Financial Markets Weekly Review


Financial Markets came under the impact of many multiple, contradictory factors last week. Easing measures and prospects were at play while the ongoing debit drama in Eurozone remains a dominating headline. The single currency was sold off steeply after ECB's three year LTRO. Dollar jumped and Gold with other precious metals tumbled as Fed's chairman Ben Bernanke refrained from giving any serious hints about a potential near QE3 round in his key testimony. He was less downbeat on the macroeconomic outlook and by extension, the speech was less than from being dovish. Thirdly, yen's selloff continues as comments from BoJ as well as weak inflation data suggests that we're still far from seeing the end of Japan's QE expansion.
Below we try to cover the key events of the past week in quick highlights.
Euro bounded briefly and slightly after The ECB has decided a 529.5B euro of 3-year LTRO refinancing operation to 800 banks before coming under heavy selling pressures. Currently the total amount that central bank has injected into the European financial system is about 1trillion Euros. Nobody can deny that it is a strong image of quantitative easing with an inevitable inflationary impact. The number of banks surprised the markets. It's taken as a signal that a lot more smaller financial institutions tapped into the funding and it's possible that more funding could be passed on to the real economy.
In his testimony last week, Fed Chairman Ben Bernanke was more optimistic regarding the US recovery. He stated that pace of the expansion has been uneven and modest by historical standard. Yet, growth in the coming quarters is likely to be 'at a pace close to or somewhat above the pace that was registered during the second half of last year'. He also acknowledged positive developments in the job market including job gains that were 'relatively widespread across industries' and the 'more rapid than expected' decline in the unemployment rate over the past year.




Technical Analysis for Majors
EUR/USD :The pair dipped to a fresh 2-week low around 1.3185 and in the past three session extended losses without any significant corrective rally after formed a double top around its yearly high barley below 1.3500 key level. It is now approaching an important support cluster seen in the 4H chart. At about 1.3160, we have 61.8% retracement of the 1.2973-1.3485 ascend. Slightly lower is a rising trendline from yearly low of 1.2623. The 4H 200 simple moving average is also just under 1.3165. Below the latter, a retest of major near-term supports around 1.300 psych barrier is not ruled out. On the other hand, Oversold conditions see potential of corrective bounce. Initial resistance lie at 1.3260, 20 day MA, ahead of static barriers at 1.3280/1.3300 that are expected to limit the upside for now to keep the downside bias favored .


USD/CHF: The caught up with a broader rally in the US dollar exchange rates and extended gains steadily after formed a double bottom around 0.8930 while now is heading toward a key resistance area which a break above would confirm the near-term bullish reversal or at least eases the bearish market conditions . The 0.9155-0.9170 area includes the 61.8% retracement of the 0.9299-0.8930 swing, the 200 4H simple moving average, and a declining trendline from the 0.9298 high. A break above 0.9170 would refocus 0.9200 key level, followed by 0.9230, then the main near-term resistance around 0.9300 which above would translate the current rally into the a longer term. On the flip side, Loss of 0.9080 key barrier, previous double low would suggest an end for the latest bullish attempt and revalidate the bearishness resumption scenario with 0.900 psych level come insight next.




Commodities


Crude oil prices traded slightly higher for the time being despite the broader weakness in other commodity markets, even managed to ignore the bearish impact of raising supply data after U.S. crude inventories came sharply higher than market estimated at 4.2 M increase last week.
The main point we should take care after Wednesday's steep losses in precious metals market with gold declined nearly 4% and Silver shed more than 7% in a matter of hours, is not to mix between rallies due to real fundamentals and higher prices because of inflationary pressures or prospects.
Yellow metal built an important part of its latest climbs upon the loose measures taken by key central banks and the Fed as the main player in the world's largest economy boosted easing outlook after its ultra-low rate policy paved the way to keep market participants in the anticipation of a near QE round.
This assumption lost the steam gradually with every positive report regarding US economic recovery and the Wednesday's testimony from Ben Bernanke resolved the situation at least in the near term prospective after came combined with a higher revision of GDP data.
Back to oil, we can say that crude already benefits from inflationary environment and also will like simulate measures along with other commodities, but the dominating factor behind the last advances which left the prices up to 9% in February was mainly supply concerns more than demand outlook or weaker papers currencies due to loose monetary policies. Based on this idea, we may expect that crude prices will remain well supported at least above 100$ psych level in the coming weeks as long as geopolitical tensions between Iran and western nations persists and depending on conflict pace or images we can expect the coming directions at least would drew the main price range while leave to other fundamental factors to affect in the nearest term and within the known borders.
Technically speaking, we saw the price stalling twice at the psych resistance of 110$ which couldn't overcome last week, indicating an exhausted bullish momentum and the need to a consolidative/corrective phase which we watch currently before extending higher.
The main support zone lies around 104$ levels which gathers many technical reasons to offer such support as almost represents the previous range ceiling, highest resistance which emerged as a new support also in the near-term around 20 Day MA.
So, we expect more downside pressure if was cleared at least toward 102.55 and 101.60 support lines. On the flip side, 106.40$ mark is also an important level to be closely watched as we favor bullishness resumption as long as the price steady above. Firstly, it represents 200 HMA which indicate the bias on the daily run. Secondly, 78.6% retracement of 114.80-74.95 descend, thus, staying above will often suggest that broader downtrend was already retraced and the longer term uptrend should now reclaim the rudder.
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The Week Ahead


We select from Friday's economic calendar The US Non-Farm Employment Change to focus on and try to get a trading opportunity on USD from this leading indicator which measures the monthly change in employment excluding the farming sector and considered the most closely watched indicator in the Employment Situation and the most comprehensive measure of job creation in the US.
We choose USD/JPY to trade the event with a minimum deviation of 30K jobs between the forecast (208 K) and the actual release . If actual reading came better than expected at 240 or higher we can call the option on the mentioned pair as USD sentiment will turn bullish against the Japanese yen as the upbeat release would provide hope for a rapidly deteriorating U.S. economy ,easing the risk aversion mode which dominated the markets recently and consequently, decreasing safe haven flows to the Yen which considered the first safe haven currency. On the other hand , If the released value came worse than forecasted at 170 or lower we can put the option on USD/JPY as the opposite scenario will occur as it means that the U.S. faces an increased risk of a double-dip recession .
Note carefully , Alongside with the mentioned report there is also a key release of Unemployment Rate and if we found any conflict between the two readings could break its inverse relationship we should stay out of the market. Also and as usual we should wait till the initial volatility of the report has subsided and the market is choosing which direction it will go to enter a trade in the direction of the dominating momentum.