The market start this week with a nervous tone as tension in Korean Peninsula. South Korea said it will proceed with artillery drill and the move will likely trigger retaliation for North Korea. North Korea warned of a "catastrophe" if South Korea goes ahead with the drills. Later in the day, the drill did happened but North Korea then said it will not retaliate despite "reckless provocations" from the South, as it was "not worth reacting". Markets were then calmed.

For the cable, the Confederation of British Industry (CBI) and Office for National Statistics reports have a negative impact.

CBI lowered growth forecasts this week for UK in the first quarter of 2011 to 0.2% from 0.3% as it predicts the rise in VAT and job cuts to shave growth, yet it does not predict the economy to fall back into recession, but Bank of England Markets Director Paul Fisher said UK might contract for one quarter in 2011.

Office for National Statistics reported that Britain’s budget deficit swelled to a record in November, underscoring the challenge facing Prime Minister David Cameron as his government prepares to implement the deepest spending cuts since World War II. Net borrowing was GBP22.8 billion (USD35.4 billion), compared with GBP16.7 billion a year earlier. That exceeded the GBP16.8 billion median forecast of the 12 economists in a Bloomberg survey.

On Thursday, the release of BoE minutes December monetary policy showed there is a split among members. There was a split three ways for a third month on the need for economic stimulus as some officials became more concerned that Britain’s bout of inflation may persist. Adam Posen kept up his demand to increase the GBP300bn bond-purchase plan by GBP50bn. Andrew Sentence voted to raise interest rate for a seventh month and the rest ensured no change in policy.

In US, the macroeconomic data was generally in line with forecasts and showed a moderate improvement of economy. A notable exception was durable goods orders, which were far worse than predicted. Initial jobless claims in the US increase marginally from 423k to 420k, in line with forecasts, which were promising a decline to 421k. Durable goods orders decreased 1.3% in November, following a 3.1% October decrease. The reading was noticeably below the predicted value of 0.5%.

Personal income and spending continued to rise last month. Personal income increased 0.3% in November, exactly as was predicted by analysts. Personal spending increased 0.4%, somewhat less than was anticipated by market participants, who expected a 0.5% growth.

The revised University of Michigan consumer sentiment index was 74.5 in the December, up from 71.6 in November. The index hasn’t changed much from the preliminary estimate of 74.2 and was near economists’ forecast of 74.7. Sentiment improved because of better conditions on jobs market but remained quite depressed.

New home sales were at a seasonally adjusted annual rate of 290k, above the October rate of 275k but below the economists’ estimate of 301k.

Next week is the a short week between the Christmas and New Years holidays – a period of understandably low liquidity that is notoriously fraught with spikes of knee-jerk volatility amid otherwise stand-still calm – seems hardly the time to be searching for trade ideas.

GBP/USD was as as high as 1.5575 before it fell to 1.5355 about 50 pips above my last week support level. By the end of the week, the pair has corrected its decline with the pair crossing from below the 1.54 handle and 1.5450. The pair close at 1.5436.

Looking down, 1.5350 was a support line during August and September and last week low. It serves now as a strong line of support.

Lower, 1.5230 capped the pair in the beginning of the summer, and is now has a different role. ne now.

Above, 1.55 handle is the immediate resistance level.

US economic revival

Economic news:

13 Dec

Moody's comment that the tax cut extension, if approved, would be negative to US's Aaa credit rating as it will "adversely affect" the budget deficit unless there are "offsetting measures". Moody's noted that "the negative effects on government finance are likely to outweigh the positive effects of higher economic growth."

14 Dec

13:30 GMT

US retail sales rose 0.8% in November versus consensus of 0.6%. Ex--auto sales rose impressively by 1.2% versus expectation of 0.7%. Headline PPI moderated less than expected to 3.5% yoy in November while core PPI dropped to 1.2% yoy, inline with expectation.

19:15 GMT

FOMC left rates unchanged at 0-0.25% target range as widely expected. In addition, Fed maintained the $600b longer-term treasury securities purchase program unchanged to "promote a stronger pace" of economic recovery. The plan will be carried out at a pace of about $75b per month. Also, Fed will maintain the existing policy of reinvesting principal payments from its securities holdings.

