>> Risk Rally Loses Momentum After Euro Fails to Join Party

Risk correlated asset well bid after IMF raises global growth forecasts Pound emerges as strongest currency following impressive data and Minutes EUR/CHF finds bids on talk of SNB rate checking Canadian Dollar remains well bid post upbeat Bank of Canada Risks still associated with Spain; Thursday auction results in focus China still showing signs of slowdown; expected to weigh on markets Looking for US Dollar to find renewed bids over coming sessions BOE Minutes more hawkish, UK employment number better The rally in risk correlated assets on Tuesday was impressive and market participants took the opportunity to aggressively buy back into global equities, with the US stock market leading the charge. As was to be expected, commodity currencies performed well on the renewed optimism, with the Canadian Dollar standing out after receiving an added boost from a more upbeat Bank of Canada outlook on the local economy. Meanwhile, the Australian Dollar managed to shrug off an early dovish Minutes, with AUD/USD rallying back above 1.0400. Lack of any meaningful first tier economic data releases did not stop investors from being active, and a good deal of the risk-on price action was attributed to the news that the IMF raised its 2012 global growth forecasts to 3.5% from 3.3%, while upping its assessment for the G7 economies.

Relative performance versus the USD Wednesday (as of 9:40GMT)

GBP +0.33%

CAD +0.07%

NZD -0.16%

AUD -0.15%

EUR -0.38%

CHF -0.45%

JPY -0.79%

Still, we were uncomfortable buying into the risk rally and contend that markets are locked within a choppier consolidation that will ultimately lead to yet another bout of risk-off trade and intensified concern with the outlook for the global economy. While we did see some supportive comments on Spain on Tuesday, and even though auction results were better than expected, there is still a lot of risk associated with the Eurozone, and these risks pose potential threats to the broader macro environment.

The Euro has reacted accordingly, and has been far more reluctant to join in the market rally over the past few sessions, which we believe is quite telling. The more significant 2014 and 2022 Spanish auction results are due tomorrow, the outcome of which will help to clearly define the underlying sentiment in the region. However, should the Euro accelerate to the downside and break back under 1.3000 ahead of tomorrow’s auction results, then even a positive showing will do little to offset the expected deluge of offers on the technical establishment below the psychological barrier which will once again expose the 2012, 1.2660 lows.

Data out of China has also not been impressive, and the latest news that average home prices in 70 major cities have posted their first Y/Y decline since government property curbs were imposed 2 years ago, offers additional evidence of an economy which is showing cooling signs. As we have stated a number of times over the past several months, we believe that an accelerated China slowdown is still on the horizon which will manifest as the third phase of the global macro recession which began in 2008. This should put more pressure on global equities and correlated currencies like the commodity bloc and emerging market FX, while at the same time benefitting the US Dollar on flight to safety bids and the attractiveness to a US economy which was first into the crisis and likely to be the first to exit.

Moving on, the big mover in today’s trade has been the Pound, with the currency outperforming across the board on the back of a one-two punch, in the form of a much better than expected UK employment report and more hawkish BOE Minutes. The big surprise in the Minutes came from the vote on asset purchases, where notoriously dovish Posen reconsidered his stance and reigned in his need for additional easing. Posen had previously dissented in favor of additional purchases to the tune of GBP350B, but fell into line with the majority and voted to leave as is at GBP325B. The unexpected result helped to bolster Cable back into the 1.6000 area, while additional Sterling bids were fueled by heavy cross related selling to fresh yearly and multi-month lows in EUR/GBP. However, there is some very solid support in EUR/GBP at 0.8140, and bids should emerge ahead of the level. Elsewhere, EUR/CHF continued with its choppy trade just over the well publicized 1.2000 barrier and rallies back above 1.2020 on talk that the SNB was in the market checking rates.

ECONOMIC CALENDAR

 TECHNICAL OUTLOOK

  EUR/USD: The latest round of setbacks have stalled ahead of some key multi-week support by 1.3000 and from here we still can not rule out risks for additional consolidation above 1.3000, before considering bearish resumption. Ultimately, any rallies towards 1.3300 should be well capped, while a break and daily close back under 1.3000 would accelerate declines to the early 2012 lows at 1.2660.

 USD/JPY: The latest pullback from the 2012, 84.20 highs was viewed as corrective and it looks as though the market has finally found some solid support ahead of 80.00. The setbacks have stalled by the top of the daily and weekly Ichimoku clouds and we look for the formation of a fresh medium-term higher low somewhere around 80.00 ahead of the next major upside extension back towards and eventually through 84.20. Overall, this is a market that has undergone a major structural shift in recent months and we now see the pair in the early stages of a longer-term up-trend. Ultimately, only a weekly close back under 78.00 would negate.

