Forex Major Currencies Outlook (March 5, 2013)

At the end of the day, the U.S. dollar is still king due to its lower yield and safe-haven status, even though the Fed's Bernanke previously stressed that there was no need to withdraw asset purchases yet. So far this week, there were no major economic events from the U.S., except for some speeches from FOMC members who mentioned the challenges to the Fed’s monetary policy. Today, the U.S. will print its non-manufacturing PMI figure for February and possibly report a dip from 55.2 to 55.0. A stronger than expected figure could boost the U.S. dollar during the New York session. 

JPY: Neutral 
Yen pairs are trading cautiously of late, waiting for further clues on monetary policy and the exchange rate mechanism. Newly appointed BOJ head Haruhiko Kuroda hasn’t mentioned anything regarding these issues yet, and isn’t likely to do so during the BOJ monetary policy decision this week. Note that this is Shirakawa’s last monetary policy statement as BOJ head; he isn’t likely to make any drastic announcements before passing the baton to Kuroda. For now, the Japanese yen might act as a lower-yielding counterpart, which could rally if risk aversion sets in. 

EUR: Neutral 
The EUR/USD staged a meager recovery on Monday’s trading as it found support around the 1.3000 handle. Spanish employment figures came in stronger than expected. The unemployment change figure showed a 59.4K decrease in jobs instead of the 77.5K consensus, and lower than the previous figure of a 132.1K drop in hiring. Still, this indicates another month in job losses which doesn’t bode well for one of euro zone’s largest economies. Spanish and Italian services PMI are on tap for today, and both reports are expected to sink down from their previous readings. Eurozone retail sales are due later as well, but these reports aren’t likely to cause huge moves in euro pairs as traders are sitting on their hands prior to the ECB statement later this week. 

GBP: Bearish 
U.K. construction PMI fell below expectations for February, as the figure dipped from 48.7 to 46.8 – its lowest level since October 2009. Analysts were expecting a slight rebound to 49.2. This led to a test of the crucial 1.5000 level for GBP/USD but the pair seems to have bounced back up to the 1.5100 area again. The U.K. will today print its services PMI figure for February, and possibly show a drop from 51.5 to 51.1 for the month. A weaker than expected figure, especially one that is below the 50.0 mark, could push the GBP/USD to break below the 1.5000 major psychological level. 

CHF: Bearish 
The USD/CHF pair has been on a tear lately as the pair rallied to the .9400 major psychological resistance, which seems to be holding for now. Scrolling back further, or looking at a longer-term time frame would reveal that a double bottom pattern has formed, indicating further rallies. There are no major reports from Switzerland lately and none are due today. 

Commodity Currencies (AUD, CAD, NZD): Bullish 
As expected, the Reserve Bank of Australia kept rates on hold at 3.00% instead of cutting by 0.25-0.50% basis points. In his latest speech, RBA Governor Stevens did mention that the recent easing efforts of the central bank are just starting to take effect in the economy, which is a hint that no further stimulus is needed for now. Reversal signals have formed right on the 1.0150 support level on the AUD/USD, signaling that the pair’s selloff could be over. Retail sales also came in higher than consensus at 0.9% earlier today while the current account posted a smaller than expected deficit. There are no major reports due from New Zealand for this week, as the Kiwi could take its cue from the Aussie, which is enjoying a rally from the RBA’s decision to keep interest rates unchanged at 3.00%. As for the Canadian dollar, USD/CAD seems to have found a top around the 1.0300 handle, but is continuing to trade according to U.S. reports.

By Kate Curtis from Trader's Way