• US Dollar Holds on to European Session Gains as Consumer Confidence Improves, Ahead of G8 Meeting
• Euro Tumbles as Industrial Output Falls by Record, Swiss Franc Down Ahead of SNB Decision
• British Pound Backs Down, BOE Minutes to Clarify Policy Bias Next Week
• Japanese Yen Remains Mixed as US Equities Consolidate Below Key Highs

US Dollar Holds on to European Session Gains as Consumer Confidence Improves, Ahead of G8 Meeting
The US dollar was the strongest of the majors on Friday as the currency staged a solid rebound against the Canadian dollar, Swiss franc, British pound, euro, Japanese yen, and Australian dollar. Looking to the economic data on hand, the University of Michigan’s consumer confidence index rose slightly less than expected to 69.0 for the month of June from 68.7. That said, this reading still marked a 9-month high, and a breakdown of the report revealed an interesting shift. Indeed, in recent months we’ve seen that overall increases in the index were led by optimism about the economic outlook. However, this time around we saw a rather sharp rise in sentiment on current conditions to a 9-month high while confidence in the economic outlook actually fell for the first time since February. Meanwhile, rising gasoline prices seem to be spurring inflation concerns, as inflation expectations for 1-year ahead and 5-years ahead rose to 3.1 percent, up from 2.8 percent and 2.9 percent, respectively.

The Group of 8 (G8) will meet over the weekend, and while it may ultimately prove to be a non-event, traders should keep an eye out for the communiquأ© as indications that exit strategies for the stimulus measures enacted by members are being plotted could provide a boost to risk appetite when trading resumes on Sunday. Though highly unlikely, discussions about currencies would be sure to shake up the markets as well.

Next Wednesday, the latest inflation figures for the US are forecasted to show slight increases on a monthly basis, but clear weakness on an annual basis. Indeed, headline CPI is projected to have risen 0.3 percent during May, while the core measure, which excludes food and energy, is anticipated to rise 0.1 percent. Meanwhile, headline CPI is expected to have fallen 0.9 percent in May from a year ago, the steepest drop since February 1950, compared to a decline of 0.7 percent in April. On the other hand, core CPI may have only eased to a 1.8 percent annual pace of growth from 1.9 percent, suggesting that volatile commodity prices are the sole reason for the contractions in headline inflation. Weaker than expected results have the potential to stoke deflation fears, but overall, the FX markets haven’t shown a strong reaction to past CPI reports, and this time around we may see more of the same.

Euro Tumbles as Industrial Output Falls by Record, Swiss Franc Down Ahead of SNB Decision
The euros ended the day down against the greenback on Friday as the US currency staged a broad rebound across the majors. Fundamentals were also working against the euro, as Eurostat said that industrial production in the Euro-zone fell 1.9 percent during April, bringing the annual rate down to a record low of -21.6 percent and highlighting the impact of the global economic slowdown on export-reliant economies.

Meanwhile, the Swiss franc was one of the weakest major currencies on Friday, and it will face very high event risk next week. On Thursday, the Swiss National Bank is like to leave their 3-month LIBOR target range unchanged at 0.0 percent – 0.75 percent, but the thing to watch for in the SNB’s subsequent policy statement is talk of FX intervention. Indeed, the SNB’s last statement on March 12 indicated that the central bank wanted to “prevent any further appreciation of the Swiss franc against the euroâ€‌ in an effort to “counter the risk of deflation and of a dramatic deterioration in the economy.â€‌ Similar comments have the potential to drive the Swiss franc lower upon this 3:30 ET release, while a neutral policy stance and no mention of currencies will likely lead the Swissie higher.

British Pound Backs Down, BOE Minutes to Clarify Policy Bias Next Week
The British pound experienced broad weakness on Friday after spending most of the week as the strongest of the majors. Next Wednesday, the minutes from the Bank of England’s June 4 meeting may not be as market-moving as they’ve been in the past, as there has already been significant detail revealed about the mindset of the Monetary Policy Committee (MPC). Indeed, we already know that the BOE has decided to expand their quantitative easing (QE) program by 50 billion pounds to 125 billion pounds, but there are indications that they may increase the scope of the program even further as they recently published a paper in which they sought comments on the prospect of including purchases of secured commercial paper in their Asset Purchase Facility (APF). That said, the inclusion of secured commercial paper doesn’t necessarily mean that they will allocate more money toward the APF, and this is a detail that will be critical to British pound price action as past QE announcements have weighed on the currency.

