FOREX: no need to hurry!

Despite the optimism that has taken over the stock and commodity markets during the last trading days, we would not hurry rejecting the idea of US economy’s recession risks. We believe that these risks are not yet fully outplayed. A turning point, or a signal that this idea has already exhausted itself, will be the changes in the US Treasuries market or the fact of an uptrend break on the 2-year and 10-year Treasuries. Speaking of the 2-year Treasury notes, the key support may be the level of 109’17. A certain decline on the given instrument will be a signal for not hurrying with bets on a subsequent appreciation of the yen.
 
September futures for the price of the 2-Year US Treasury Notes (CBOT, daily graph).
 
Yield curve in the US (Federal funds futures, CBOT, %).
 
Yield curve in Eurozone (3M Euribor, Eurex, %).
It feels like the ECB’s meeting has already taken place, since everyone seems to have agreed that the ECB will a) extend emergency lending measures for banks into 2011 b) upgrade the Eurozone economy forecast for the current year, given the strong GDP data for the 2q10 c) once again point out that he expects a slowdown in the European economy growth against the background of crisis events in the US. If all this comes true, then it is possible that we will start observing an uptrend dynamics in EUR/USD already before 14:30 cet. After all, we haven’t seen any significant correction towards the euro plunge from 1.3330 to 1.2580. In this regard, the above mentioned possible outcomes of the ECB’s meeting, coupled with the breakthrough of the 1.27 resistance level may well provide that correction. In the context of our strategy, before the end of the 3q10 we continue taking a “bearish” position on euro, WTI and S&P500.
 
Yield curve in the UK (3M Sterling, %).
Speaking of the British currency, it is still dependent on the weak data coming from the UK, indirectly indicating the risks of the business activity decline in the region. Among the recent data which could support this idea is the publication of worse-than-expected Nationwide housing price index for August. The indicator made up -0.9% m/m and 3.9 y/y, given the forecast of 0.3% m/m and 5.3% y/y.

Konstantin Bochkarev, currency strategist
of company Admiral Markets.

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