Forex: USD/JPY: Dollar hits resistance at 98.50/60 level and turns down

Dollar attempt to return to yesterday’s levels has been aborted and after bouncing from 97.90 intra-week low, the Dollar has been unable to break through 98.50/60 resistance area and the pair returns to levels close to 98.00.

Despite the failure to break 98.60, Carol Harmer, technical analyst at Charmer Charts.com advances the possibility of another assault to the mentioned level: “Sellers will be ready at 98.60 and buyers always hopeful of dodging through the wave of sellers to break the 98.60 region thus giving upward momentum to 99.15/20 once more. Profit taking around these levels should initially cap, but buyers will be aggrieved at their failure to break 99.60 and will once more aim for this resistance.”

In case of failure, Harmer advances lower levels: “If the sellers hold this again then hope will fade for a higher market, as the buyers take the beating and retreat looking to re-enter at 97.95.”

European markets with moderate increases; Euro and Pound slightly higher

European stock markets are going through moderate gains on Wednesday in a session dominated by caution ahead of the U.S. banks’ “stress test”. Euro and Pound have posted slight increases recovering, partially, positions lost during previous sessions.

Eurostoxx 50 Index gains 0.43% while German Dax Index edges up 0.21%, and French CAC Index rises 0.81%. In London, the FTSE Index trades 0.53% above its opening level.

On the macroeconomic respect, Euro Zone retail sales have posted the largest yearly decline on record in March; 4.2% down from March last year. In the UK, Halifax house prices Index declined 1.7% in April and went 17.7% down year on year. 

Furthermore Services PMI in the UK increased to levels approaching those indicating expansion on the sector’s activity, 48.7 in April, from 45.5 in March, Sterling rose after the release of PMI data.

Sterling and Euro recover partially

EUR/USD has managed to recover during the European session some of the ground lost during U.S and Asian session, and from intra-day low at 1.3250, the Euro has reached levels above 1.3300. At the moment, the Euro trades at 1.3320.

GBP/USD has bounced at 1.4990 low ahead of the European markets opening and the pair has grown to maximum levels at 1.5120, although Cable has not been able to hold above 1.5100 and at the moment of writing trades at 1.5095.

USD/JPY attempt to return to yesterday’s levels has been aborted and after bouncing from 97.90 intra-week low, the Dollar has been unable to break through 98.50/60 resistance area and the pair returns to levels close to 98.00.

Forex: EUR/USD: Euro recovery, halted at 1.3340

Euro attempt to recovery from intra-day low at 1.3245 has been halted at 1.3340 level and the Euro has pulled back to levels above 1.3300; The Euro trades now at 1.3310, approximately at the day opening price.

Support levels lie at 1.3300 and below there, 1.3275 and intra-day low at 1.3245. On the upside, immediate resistance lies at 1.3340 intra-day high, and above there, 1.3385 congestion area, and then 1.3435 (May 5 high).

According to Peter Rosentreich, technical analyst at ACM, Advanced Currency Markets, the Euro will move sideways ahead of tomorrow’s ECB meeting: “The pair failed to reach 1.3479 (200d ma) as a pullback in risk damped USD bearishness. Failure to sustain move above 1.3412 neutralizes bullish theme & puts the focus on 1.3190 intra day support. We expect rangebound trading ahead of tomorrow ECB meeting.”

Forex: GBP/USD: Pound testing levels at 1.5100

The Pound has picked up strength and, after bouncing at 1.4990, the Pound is testing levels at 1.5100, taking back recovering part of the ground lost during U.S. and Asian session.

In case of successful move above 1.5100, nest resistance level comes at 1.5160 (May 5 high), and above here, 1.5190. On the downside, below 1.5100, support levels lie at 1.5065 (Apr 16 high), and below there, probably on the 1.4990/1.5000 area.

GBP/JPY has bounced at 146.95 support level to reach 148.90 level to pull back afterwards to levels around 148.20. Resistance levels lie at 148.90 and 149.90. Support levels lie at 147.80 and 147.30.

EUR/USD: The Euro will decline to 1.20 at the end of 2009, says National Bank Financial

The Euro has appreciated somewhat from 1.2450 low seen in early March to reach levels around 1.3300 on the first days of May, a trend which, according to National Bank Financial, could come to an end as the Dollar might rally across the board during the coming quarters.

According to national Bank Financial, the Federal Reserve, has, through its interventions, “set the U.S. money supply on an uptrend. The same can’t be said for the ECB,” while European money supply is slowing down.

