Forex Major Currencies Outlook (February 26, 2013)

USD: Bullish

Federal Reserve Chairman Ben Bernanke will deliver his semi-annual testimony in Congress during today’s US session and possibly talk about the previously released FOMC meeting minutes, wherein the policymakers showed an inclination for an early tapering off of asset purchases. At that time, they considered overlooking inflation and unemployment rate targets, but Bernanke could have more to say on the issue. If he confirms the Fed’s change in monetary policy bias, the dollar could be in for further gains. But if he decides to manage market expectations and downplay the potential withdrawal of asset purchases, the dollar could retreat against its counterparts and resume trading mostly on economic data. The CB consumer confidence and new home sales data are due today and both are expecting improvements.

JPY: Neutral

Yen traders are still waiting for Japanese Prime Minister Abe’s appointment of the next central bank head. It looks like Kuroda is being touted most likely to get the position and his aggressive ideas for combatting deflation could be very negative for the Japanese yen. Japanese retail sales are due at the end of the New York session and a huge decline is expected, which might trigger a quick yen selloff. The pair tumbled sharply yesterday after gapping over the weekend as a number of large hedge funds decided to liquidate their positions prior to the actual BOJ head appointment.

EUR: Bearish

Early exit polls in the Italian elections aren’t looking too good as some are showing mixed winners for the Lower House and Senate. Other polls are hinting at the possibility of Berlusconi grabbing majority of the seats in parliament, which will be definitely negative for the euro. After all, Berlusconi is known for his political and sex scandals, which ushered in government instability for Italy. In addition, if different parties win majority of the seats, it could result force the lawmakers to make a political coalition, which would also be messy in terms of policy and political direction.

GBP: Bearish

Bank of England Governor King is giving a speech today. He just voted in favor of further easing, according to the minutes of the latest monetary policy meeting. The last few times that happened in the past five years, the central bank actually implemented further asset purchases in their next interest rate decision or within the next three months. Also, the impact of Moody’s credit rating downgrade is still weighing on the pair as it led market participants to worry about rising debt costs in a country that’s already dealing with a problematic budget.

CHF: Bullish

With all that’s going on in the euro zone and the UK, the Swiss franc seems to be the safer European currency to buy. However, the SNB’s stance of keeping the franc down and defending their peg with utmost determination is keeping traders from buying the Swissy. The employment report for Q4 2012 is due today and is expected to show a decrease from 4.12 million to 4.11 million in the number of employed people.

Commodity Currencies (AUD, NZD, CAD): Bearish

Sentiment for the commodity currencies is still bearish, although AUD/USD, USD/CAD, and NZD/USD all seem to be approaching significant inflection points. AUD/USD looks ready to move towards 1.0200 support while NZD/USD is inching close to .8300. USD/CAD seems to be stalling close to 1.0300, which could cap off the pair’s recent rallies. Chinese HSBC PMI came in below consensus yesterday, although it did point at an expansion. No major releases are due from Australia, Canada, and New Zealand today so the downbeat monetary policy expectations from their respective central banks could keep rallies at bay.

By Kate Curtis from Trader’s Way