I have been talking about this a lot, I know, still i do believe will play a big role in currency markets. I went to Wikipedia to find a definition of deflation, and it says:” is a decrease in the general price level of goods and services Deflation occurs when the annual inflation rate falls below zero percent (a negative inflation rate), resulting in an increase in the real value of money - allowing one to buy more goods with the same amount of money”, and it also says “deflation is also linked with recession, and  prevents monetary policy from stabilizing the economy because of a mechanism called the liquidity trap” (in two words, a liquidity trap is falling into a spiral that leads to monetary policy  unable to stimulate the economy).

Anyway, deputy Prime Minister Naoto Kan said Friday that the Japanese economy has slipped into a state of deflation, putting BOJ under pressure to take country out of it. You can read the whole article following this link: http://mdn.mainichi.jp/mdnnews/news/20091120p2a00m0na015000c.html

But the unspoken word in Europe, should start to be taking into account: as reported by the Federal Statistical Office (Destatis), the index of producer prices for industrial products (domestic sales) for Germany fell by 7.6% in October 2009 from the corresponding month of the preceding year. In September 2009, the annual rate of change was -7.6% too.
Same data  for euro zone show that in September 2009 compared with September 2008, industrial producer prices dropped by 7.7% in the euro area and by 7.3% in the EU27 (these figures come from Eurostat, the Statistical Office of the European Communities). I will stop here with stats not to make anyone crazy, yet we are at -7.6% and -7.7%.

I  won’t be extending with any Keynesian theory of economics, I will just ask you, what should happen both with Euro and Japanese Yen?

Yesterday I was laughing alone at home as several news services where publishing a big banker from Saudi Arab was saying that is true American economy is in bad shape, but so are all the rest. Exactly the same i have been saying for the last 3 months.

Anyway, as I also say, we should trade what it is, and not what we think it should be. At current levels, and from a technical perspective, there is no signs of change in both Yen and Euro bullish trend. Although is too late to get into them, is still too early to go against.

Ok! enough philosophy for one morning! too early to think this, really! I will start now with the more humble intra-day technical views. Enjoy!

Here is the weekly GBP/USD chart. I’m always asked about why i watch Fibonacci retracements in such big charts, and the fact is that I just pay attention to that levels, when we are close to them, like in this case, and wait for the weekly close, to see if i can define next week upcoming trend. Anyway, pair has failed above the 50% of the rally back in August, and despite a spike above it, seems we are going to fail again (we need the week close to be sure of that). As far from the Fibo we close the week, less chances will have pound to regain upside strength; even, seems we are making a double roof also here, something far from being complete as neck line lies at the 1.5730/60 strong area. Anyway, i will be following it with patient. Weekly close clearly above 1.6840, will likely signal further rises with 1.7000 as a main and first target.

Turning to smaller time frames, pair is around 1.6640/60 that probe strong in the past, yet indicators point for further falls ahead. next support comes at the 1.6585/1.6600 area, while under this last, 1.6520 will be next and key support to consider: daily close under that level, will signal further falls for next week. Being a bit oversold in smaller time frames, an upside correction will find resistances at 1.6690/1.6700, followed by strong 1.6740 that should cap the upside.

Pair has tested again the 1.5000 level, and retreat to current price, yet daily charts show bullish trend remains healthy, with indicators back up, and price moving above 20 SMA. RSI rebound in the 50 line, momentum cutting downside up the 100 line, all support the retest of the 1.5050/60 area, where we still have our roof. Could turn into a triple roof, or just nothing but a consolidation stage in the middle of the upside trend if we get a daily close above that level.

Anyway, 4 hours charts indicators seem a bit exhausted to the upside, a downside correction will find supports at 1.4920 and 1.4880, while resistances from current price are 1.4990, 1.5020 and the 1.5060 area.

Watching the daily chart, seems EUR/USD is forming a probable double roof at the 1.5050/60 area, yet neck line is quite far away from current price to confrim the figure. However, in the long term perspective, and being at the top of an ascendant trend, break of that neck will signal not only further falls, fut could confirm a trend reversal. Neck line, is around 1.4620, so watch for that level, if reached before a new high (that will deny the formation of course).

Turning to what matters today, 4 hours charts show bearish indicators and price well under 20 SMA, that lost the bullish slope. 1.4910, 55 EMA is our first support for today, followed by static 1.4860 area. Resistances come at 1.4980, 1.5020 and the 1.5050/60 zone.

I have been following gold for a long time now, as we have been talking about how is one of the main reasons of dollar weakness. Before the metal broke the previous historical high of 1031, I draw a Fibonacci expansion in the daily chart, and if you take a look, levels had been acting quite well as support and resistance. Currently fighting the 138.2% level, around 1116, daily close above that zone will likely mean a continuation to next level, the 168.2% at 1134.

