FOREX AWAL BULAN FEBRUARY 2011

EUR/USD
Friday's sharp setback puts the key projected support level at 1.3540 under pressure. Last week's spinning top candle leaves the uptrend neutralized for now and a break below 1.3540 would attract further weakness toward 1.3425 and the Jan. 20 low at 1.3396. Keeping 1.3540 intact would prompt a recovery towards 1.3665 and 1.3715, but only a sustained push above the latter would re-open the 1.3760 high.


GBP/USD
Bears are protecting the 1.6000 level following the setback off last week's high at 1.5990 and support at 1.5826 is likely to be breached. Such a move would pave the way for further weakness toward the Jan. 25 low at 1.5752 and threaten a much sharp decline towards 1.5650 and 1.5490. Keeping 1.5752 intact would suggest more lateral consolidation is needed towards 1.5990 before the bear threat materializes. Only movement above 1.5990 would negate the bearish outlook, opening the Jan. 18 reaction high at 1.6058.


USD/JPY
Bears have regained control of the short-term following Monday's probe into fresh four-week lows below 81.85. The failure to hold onto last week's rally to 83.22 highlights the negative undercurrent and further weakness is expected toward a wave equality target at 81.37. A three-month bear pennant support line lies at 81.25 for Monday's session. Corrective strength is limited to the 82.50 area.

AUD/USD
Remains within a bear pennant and Monday's recovery off 0.9866 threatens a return to the upper half of the continuation pattern. Resistance at 1.0004 and 1.0023 lie in front of the bear resistance line at 1.0051, but an upside resolution is not expected. Loss of 0.9912 would threaten a return to the 0.9866 low and the bear pennant support line at 0.9854.


FOREX FOCUS
Like old New Year resolutions, the optimism in financial markets at the start of this year is quickly being forgotten. As January turns to February, markets are once again being driven by fear: fear that the rioting in Tunisia and Egypt will spread to oil producers in the region; fear that the rise in commodity and food prices is getting out of hand; fear that a euro-zone debtor will yet default; fear that China will hike interest rates and slow its economy; and fear that rating agencies will now become more aggressive in downgrading debtor countries. This is a far cry from the heady days earlier this month when confidence in the global recovery was on the rise and sentiment was being driven more by inflation and rate hike expectations instead. Risk was back on and investors were busy seeking higher returns. Right up until Wednesday, the Dow Jones Industrial Average was climbing to a new two-and-a-half-year high. But now, risk is most definitely off. The rot appears to have started in, of all places, Tunisia--a country associated more with cheap package holidays rather than with food riots, that not only managed to topple the Tunisian government but have since spread to Egypt and raised political tensions across the region. The demonstrators have not only focused global attention on the recent steady rise in food prices, with the price of wheat at a two-an-a-half-year high and the wholesale cost of sugar at a 30-year high, but they have instilled fear over what would happen if the governments of oil producers in the region were the next to fall. Safe havens have also become popular again as fears over euro-zone debts have returned. The euro may have been supported for much of the early part of this year by rising hopes of a political solution. However, the longer the market waits the weaker the solution looks, with European Economics Commissioner Olli Rehn confirming Thursday that the European Union will not increase the EUR440 billion of guarantees for debtor countries.


EUROPE
Political tensions in Egypt, where the clamour to unseat President Hosni Mubarak has been growing steadily, are helping support currencies perceived as safe in the European session Monday, namely the U.S. dollar, yen and Swiss franc. Earlier Monday, Moody's Investors Service Inc. downgraded Egypt's government bond ratings to Ba2 from Ba1, sharpening the focus on the Arab world's most populous nation and on wider perceptions of risk. But while stock markets around the world have been suffering falls as Egyptians take to the streets for a seventh day running, the impact on currency markets has been a little less clear. The Egyptian pound was weaker, and that led the Turkish lira lower. But while the U.S. dollar, yen and Swiss franc have all risen, their gains are stalling. Commodity currencies, including the Australian and Canadian dollars, were propped up amid concerns that troubles in Egypt may have a knock-on effect on commodity prices. The euro, meanwhile, has come back from the falls it suffered during Asian trading hours. The Egyptian pound hit a fresh six-year low against the dollar, with the dollar peaking just above EGP5.87. The Turkish lira fell, with the dollar rising to TRY1.6202, while the Israeli shekel eased to ILS3.760.
The big question remains how far the fallout from turmoil in Egypt will stretch. "The unrest in Egypt and the fear of a spillover into the rest of the Middle East is generating some safe-haven flows, although these are more muted than generally expected," BNP Paribas analysts said in a research note. "We would expect the dollar to remain supported, with the broader weakening trend seen over the past couple of weeks now coming to an end. The Swiss franc and Japanese yen are also likely to benefit to some degree in the current environment," they added. What began in Tunisia has spread to Egypt and there are reports of protests in Yemen and Sudan, but the area's major oil producers haven't been affected so far.


