EUR/USD
Stages a recovery off 1.3508 in an attempt to regain a foothold above 1.3600. The top of the weekly Ichimoku cloud halted the dominant setback off the Feb. 2 reaction high at 1.3862, but layers of resistance between 1.3685 and 1.3725 provide a significant hurdle for corrective gains. A break below 1.3573 is required to bring the 1.3508 low back into the picture.
GBP/USD
Monday's high at 1.6185 is expected to face a retest, as last Friday's bear failure low at 1.6037 continues to control near-term sentiment. A break through 1.6185 would re-open lat week's 1.6277 reaction high and the key November reaction high at 1.6298 is still vulnerable. Only a reversal below 1.6037 would put bears in control of the near-term, exposing 1.5990 initially, but creating room for 1.5940 and a sharper setback to 1.5826.
USD/JPY
Consolidates last Friday's strong recovery off 81.10 within a rectangle between 82.16 and 82.48. More ranging is expected, but with solid backup support lying at 81.85, the main threat is to the upside. A push through 82.48 would create room for projected resistance at 82.85, which protects the Jan. 27 high at 83.22.
AUD/USD
Recovers well to re-open last Friday's spinning top high at 1.0201. Monday's recovery off 1.0098 left a neutralizing doji on the daily chart and a break through 1.0201 is the main threat, opening the December 2010 28-year high at 1.0258. Only a break below 1.0116 would negate the positive outlook, exposing 1.0098 and 1.0055.
FOREX FOCUS
Fear is still stalking the currency markets. Egyptian rioters may have calmed down and Europe's leaders may be edging closer to resolving the euro zone's sovereign-debt crisis. But it is the risk of global inflation that now appears to be the problem. This seems to be the message coming from the currency market's muted response to Friday's sharp rise in U.S. Treasury yields. The rise, which took the 10-year yield to a 10-month high at 3.68%, came in the wake of a sharp fall in the U.S. unemployment rate to 9.0% from 9.4%. Under normal circumstances, the yield rally should have given the dollar a sharp boost, not only against the euro, but also against the yen, the value of which against the dollar is often driven by yield differentials. However, very little has happened. The dollar has risen but gains have been limited and there is little sign of any serious upward momentum developing. Some market experts suggest that the rise in yields will only have an impact on sentiment once the focus of the currency markets moves away from local events, such as those in Egypt. Others reckon that the dollar hasn't benefited more as there is little evidence that the higher yields will translate into higher interest rates from the Fed. For example, Jane Foley, senior currency strategist at Rabobank in London, reckons that the timetable for rate hikes is hardly changed, with the European Central Bank expected to move in October or November but the Fed still seen waiting until 2012. But it could well be that inflation fears are merely replacing the sovereign-debt crisis and the Middle East contagion risks that have largely dictated market sentiment in recent weeks.
EUROPE
China throws a curve ball in London trading hours and raises its interest rates, hitting risk-sensitive commodity currencies hard. But the move fails to have more than a temporary effect on the euro's rally against the dollar, with the single currency jumping to the day's high against the dollar at $1.3670 after a dip immediately following the news. AUD was worst hit, dropping to $1.0139 from $1.0180 in the wake of the announcement and sinking to the day's low at $1.0140 soon afterwards. EUR/USD currently up at 1.3634, GBP/USD up at 1.6112 and USD/JPY down at 82.13.
ASIA
The euro gained against the dollar and yen in Asia Tuesday as stronger Japanese equities prompted investors to buy back the risk-sensitive currency, pushing it further off the two-week low against the greenback that it marked Monday in New York. Highlighting investors' greater willingness to bet on risk-sensitive currencies, several Asian units rose to multi-year highs against the dollar Tuesday. The euro's rise was also helped as stop-loss buying orders were triggered above $1.3600, dealers said. But the euro's gains could be blunted later in the global day if the U.S. Treasury Department's offering of $32 billion of three-year notes goes poorly, pushing U.S. yields up further, dealers said. "If the auction outcome supports the rising trend in bond yields," that could weigh on the euro, said Yuichiro Harada, senior vice president of forex division at Mizuho Corporate Bank. Recent strength in U.S. economic data has also added to speculation "that U.S. Treasury yields will likely gain on the back of the economic recovery," which could make investors more hesitant to buy the common currency, he said. At the same time, the euro's downside against the dollar may remain limited if the currency holds above the $1.3500 mark for the rest of the global day, said Sumino Kamei, senior analyst at Bank of Tokyo-Mitsubishi UFJ. The euro was at $1.3614 as of 0450 GMT from $1.3583 late Monday in New York, and at Y112.04 from Y111.82.
WORLD
The euro rebounded from a two-week low Monday in New York, as short-term buying momentarily overcame concerns about weak German economic data and a lack of new details about the euro zone's plans to address its debt woes. European Union leaders met late last week to discuss a broad range of economic reforms, and map out a strategy to address the 17-nation currency bloc's sovereign-debt problems. But the summit dissolved into acrimony, disappointing traders who had hoped EU leaders would clarify details over plans to support the euro zone's most troubled economies. After weeks of rallying on the back of expectations of higher euro-zone interest rates, the single currency fell sharply, as the European Central Bank appeared to downplay the prospect for higher borrowing costs. Disappointment with European policymakers combined with surprisingly weak German manufacturing data for December, raising some concerns about the sustainability of a recovery in the euro zone's largest economy. At least temporarily, concerns about the euro zone's most economically distressed countries have largely retreated to the background. "The euro has been downgraded from a crisis to a problem," said Ron Leven, currency strategist at Morgan Stanley. Because the market appears to be pricing in the prospect of some resolution, "the risk of a liquidity event [appears] much smaller," he added. Late Monday, the euro was at $1.3583 from $1.3582 late Friday, according to EBS via CQG. The dollar was at Y82.32 from Y82.20, while the euro was at Y111.82 from Y111.67. The U.K. pound was at $1.6108 from about $1.6104. The dollar was at CHF0.9555 from CHF0.9551.