Furthermore, the IMF estimates an exposure of more than $1,000 billion in toxic assets in European Banks, which according to National Bank Financial would urge the ECB to perform unconventional interventions to get European economy back on track.

In regards to the EUR/USD, the NBF estimates the EUR/USD to drop to 1.28 in the Q2 and to 1.25 in the Q3 to reach 1.20 at the end of the month. For the year 2010, the NBF expects the Euro to bottom at 1.15 in the first quarter to pick up to 1.17 in the second quarter.

Despite “Reality,” Fed Optimistic about the Economy

Last week, the Fed opted to maintain its benchmark Federal Funds Rate close to zero, and indicated in its press release that it “anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” [Chart courtesy of CNN].

Nonetheless, the Fed made a point of emphasizing that the economy seems to be stabilizing: “Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower.” I suppose everything is relative, but it’s a bit perplexing as to where the Fed is getting its data from, given that “Gross domestic product, the broadest measure of economic activity, fell at an annual rate of 6.1% in the first quarter of 2009 after a 6.3% drop in the last three months of 2008.” This exceeded analysts’ expectations for a 4.7% decline, and if anything, would seem to suggest that the economy is worsening. Granted, consumer spending rose slightly and inventories declined, but the aggregate picture paints an unequivocal picture of an economy in deep recession.

Bernanke, apparently, is unconvinced. ” ‘We continue to expect economic activity to bottom out, then to turn up later this year,’ Mr. Bernanke told the congressional Joint Economic Committee.” Meanwhile, the unemployment rate is currently 8.5% and falling. Business investment is still abysmal, as companies implement hiring freezes and hold off on all non-essential capital purchases.

Bernanke is especially optimistic about the state of the US financial system, noting that “conditions in credit markets have revived slightly in recent weeks. Homeowners are refinancing mortgages at a rapid clip, and financial institutions have stepped up their sale of securities backed by of credit card loans, automobile debt and student loans.” However, mortgage refinancing is a red herring, and frees up very little cash for consumption. Meanwhile, debt securitization is well below 2007 levels, and some experts predict that credit card loans represent the next catastrophe. “Fitch’s Prime Credit Card Delinquency Index measures credit card debt more than 60 days late. Through January 2009 that index surged to a record 4.04 percent.”

Bernanke also hinted that the results from the bank stress-tests, scheduled to be released today, are largely positive. As part of this program, “The government plans to divide banks into three categories, based on the adequacy of their capital reserves to absorb projected losses,” if the recession were to worsen. If Bernanke’s assertions are to be believed, then the tests will show that their capital reserves are sufficient, and they will not need additional capital infusions.

Bernanke’s testimony and the Fed Statement have been greeted positively by investors, “contributed toimproving sentiment and boosted risk appetite, easing demand for then yen and greenback as safehavens.” Nonetheless, everything he says should be taken with a grain of salt. Even with the best rose-tinted glasses money can buy, it’s hard to draw such optimistic conclusions from an objective interpretation of the data. Either Bernanke is basing his assessment off of the stock market rally (which is circularly based on such economic optimism), or he is trying to deliberately distort reality in order to try to make a recovery self-fulfilling by disingenuously telling people that everything is okay. Personally, I don’t think he’s worth taking seriously.

Yen Strengthens as U.S. Banking Funds Concerns Arise

The yen and the dollar rose against the euro after U.S. regulators affirmed that the Bank of America Corp. will need more than $30 billion in new capital, spurring demand for refuge currencies.

The Japanese currency climbed against all major currencies for the first day since last week, when improved economic conditions around the world boosted the attractiveness of riskier assets. After a report reviewing American banks, their need for new capital made the investors to take a conservative step back towards refuge currencies, which favored the yen. The euro had the biggest fall against the Japanese currency, on growing speculations that interest rates will be cut in the Eurozone, which may follow other non orthodox measures to be taken as an attempt to stop the deepening recession in the European economic bloc.

After a week of optimism and rallies in high-yielding assets, some negative data coming from both North America and Europe brought the markets down this Wednesday. According to experts, the current global economic conditions still require a moderate level of risk aversion, since there is no solid evidence that the main world economies are «back on track». Traders taking profit from recent gains with the euro have also favored the yen.

EUR/JPY traded at 130.99 falling from 132.03, following the same movement, USD/JPY dropped from 98.85 to 98.44.