 GBP/USD: Failure to establish any fresh momentum on the recent break above 1.6000, followed by an aggressive bearish reversal, now suggests that the market could finally be looking to carve a top in favor of a more significant decline over the coming sessions. Look for a break and close below next support at 1.5800 to reaffirm outlook, while back above 1.6065 would be required to negate.

 USD/CHF: Our core constructive outlook remains well intact, with the latest setbacks very well supported by psychological barriers at 0.9000. It now seems as though the market could be looking to carve a fresh higher low, and we will be watching for additional upside back towards the recent range highs at 0.9335 over the coming sessions. Above 0.9335 should accelerate gains towards the 2012 highs by 0.9600 further up. Ultimately, only back under 0.9000 delays and gives reason for pause

Forex News - Dollar loses ground, stocks rise on Fed rate vow

 

NEW YORK (Reuters) - The dollar weakened and world stocks rose on Wednesday after the U.S. Federal Reserve extended its pledge on maintaining interest rates at ultra-low levels until at least late 2014, much later than markets had expected.
The Fed's announcement at the close of its two-day policy meeting followed other news earlier in the day that supported risk appetite, including Apple's stellar results and strong German economic data, and helped offset lingering concerns about the outcome of Greece's debt talks.
Prices of gold and U.S. government debt rallied on the Fed's statement on rates and on comments by the bank's chairman, Ben Bernanke, who left the door open to further monetary stimulus if the economy deteriorates this year.
In an unprecedented step toward greater transparency, the Fed also announced that it was adopting an inflation target, setting it at 2 percent. And for the first time, it released the individual policymakers' forecasts for the federal funds rate, the rate at which banks lend to each other. The forecasts showed most Fed members expect rates to rise only around 2014.
"This is dollar negative," said Brian Dolan, chief strategist at Forex.com at Bedminster, New Jersey. "Extending low rates until late 2014 is longer than markets were expecting."
The euro rose 0.6 percent against the dollar to $1.311, its highest level in nearly five weeks. The single currency was also supported by a report showing German business sentiment rose for the third month in a row in January, beating market expectations.
Pressure will likely remain on the euro, however, as investors worry the European Central Bank may have to write down its holdings of Greek debt, which would crimp its ability to purchase debt from other troubled peripheral euro zone countries.
"Uncertainty over the Greek debt talks and disappointment that there has still been no deal is spoiling the party for the euro," said Audrey Childe-Freeman, EMEA head of currency strategy at JP Morgan Private Bank.
The Greek government said it hopes to complete talks on a deal with its private creditors as early as this week, despite euro finance ministers' rejection of an initial plan.
APPLE SOARS, WALL ST RALLIES
The Fed's low interest rate forecast, coupled with Apple's blow-out earnings, allowed Wall Street to resume a rally that had been halted in the morning by euro-zone debt fears.
The Dow Jones industrial average .DJI closed up 83.10 points, or 0.66 percent, at 12,758.85. The Standard & Poor's 500 Index .SPX gained 11.41 points, or 0.87 percent, to 1,326.06. The Nasdaq Composite Index .IXIC climbed 31.67 points, or 1.14 percent, to 2,818.31.
"What caught the market off guard was obviously the fact they are going to keep rates lower for longer," said John Canally, investment strategist at LPL Financial in Boston.
The adoption of a 2 percent inflation target also "moves the ball slightly down the field" for possible additional quantitative easing measures, Canally added.
Shares of the Apple (AAPL.O: Quote, Profile, Research, Stock Buzz) closed up 6.2 percent at $446.66, after earlier hitting an all-time high of $454.45. The iPad maker announced quarterly results that blew past market expectations.
"Expectations ran rampant on the iPhone 4S' popularity around the world, and yet December's results reported last night were still "staggering" in comparison," Brigantine
At least 15 brokerages raised their price targets on the company's stock, with two expecting it to touch $650 in the next 12 months.
Global stocks gained 0.47 percent according to the MSCI All-Country World index .MIWD00000PUS. But in Europe, the FTSEurofirst 300 index .FTEU3 ended 0.5 percent lower on debt fears.
Gold prices rallied 2.5 percent to above $1,700 an ounce, as the Fed's renewed commitment to low interest rates suggested the metal could be an interesting investment alternative, especially if a sluggish economic recovery puts a lid on stock gains.
"Gold was reacting to the Fed's guidance of historically low rates all the way until 2014, which suggests that there will be plenty of investment money around for an extended period of time," said Frank McGhee, head precious metals trader at Integrated Brokerage Services LLC.
Benchmark 10-year U.S. Treasuries rose 17/32 in price after the Fed's statement, sending their yield down to 2.0034 percent.
U.S. crude oil prices closed 0.45 percent higher, at $99.40 per barrel.