ASIA
The euro fell against the dollar and yen Monday in Asia as investors dumped the risk-sensitive currency on fears that ongoing political turmoil in Egypt could spread to its oil-producing Arabian neighbors. In Cairo, anti-government protesters are violently demanding the nation's longtime President Hosni Mubarak leave office, sparking armed robberies and a death toll of more than 100. The development prompted investors to sell risk-sensitive shares and the European common currency, and dealers said they are likely to keep falling for the time being. "What is possibly occurring now is a transition of the social structure in Islamic counties, and because the world has never experienced it before, nobody has a good idea of what might happen next," said Yoichi Itoh, chief analyst at STB Research Institute. Investors are now wary of the uncertain risk that similar protests will spread to nations with rich oil reserves such as Yemen, Jordan, and Saudi Arabia, which would severely hurt the global supply of crude. Market participants have started to factor in the world with an unstable oil supply, preparing for a scenario where their concerns turn into a reality. "Emerging nations' economic momentum may lose steam, and the global economy as a whole may see sharp declines in growth. That's negative for the euro," said Kenichiro Ikezawa, a senior fund manager at Daiwa SB Investments.


WORLD
The dollar and other safe-haven currencies gained on Friday in New York as investors sought refuge from the turmoil in the Middle East, where Egyptian protesters faced off against the police and army in violent clashes. The euro fell broadly as traders worried the single currency was at further risk as the political unrest in Egypt threatened to spread to neighboring Arab countries. In addition to the Egyptian situation, the dollar could be gaining allure as a safe harbor for investors worried that the year's early gains in stocks and other riskier asset markets could be reversed quickly. "With many secretly eying a retracement in the equity market, it makes sense to be holding dollars as a potential safety play," said Andrew Wilkinson, senior market analyst at Interactive Brokers in Greenwich, Conn. Volatile markets showed investors were worried the political crisis could spread in the Middle East. Oil was also a huge beneficiary of the Egyptian turmoil. Traders are spooked that shipments through the Suez Canal might be disrupted, which would be a major blow to the global economy. The stock market decline has been exacerbated by the potential impact of disruptions in oil supplies. Light, sweet crude prices jumped and the Dow Jones industrial average fell more than 1%. "The Middle East story has grabbed people," said Tom Tucci, head of government bond trading at RBC Capital Markets in New York. The worry is that tensions "are going to spread and that there are going to be more uprisings and issues in the Middle East."


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FOREX FOCUS, WEDNESDAY (JANUARY 26, 2011)

EUR/USD
Having negated Monday's neutralizing doji, the powerful uptrend is set to extend into fresh two-month highs above 1.3705. The 61.8% Fibonacci retracement level of the 1.4283/1.2860 bear wave at 1.3739, and the Nov. 22 high at 1.3786 are the immediate targets, with scope for a wave equality target at 1.3841 in the coming sessions. Support lies at 1.3625 to protect Tuesday's low at 1.3573.


GBP/USD
Stages a corrective recovery off Tuesday's low at 1.5752, but upside risk will struggle once the 1.5857 target is met. The 1.5905 area limits scope for corrective strength and action is taking shape within a bear flag pattern. A push below 1.5779 would bring the 1.5752 low back into the picture, threatening further weakness towards key support at 1.5665.


USD/JPY
Tuesday's low at 81.97 is back under pressure, as the setback off the Jan. 20 high at 83.13 looks to extend. Bears are targeting the key Jan. 19 reaction low at 81.85, but only a fresh wave of bear pressure would manage to force a break through 81.85 to expose the near three-month bull support line at 81.20. The 82.30 level has become pivotal for the near-term and a break above there is required to lift the tone, opening 82.67.


AUD/USD
This week's strength is transforming a bear flag into a bear pennant continuation pattern, which puts Monday's high at 1.0023 at risk. A break through 1.0023 would open a measured target at 1.0051, and bring the Jan. 19 high at 1.0079 into the picture. Failure to break through 1.0023 would prompt a setback towards Tuesday's low at 0.9890, but only below the latter would expose the Jan. 20 low at 0.9832.