Also, take a look at indicators: ADX signal a strong trend, now around 55. In currency markets,  I found out readings above 60 are extremely rare, yet in gold, not so rare. it could easily reach the 64/68 area before giving signs of exhaustion. Also, RSI in the daily at 77 is telling as gold is overbought. Yet, despite both indicators reaching extreme levels, there is no sign of a downside correction; if gold reaches quickly that 1134 level, and retreat strongly from there, we may have a first sign of that. Above 1134, likely to extend the rally, with 1200 as next key zone to consider. From current zone, a midterm corrective movement could be triggered under 1044, strong support level and 61.8% of the expansion. Watch for a reversal in indicators, and a daily candle opening under that level, to confirm a major downside move.

I don’t think any time soon, no. However, reading news around the world, come to my attention earlier today Fitch ratings for Japan and the U.K. Searching the net, i found out that “Fitch Ratings is a global rating agency committed to providing the world’s credit markets with independent and prospective credit opinions, research, and data. With 50 offices worldwide, Fitch Ratings’ global expertise, built on a foundation of local market experience, spans across capital markets in over 150 countries. Fitch Ratings is widely recognized by investors, issuers, and bankers for its credible, transparent, and timely coverage.”

Fitch Ratings warned Japan on Tuesday to keep to its borrowing target or risk a credit rating downgrade as the finance minister acknowledged the problem and tried to reassure rattled investors by saying spending had to be cut. Japanese sovereign credit default swaps spreads have nearly doubled in the past week as investors fretted that the government faces a funding crunch over its ballooning public debt, which the IMF says will spiral to 227% of GDP next year.  

Fitch  Ratings also said that the U.K.’s sovereign credit rating is most at risk among top-rated nations, saying that Britain needs “the largest budget adjustment” among countries rated AAA. And after today’s Trade Balance data, seems Pound at 1.70 is not what we can expect.

However, we know this news take a long time to be actually reflected in price behavior. Dollar remains week, and likely to keep falling across the board. But don’t talk to me about optimism and recovery for the 2010. I’m sensing we are about to get into an even harder year for the world economic recovery; and reality will slap more faces than we can imagine.

Understending market correlation is the base of all good trading; see what’s going on here: this is a weekly chart of AUD/USD where you can see not only the ascendant trend line, but also the Fibonacci rally of the fall from 0.98 to 0.60; pair has break above the 76.4% retracement of the rally, and remains there, while indicators show we are close to extremes and ready for a downside correction.

Turning to 4 hours charts, what do you see? pair has rebounded at the mentioned Fibo level, around 0.8940, several times this past weeks, yet each time, reaching lower highs; 200 EMA is there also, offering extra support in the zone, while price is ready to break lower. Of course, to call for a break of the level, we need to see at least, a daily candle close under it, yet if it does, it will likely push dollar higher across the board. Next key level/target if so, will be the ascendant trend line, around 0.8800 for this week.

You know I’m not a big fan of long term. Anyway If you want to see some smart points of view of where the pair could go, here you have the link to some ITC expects ideas: http://www.fxstreet.com/search/tags/?id=technicalforecast  that includes Rob Booker, Ashraf Laidi, Kim Cramer and James Chen forecasts; you can also joint a forum discussion about that subject following this link: http://www.fxstreet.com/forum/showthread.php?t=53208

Me? humm I’m closer to 1.35 than 1.75, yet for now, charts are saying another thing. So! untill I don’t have any technical confirmation seems I’m not able to take a long term decision in this pair.

Enjoy!

Same perspective here, Gbp looks much more bearish than Euro, after that weekly reversal candle that failed to break above the 50% retracement of the monthly rally. This week opening under the 20 SMA, was a first warning of a fall coming, as we always talk in the Wrap Up Webinar, Gbp works great with that MA. Pair is now, under the 38.2% of the rally. Weekly close under that 1.6030 area, will suggest pair should resume downtrend. Indicators are strongly bearish also, so let’s see today’s close.

For today, you can see that 4 hours charts are a bit over extended, suggesting some upside corrections, that anyway and till now, had retreat from the Fibo zone (Tks Puru!). Consider resistances for next hours at that area, followed by 1.6060 and 1.6110 neck of the head and shoulders daily figure, broken yesterday. Supports today, lie at 1.5970 and 1.5920 zone. Clearly under that level, 1.5860 is next target ahead of stronger 1.5750.

We have been following this monthly Fibo since long ago. Pair open this week above the 61.8%, confirming in a way, the bullish midterm trend. the level is around 1.4610, and we saw the pair reached that zone both yesterday and today early Asia, and for now, unable to break under. Still we are barely 60 pips away. So a weekly close under that level, and even better under 1.4550 support, will likely deny the upside continuation, while above that level, better above 1.4700, will confirm the upside continuation. Watch the zone, and the weekly close! If we turn to 4 hours charts, pair is slightly bearish, not quite clear, yet pointing to the downside. Supports from current level come at the very close 1.4660 zone, followed by 1.4610. Clear break under will send us to the 1.4550 strong zone, and I can’t see at this point, the pair falling further. To the upside, resistances come at 1.4700, 1.4735 and 1.4780.