US DOLLAR: WATCH OUT FOR GDP

By Kathy Lien (www.gftforex.com)

The US dollar is stronger across the board today as risk aversion returns to the market. Like Florida weather, where it can be hot one day and cold the next but warm most of the time, we can occasionally see an improvement in the market’s risk appetite but the bias is still towards risk aversion. Traders have quickly realized that nothing new came out of the Fed’s monetary policy meeting yesterday and until we have another major announcement from the US government, currencies will be vulnerable to negative US economic data, earnings report and developments abroad.

EUR/USD: TALKING DOWN THE EUR/USD

The EUR/USD was hit by the double blow of weaker economic data and Euro negative comments. Unemployment in Germany skyrocketed as job losses rose 56k, driving the unemployment rate up to 7.8 percent. Despite the improvement in business and consumer confidence, the German economy and the labor market has not been immune to the global slowdown. This should just be the beginning of a broader trend of job losses in the Eurozone. German retail PMI also deteriorated even though PMI for the overall region improved. This was due largely to the resilience of consumers in France, who actually increased their spending in the month of January. Unfortunately France may not be able to carry the Eurozone for long. Meanwhile, the Euro also came under selling pressure after ECB President Trichet said that he would not rule out taking interest rates below zero. Judging from recent comments by Trichet, it is clear that he still plans on cutting interest rates but not in February. The Euro extended its losses after legendary investor George Soros added his two cents. He warned that the Euro may not be able to survive the crisis without a global plan. He is pushing for the European Union to come up with a way to deal with all of the toxic debt sitting on the balance sheets of European banks. Eurozone consumer prices and unemployment rate are due for release tomorrow and given the recent trend of inflation and employment data, they are expected to be Euro bearish.


USD/CAD: Currency in Play for Next 24 Hours

The currency in play for the upcoming 24 hours will be USD/CAD due to the release of GDP from both Canada and U.S. at 13:30GMT or 8:30AM EST. U.S. is also expected to release Personal Consumption figures at 13:30GMT or 8:30AM EST, followed by Preliminary U. of Michigan Confidence at 15:00GMT or 10:00AM EST. Massive trend moves seem to be the thing of the past for the pair, as USD/CAD continues to fluctuate with no clear direction, currently lingering within Range Trading Zone established using Bollinger Bands. Current support has proved to be effective at 1.2027, which is a 78.6% retracement of 2008 high and 2009 low. Resistance on the other hand is placed at the 50-day SMA average which is structured around 1.2310. If GBP/USD breaks 1.2310, we could see a move towards the first standard deviation Bollinger band at 1.25.