Forex News - Dollar loses ground, stocks rise on Fed rate vow

By Walter Brandimarte

NEW YORK (Reuters) - The dollar weakened and world stocks rose on Wednesday after the U.S. Federal Reserve extended its pledge on maintaining interest rates at ultra-low levels until at least late 2014, much later than markets had expected.

The Fed's announcement at the close of its two-day policy meeting followed other news earlier in the day that supported risk appetite, including Apple's stellar results and strong German economic data, and helped offset lingering concerns about the outcome of Greece's debt talks.

Prices of gold and U.S. government debt rallied on the Fed's statement on rates and on comments by the bank's chairman, Ben Bernanke, who left the door open to further monetary stimulus if the economy deteriorates this year.

In an unprecedented step toward greater transparency, the Fed also announced that it was adopting an inflation target, setting it at 2 percent. And for the first time, it released the individual policymakers' forecasts for the federal funds rate, the rate at which banks lend to each other. The forecasts showed most Fed members expect rates to rise only around 2014.

"This is dollar negative," said Brian Dolan, chief strategist at Forex.com at Bedminster, New Jersey. "Extending low rates until late 2014 is longer than markets were expecting."

The euro rose 0.6 percent against the dollar to $1.311, its highest level in nearly five weeks. The single currency was also supported by a report showing German business sentiment rose for the third month in a row in January, beating market expectations.

Pressure will likely remain on the euro, however, as investors worry the European Central Bank may have to write down its holdings of Greek debt, which would crimp its ability to purchase debt from other troubled peripheral euro zone countries.

"Uncertainty over the Greek debt talks and disappointment that there has still been no deal is spoiling the party for the euro," said Audrey Childe-Freeman, EMEA head of currency strategy at JP Morgan Private Bank.

The Greek government said it hopes to complete talks on a deal with its private creditors as early as this week, despite euro finance ministers' rejection of an initial plan.

APPLE SOARS, WALL ST RALLIES

The Fed's low interest rate forecast, coupled with Apple's blow-out earnings, allowed Wall Street to resume a rally that had been halted in the morning by euro-zone debt fears.

The Dow Jones industrial average .DJI closed up 83.10 points, or 0.66 percent, at 12,758.85. The Standard & Poor's 500 Index .SPX gained 11.41 points, or 0.87 percent, to 1,326.06. The Nasdaq Composite Index .IXIC climbed 31.67 points, or 1.14 percent, to 2,818.31.

"What caught the market off guard was obviously the fact they are going to keep rates lower for longer," said John Canally, investment strategist at LPL Financial in Boston.

The adoption of a 2 percent inflation target also "moves the ball slightly down the field" for possible additional quantitative easing measures, Canally added.

Shares of the Apple (AAPL.O: Quote, Profile, Research, Stock Buzz) closed up 6.2 percent at $446.66, after earlier hitting an all-time high of $454.45. The iPad maker announced quarterly results that blew past market expectations.

"Expectations ran rampant on the iPhone 4S' popularity around the world, and yet December's results reported last night were still "staggering" in comparison," Brigantine Advisors said in a note.

At least 15 brokerages raised their price targets on the company's stock, with two expecting it to touch $650 in the next 12 months.

Global stocks gained 0.47 percent according to the MSCI All-Country World index .MIWD00000PUS. But in Europe, the FTSEurofirst 300 index .FTEU3 ended 0.5 percent lower on debt fears.

Gold prices rallied 2.5 percent to above $1,700 an ounce, as the Fed's renewed commitment to low interest rates suggested the metal could be an interesting investment alternative, especially if a sluggish economic recovery puts a lid on stock gains.

"Gold was reacting to the Fed's guidance of historically low rates all the way until 2014, which suggests that there will be plenty of investment money around for an extended period of time," said Frank McGhee, head precious metals trader at Integrated Brokerage Services LLC.

Benchmark 10-year U.S. Treasuries rose 17/32 in price after the Fed's statement, sending their yield down to 2.0034 percent.

U.S. crude oil prices closed 0.45 percent higher, at $99.40 per barrel.

© Thomson Reuters 2011. All rights reserved.

Forex News
Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."