Dec 15

9:30 GMT

Uk’s ILO unemployment rate unexpectedly jumped from 7.7% to 7.9% in October. Unemployment rose by 35,000 in the three months to October and crossed the 2.5m mark.

13:30 GMT

US Data-CPI moderated to 1.1% yoy in November as expected. But core CPI accelerated from 0.6% yoy to 0.8% yoy. Empire state manufacturing index improved strongly to 10.57 in December. Industrial production rose 0.4% in November. TIC capital inflow dropped sharply to $27.6b in October. NAHB housing market index was unchanged at 16 in December.

Dec 16

09:38 GMT

UK November Retail Sales +0.3% M/M, +1.1% Y/Y, Compared to median forecasts of +0.4%, +0.7% respectively.

With the start of next year, consumer spending will fall drastically, affected by the rise in oil prices, elevated unemployment, higher VAT rates, and spending cuts along with other challenges that continue to suffocate household spending.

13:30 GMT

US initial jobless claims edged to 420K the week ended Dec 11, despite expectations for the figure to rise slightly from 423K to 425K. Continuing claims on the other hand rose slightly to 4135K over the week, compared to 4113K at last reading.

The US current account deficit increased to $127.23B over the 3rd quarter, compared to the revised $123.21B over the last quarter. The jump was more than the $126.00B most analysts were expecting.

US housing starts for NOV at 555k vs 550k expected; prior month's figure revised up to 534k from 519k.

15:0 GMT

US Philadelphia Fed Index rose to 24.3 in Dec from 22, the highest level since April 2005. Market consensus was looking for a decline to 15.0. Within the breakdown, new orders were up 14.6 from 10.4, average work week increased to 19.3 from 10.9 and delivery time rose to 8.5 from 2.1. Slightly softer though was shipments (7.3 from 16.8) and number of employees (5.1 from 13.3).

Dec 17

00:32 GMT

The proposed austerity measures are having an effect and the latest UK’s Nationwide consumer confidence level has fallen to an 18-month low. Nationwide consumer confidence (Nov) 45 versus 52 expected and 52 in the prior period. This is the fourth consecutive month the confidence index has decreased in UK and it is at its lowest value since March 2009.

11:00 GMT

London Fix: EURO and GBP came under some concerted pressure as talk circulated of sell interest lined up for the 11:00 fix.

Euro-zone trade balance (Oct) comes in at 5.2b beating expectations of 2.5b.

15:01 GMT

Leading indicators in the US rose in line with analysts’ expectations to 1.1% over November, compared to the downwardly revised 0.4% the month prior.This is the largest gain since March with the index at a record high.

Comments;

Developments in the US economy this week were generally better than expected and served to underpin the view that signs of improved economic growth in US continue to spring forth and simultaneously diminishing the credibility of the double-dip crowd.

This week, the retail sales report pointed to better consumer spending numbers. Another dip in jobless claims suggests improvement in the job market might not be far away. Industrial production gains and improving business survey data tell us the manufacturing recovery has legs. Finally, consumer prices remain in check, but producer prices are another story. Just as important, and in the spirit of the season, policymakers in Washington were able to put aside partisan differences and agree to an over $800 billion tax package that should likely provide a significant boost to economic activity over the next several quarters in 2011.

Beyond the next few quarters, a further improvement in US economic activity will require resolution of the outstanding issues holding back growth: clearing foreclosures, reducing uncertainty in the housing market, and repairing household balance sheets.

Technical Analysis:

On unexpected improvement in US Data and unimpressive UK data, GBP/USD was under pressure since it topped up at 1.59 handle on Monday (Dec 13).

The pair slide downward breaking the 1.55 handle. It managed to found support just above 1.5450 and the 100% lower fibo. This reflective of bearish sentiment.

For next week I am looking at support at 1.53 handle with immediate resistance at 1.5630 and a break of that level the upper resistance is at 1.5740.