Japanese Yen Remains Mixed as US Equities Consolidate Below Key Highs
The Japanese yen ended on a mixed note on Friday, falling against the US dollar and New Zealand dollar while gaining against the Canadian dollar. The moves suggest that risk appetite remains on edge, which was also evident in equities as the DJIA closed at the highest level since January 6, but still remained in consolidation mode below 8800. This weekend the Group of 8 (G8) will meet, and while it may ultimately prove to be a non-event, traders should keep an eye out for the communiquأ© as indications that exit strategies for the stimulus measures enacted by the member countries are being plotted could provide a boost to risk appetite when trading resumes on Sunday. Though highly unlikely, discussions about currencies would be sure to shake up the markets as well.

Next Monday evening, the Bank of Japan is anticipated to announce that they are leaving rates unchanged at 0.10 percent, but this is not the part of the central bank’s announcement that will garner the most attention. Instead, the FX markets may only respond to the sentiment reflected in their subsequent policy statement. After the BOJ’s last meeting, they raised their outlook on the economy for the first time in nearly 3 years, saying that “economic conditions have been deteriorating, but exports and production are beginning to level out.â€‌ There is speculation that the BOJ will upgrade their outlook once again, and if this is the case, the Japanese yen could gain on a very short-term basis. On a longer-term basis, though, risk trends have been driving price action and the impact of positive BOJ commentary may not go very far.

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ECONOMIC DATA


SUPPORT AND RESISTANCE LEVELS

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by: Terri Belkas

The British pound continued to rally against is currency counterpart this week following the improved outlook held by the National Institute of Economic and Social Research, and long-term expectations for higher interest rates in the U.K. may continue to drive the GBP/CHF higher over the near-term.

urrency Pair: GBP/CHF

Chart: 60 Min Charts

Short-Term Bias: Flat

Analysis

آ The British pound continued to rally against is currency counterpart this week following the improved outlook held by the National Institute of Economic and Social Research, and long-term expectations for higher interest rates in the U.K. may continue to drive the GBP/CHF higher over the near-term. After reaching a high of 1.8976 in November, the pound-franc slipped to a low of 1.5124 on 12/29 following the rise in risk aversion, and the turnaround in market sentiment led the pair to push back above 1.7490-1.7500- (61.8% Fib) this week. However, the lack of momentum to break above 1.7715, the 2009 high, paired with the bearish divergence in the relative strength index suggests that the GBP/CHF is putting in a top, and we may see the pair fall back below the 61.8% Fib to fill-in the gap from the 120 moving average. Over the next few hours of trading, we may see the pair give back and work its way down to 1.7464, the 120 SMA, and a break below the moving average could lead the pair to test 1.7040-50 (50.0% Fib) for support. Be sure to check out other Technical Reports from DailyFX for additional information on the major currency pairs.

from yahoo finance

Foreign exchange trading services provider, Alpari today launched its Indian operations by offering its forex trading platform for institutional and retail customers.آ آ آ آ آ آ آ آ 

The company, which will initially operate from Mumbai, has targeted to acquire at least 1,000 clients in the next six months, Alpari’s Head of Global Sales, Andreas Wigstrom told reporters here.آ آ آ آ آ آ آ آ 

“Alpari India will create a new investment medium, provide an institution level trading experience for retail investors and present hedging opportunities for the corporates at a lower cost,” Wigstrom said.آ آ آ آ آ آ آ آ 

Indian forex market has grown from $2 billion in April 1998 to over $34 billion by April 2007 and is expected to grow at a faster pace in the period ahead, he said.آ آ آ آ آ آ آ آ 

Globally, forex market has a daily turn over of $3.8 trillion currently, which is expected to surpass $5 trillion by 2010, Wigstrom said.

Alpari has targeted an annual volume in excess of $3.5 billion in the retail investor segment and plans to open new offices in Japan, Singapore, Hong Kong, Germany, France, Canada, British Columbia, Brazil and Mexico in the coming days, he said.آ آ آ آ آ آ آ آ 

The company has also plans to offer free training to customers to help investors make informed and responsible trading decisions.آ آ آ آ آ آ آ آ 

At present, Alpari group has 26 offices in seven countries and has around 300 employees worldwide.

from business standards

Forex options markets offer an excellent sentiment indicator and can be quite useful as a sentiment indicator for currency traders. As is well known, there is no central market for leveraged forex trading. Instead, the market is spread across a great number of banks and other financial institutions. Yet there are all the same data sources that aggregate important forex positioning data, and recent signals increasingly point to a major EUR/USD top.

