Weekly Forex Wrap-up

We had a bunch of hot market moving events this week that created volatility for short-term traders and possibly changed the direction of some currencies.

The biggest shock came in right at the head of the week when Japan surprised the world by dropping down to recession. With the Bank of Japan’s meeting in favor of monetary easing and upcoming plan for a snap election, we could now see a pullback in the USD/JPY pair followed by more weakening in the Japanese yen (which could boost up the Japanese exports)

The UK shopper made up for their poor turnout in previous months, as October’s retail sales number beat all market expectations to rise by 0.8%. More encouragingly, the number is up by 4.3% on October last year. Anyone that’s been near a high street in the last few weeks will know that this number has been helped along by retailer discounts, which are no longer the preserve of twice yearly sale periods, but does bring some spending momentum into the market as we head into Christmas shopping.

The number gave a brief jump to Mr. British Pound but, as was proven with the FOMC minutes of the night before, nobody is particularly comfortable seeing the Pound return to a position of strength, as such the move up was short lived.

Over in Europe, European Central Bank President Mario Draghi threw the door wide open on Friday for more dramatic action to rescue the euro zone economy, saying “excessively low” inflation had to be raised quickly by whatever means necessary, but the tone worked against Mr. Euro as investors didn’t seem to like super Mario’s tone. Preliminary PMI readings for November weren’t so pretty either. Numbers for Europe as a whole slipped back towards the 50, breakeven level, while French manufacturing continues to provide a drag on their economy, with numbers persistently failing to break back above 50 into expansion territory

Elsewhere in Europe, Italy might have pre-empted Brussels’ dissatisfaction at its budget submission by accusing the EU of “shaky” accounting methodology to establish a country’s fiscal health. European countries are to hear Brussels’ thoughts on whether their budgets are acceptable early next week and there was widespread speculation before they were submitted that France and Italy weren’t going to make the grade. Italy now say that the way the EU are accounting for output gaps is out dated and have no doubt come up with a suggestion for how these should be calculated that makes their budget add up.

Here in the US, the Federal Reserve is to conduct a review into whether or not they are too friendly with the banks that they regulate. The announcement that they are to conduct a review comes, somewhat conveniently, a day before two key members of the Fed testify to the Senate on the subject of regulatory oversight. William Dudley, one of the Fed members to be quizzed, said that a lack of trust in banks could in itself become a risk to the stability of the financial system. As it’s Friday, you may want to spare 3 minutes and watch this rather excellent rant by Channel Four’s economics editor over bank behavior and trust issues.

Next week we will hear more from Japan and Europe which could help us with more pip-making strategies for the rest of the year.

Intraday Forex Technical Levels

EUR/USD 4-hour: Failed to break above the 38% Fibonacci level.

Invest Diva positioning: Short positions below 1.2487 with targets at 1.2363 and 1.2299 in extension.

Technical reasons why: The pair failed to break above the 38% Fibonacci level at 1.2563 and continues dropping after breaking below the 23% Fibonacci level and Ichimoku’s cloud. The RSI is heading to the oversold zone.

Alternative Scenario: A shoot back up above 1.2487 would alter the outlook back to bullish with targets at 1.2563 and 1.2624.