FOREX FOCUS :
The yen is about to be carried lower. For the last three years, the Japanese currency has largely ignored fundamentals as the global financial storm boosted its attraction as a safe haven. Despite a continued threat of Japanese deflation, record levels of Japanese monetary easing and repeated efforts at fiscal stimulation by Tokyo, the yen was pushed steadily higher, especially against the dollar. After rising to nearly Y125.00 in the middle of 2007, the U.S. currency fell to nearly Y80 by the end of 2010. So far, the yen has spent much of the new year in limbo, trading in a narrow range and showing little real direction. However, there are distinct signs that positive factors won't continue to work in the yen's favor. For a start, safe havens are swiftly losing their star status as the global recovery becomes more widespread and the risk of a major debt crisis in the euro zone starts to fade. Unusually heavy investor demand Tuesday for a debut syndicated bond issue by the new European Financial Stability Facility, designed to provide debt bailouts, was a clear signal of growing confidence among the investment community that the worst is over. There are even signs that the U.S. recovery may finally be picking up, with the U.S. Federal Reserve expected to give an upbeat economic assessment at its latest FOMC later this week. By contrast, the outlook for Japan remains fragile despite efforts by the Bank of Japan to paint a more optimistic picture. In its latest report earlier Tuesday, the central bank preserved its virtually zero interest rates and left its program for quantitative easing unchanged. It revised higher its forecast for growth in the current fiscal year but suggested that the recovery has "paused." This pause could also prove longer than expected, especially if the global upturn, which will be vital for Japan's recovery, doesn't prove as strong as anticipated


EUROPE
The euro is holding above the 1.37 level against the dollar in an uneventful session in European trading Wednesday, with no data on the calendar to trigger moves. The single currency is also benefiting from renewed dollar weakness in the wake of President Obama's State of Union speech Tuesday, in which he proposed a five-year freeze on government spending and sent Treasury yields lower. Investors eyeing the upcoming FOMC meeting at 1915 GMT for clues about QEII. Sterling is higher against the greenback, building on gains it made after the release of the BOE's MPC minutes.


ASIA
The dollar continued its fall against the yen and the euro Wednesday in Asia on lower Treasury yields as expectations grew that the U.S. may cut its spending in coming years following President Barack Obama's call for a freeze in federal non-defense, discretionary expenditures. Benchmark 10-year U.S. Treasury yields fell 8.0 basis points to 3.324% Tuesday in New York and stayed around 3.350% in Asia on growing expectations the U.S. may cut its spending in coming years, which would allow the U.S. government to issue fewer bonds. The expectations have increased on speculation that Obama would use his State of the Union address to push for a spending freeze. Obama said the plan would reduce the deficit by $400 billion and bring discretionary spending to the lowest share of the U.S. economy since Dwight Eisenhower was president in the 1950s. Market reaction to the address was limited, since almost all of the key points were known in advance, dealers said. Trading was also subdued as investors awaited the outcome from the Federal Open Market Committee meeting due later in the global day. The euro also gained slightly against the dollar, although it became prone to profit-taking after it hit a nine-week high of $1.3705 late Tuesday in New York. But given recent inflationary pressure in the euro-zone and a strong economic recovery in Germany, the euro is likely to maintain a bullish trend against the dollar in the near term, said Junichi Ogawa, a market analyst at FX Online Japan. With new hawkish voting members on the board at the FOMC meeting, speculation has been increasing that the outcome might push U.S. bond yields higher, but "a surge in the U.S. bond yields now seems unlikely," said Yuichiro Harada, senior vice president of forex division at Mizuho Corporate Bank. While investors are focused on the FOMC meeting, no major changes in policy are expected, said one options dealer at a major Japanese bank. "This meeting is too early to discuss what's going to happen" after the second round of quantitative easing ends in June, the dealer said.


WORLD
The British pound slid sharply against the dollar and euro Tuesday in New York as investors' optimism faded about the U.K., following news that its economy unexpectedly shrank at the end of last year. Meanwhile, the euro in New York briefly jumped above $1.37, a two-month high, as traders closed out more negative bets against the single currency. The U.K. pound has moved higher recently because of expectations that Britain's central bank could eventually raise short-term interest rates to tackle the U.K.'s high inflation rate, which is nearly 4%. That trend abruptly reversed, as the pound slumped to an 11-week low after the British government said the economy contracted 0.5% on an unannualized basis in the fourth quarter--worse than most forecasts--after growing 0.7% in the previous quarter. "It came as a big surprise," said Steven Englander, G-10 currency strategist at Citigroup in New York. "Investors had been generally optimistic about the U.K. economy." The pound posted more losses against the euro after a speech by Bank of England Governor Mervyn King was interpreted as relatively "dovish," or more concerned about stimulating economic growth than inflation. But Englander warned that preliminary U.K. economic data are notoriously unreliable and could be revised significantly in future readings. Britain's Office for National Statistics also said the U.K.'s economic performance would have been a little better--roughly flat--were it not for bad weather that battered Britain's economy late last year. At the same time, observers noted that the latest figures showed Britain's construction sector, a key driver of the economy lately, may be helping the economy less than previously thought. The latest data put the Bank of England in a bind: Policy makers must tackle Britain's surging inflation problem without hurting the economy by raising rates in an environment in which many government spending cuts have yet to take effect.