be held for more than a few days. Strategy: Sell EUR/JPY on prices close to Y160 with downside price targets of Y158, Y157.20, Y156.50 and Y155.50.

CAD
The loonie has dropped below the lows recorded last Friday and the USD/CAD pair is currently trading near 1.0150. Bank of Canada’s Governor Carney failed to excite markets with his speech on globalisation Monday, with no clues emanating on how low the Bank of Canada may go on interest rates at its next policy meeting on March 4. On the other hand Tuesday’s economic data out of Canada indicates the Bank of Canada could possibly cut by 50 basis points in a fortnight’s time with inflation prices slowing again in January. The core inflation rate now stands at just 1.4% while the headline rate has slowed to 2.2% from 2.4% in December. Wholesale Sales came off by 2.9% in December against expectations for a 0.1% gain and this signals the Canadian economy ground to a halt in the final quarter of 2007. The loonie’s fall Tuesday has been cushioned by a rise in commodity prices but a poor set of domestic retail sales numbers later this week would put added pressure on the currency and set up the prospect of a near-term rise to 1.0250 for USD/CAD. The greenback has at least established itself back above parity and appears to have regained the advantage. Any dips to 1.0050 should attract strong buying interest. The loonie has probably been oversold against the euro and the AUD since Friday and it has the potential for a limited correction against these two currencies. Strategy: Buy USD/CAD on any dips to around 1.0050 with upside price targets of 1.0140, 1.0175, 1.0220 and 1.0250.

Bob B - Feb 19