Forex Sentiment Indicators

We would love to claim that our proprietary Speculative Sentiment Index is the be-all and end-all of forex sentiment indicators, but the fact of the matter is that it does not capture the entire FX Market—no indicator does. To gain a more complete understanding of positioning for the most important forex pairs, we look to publicly available Commitment of Traders data published by the US CFTC and more timely information from major banks.

Why?

Put simply, we want to capture as good a snapshot of market sentiment as possible. Through the COT report, we are able to view a wealth of information on well-segmented groups. The CFTC separates their samples into three different categories—Non commercial traders, Commercial traders, and “Nonreportableâ€‌. The first group is the one that most interests us—classic forex market speculators. Here we find traders who latch on to trends and tend to outperform the broader market during times of strong, directional currency moves.

The second group comprises mostly multi-national corporations with hedging interests in the FX market. That is to say, if Toyota wishes to lock in future obligations at a specific US Dollar/Japanese Yen exchange rate, it may go through futures markets and purchase FX contracts.

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The combination of both pools gives us an interesting view of the FX market. In fact, our weekly COT report (most recent example here) ranks the relative positioning of both Commercial and Non-commercial traders to develop an accurate picture of market sentiment—often quite useful to predict future currency price direction.

Yet there is a key limitation to COT data: it is a weekly report published with a noteworthy delay. The low-frequency nature of this data makes it very difficult to use for more short-term trading strategies. Thus it is very challenging to use as a market timing tool, and we instead look to broad positioning to attempt to identify sentiment extremes.

Where do we look for more up-to-date professional trader information?

Forex Options Markets

Though the CFTC provides detailed and informative positioning reports, we are forced to look to Over-The-Counter (OTC) FX Options markets for a more up-to-date look at professional trader sentiment. The world’s foremost banks and other financial institutions are the primary actors in this market, and each individual trading desk provides up-to-the-minute data on important options pricing information.

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If we know options prices and other key details, we are able to glean an all-important piece of information: volatility expectations.

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What is Implied Volatility and Why Should the FX Trader Care?

“Implied Volatilityâ€‌ is a measure derived from all options prices, and it gives us one of the best estimates for professional trader market expectations. On DailyFX we publish our “DailyFX Volatility Indicesâ€‌, which use FX Options markets to gauge trader expectations for currency price moves. Given that said implied volatility level is so critical to the prices paid for options, they likewise give us an accurate view of market expectations for specific currencies.

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Risk reversals measure the difference between volatility levels for out of the money Puts and Calls. If demand for out-of-the-money call options is stronger than demand for the equivalent puts, options traders are on aggregate bullish a given currency pair and are willing to pay more for calls. This makes Risk Reversals positive.

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Why is this a good proxy for professional trader positioning?

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The chart shows that medium-term risk reversals tend to track net Non-Commercial positioning quite nicely—exactly the kind of proxy we’re looking for. In fact, we tend to see EUR/USD risk reversals hit major peaks and troughs before the delayed COT data can illustrate sentiment extremes. Though not perfect, we see that FX options markets can offer an excellent view on professional positioning figures.

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What do FX Options Markets tell us about the Euro/US Dollar?

What we see right now is the confluence of Commitment of Traders data and FX Options Risk Reversals: US Dollar positioning is setting major bearish extremes.

According to our FX Commitment of Traders report, the difference between Non-Commercial and Commercial positioning on the US Dollar Index is currently at its most bearish in over 13 weeks, while Euro/US Dollar positioning set similar bullish extremes. Our options numbers show that risk reversals on the Euro are actually at their most extreme since 2003—impressive numbers by any measure.

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Much like we do with our COT report, it is useful to put a percentile on these risk reversals figures to get a sense of where sentiment stands in relation to its medium-term range.

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The chart above shows an interesting and important relationship between risk reversals and the underlying EUR/USD price: yearly extremes very often coincide with major spot reversals. In fact, there were six relatively clear instances in which the sentiment extreme in 3-month risk reversals occurred at an important top in the EUR/USD.

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As the chart shows, our EUR/USD risk reversal percentile recently hit its highest levels in the calendar year, and said price action suggests that highs of 1.4350 will be an important medium-term top. If we see anything like we did at the March sentiment extremes, the EUR/USD could correct for the next month or so before any potential push higher.