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London Session Recap

  • Euro zone CPI at 0.7%, core CPI at 0.8% as expected
  • ECB official Mersch says central bank has more easing tools
  • U.S. Empire State index, Canadian manufacturing sales on tap

EUR/USD made another failed attempt at breaking past the 1.3450 minor psychological level, despite seeing the euro zone inflation figures come in line with consensus. Weighing the euro down were comments from ECB official Yves Mersch, who said that the central bank has enough tools to flood the economy with liquidity if necessary. He also warned that it would not be easy for the ECB to exit this period of low interest rates.

In today’s U.S. session, we only have a few medium-tier reports from the U.S. and Canada. The Empire State manufacturing index is up for release at 2:30 pm GMT and it is projected to show an improvement from 1.5 to 5.2, reflecting a stronger expansion. Canadian manufacturing sales are likely to see a 0.5% rebound from the previous 0.2% decline. Data on U.S. industrial production and capacity utilization are also on deck.

Asian Session Recap

  • Nikkei chalks up strongest trading week for 2013
  • Transcript of China’s 3rd Plenum to be released next week
  • Euro zone CPI figures up next

Risk appetite was strong in today’s Asian trading session, as equity markets and higher-yielding currencies posted gains. The Nikkei closed with a 1.95% gain, marking its best week for the year and boosting USD/JPY way past the 100.00 mark. Analysts attribute these gains to optimism for the global economy now that incoming Fed Chairperson Janet Yellen has hinted that stimulus programs will be kept in place for the meantime.

Up ahead, we have the euro zone inflation reports due, with the headline CPI expected to print a 0.7% reading and the core figure to show a 0.8% increase. Weaker than expected results could convince traders that the ECB would have room to ease further if necessary, which might lead to a selloff for euro pairs.

U.S. Session Recap

  • Yellen says it’s “important not to remove support too soon”
  • U.S. data (jobless claims, trade balance, labor costs) weaker than expected

Fed Chairperson nominee Janet Yellen’s testimony during her confirmation hearing yesterday didn’t have such a strong effect on the U.S. dollar since the transcript of her speech has been released a day earlier. Aside from that, her responses to interview questions and her outlook for tapering was expected, as she mentioned that there are “dangers of ending QE too quickly.”

Her cautious assessment of the economy was supported by bleak economic data from the U.S., with the initial jobless claims report showing a 339K increase instead of the estimated 331K reading and the trade balance printing a much larger deficit of 41.8 billion USD versus the projected 37.8 billion USD shortfall. EUR/USD managed to hold on to the 1.3450 level while USD/JPY surged past the 100.00 mark in today’s early Asian session.

There are no major economic reports lined up for release for the rest of the Asian session, as price movement could depend on risk sentiment and on how Asian equity markets fare. Note that the Nikkei has gapped higher and opened at 15,000 for the first time since May this year, suggesting that yen pairs could be in for more rallies.

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