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.