ECB's QE

The primary factors affecting the fx market the previous week was- ongoing sovereign debt saga in Europe’s PIG, concerns over continued PBoC tightening measures, and geopolitical turmoil on Korean peninsula.

Early on Asian session on Monday, the market reacted to positive developments in the above three factors.

During the weekend, Ireland and EU/IMF reached a bailout agreement. The financial package will cover financing needs up to EUR 85b but unusually EUR 17.5b of it will come from Irish government cash reserve and from the national pension fund. So that's effectively, EUR 66.5b instead of EUR 85b which is lower than markets expectation. An extra year is also given to Ireland to reduce its deficit from current 32% to 3% of GDP, that is, by 2015.

In China, PBoC Deputy Governor Ma provided some relief to anxiety over further tightening, suggesting the central bank is comfortable with rapid credit and monetary growth as well as rising inflation pressures, with some of the recent actions already feeding into the markets. More importantly, Ma made no mention of continued policy tightening; instead suggesting PBoC will rely on bill sales to mop up excess liquidity.

On the Korean peninsula, the joint US-South Korea naval exercises are being staged as planned with no interference from the North, just as the leadership in Seoul pledges to bolster defenses of the shelled islands and China continues its campaign to bring Pyongyang back to the bargaining table.

But by European session, the markets have wasted little time with risk is on again, and are now taking aim at the Latin region of Europe; with focus has been firmly on Spain and Portugal as in recent days the Spanish 10-year yield down for the eleventh day in a row for a yield of 557 bp Belgium also came into picture as reported that Belgium has quietly be racking up debt like nobody else... or is that like everybody else! Debt-to-GDP is just about 100% now as the country has run around like a chicken without a head - quite literally, given that there has been no government in place - since April of this year where the Leterme government resigned. A couple of poor auctions for three and six month paper have put pressure of the sovereign CDS of Belgium, which are up 21 bp on the day and it now costs 202 bp to insure Belgian sovereign debt.

By Wednesday, during the European session, risk sentiment was reversing as there were talk of European Central Bank (ECB) may alter the EUR750 billion contingency fund in order to buy assets in a quantitative easing effort that would also serve to prop-up the bond markets in embattled countries like Portugal and Spain. Rumour that the ECB about to join the Fed and the BOJ by printing more money and hoping that all our problems will go away

On Thursday, ECB President Trichet was ambiguous about the degree of support the ECB is willing to lend to the peripheral nations during his monthly press conference, it has delayed its exit policy and increased its special liquidity operations until at least the first quarter of next year. This eases the immediate pressure on the peripheral nations' banking sectors, some of which remain addicted to ECB funding. Trichet also said that its bond buying programme would remain open.

ECB was then reported to be buying Irish and Portuguese bonds aggressively leading up to the ECB meeting. This complicates its strategy regarding the peripheral nations as it is saying one thing and doing another.

On Friday, US Dollar plunging across the board, weighed under a disappointing US Non-Farm payrolls report. U.S. November employment report came up lame of economists' expectations - Nonfarm Payrolls +39k vs. exp. 150k; Unemployment rate 9.8% vs. exp. 9.6%.

It appears there has been a shift in the market's reaction to poor data with regards to the U.S. dollar. Over the last few years such a scenario would have seen considerable risk aversion. Typically, the response has been significantly lower equities, higher bonds (lower yields), higher USD vs. other currencies - outside of the JPY or CHF (risk averse currencies), and mixed vs. commodities depending on their mood. In terms of Friday's price action, equities are only marginally lower, yields initially fell dramatically but have since stabilized, commodities have soared and the USD has been crushed.

Thus the post-QE2 environment, it seems the dynamics have changed for the dollar whereby positive US data is good and negative data is bad.

GBP/USD after breaking the previous week low bottom at 1.55 handle. From Tuesday onward the pair pushed upward to close by the end of the week just below the 1.58 handle at 1.5770 or at 38.2%.

From Tuesday, the pair move in similar pattern every day i.e. On London session, the pair went south but by New York session it recovered and reacted upward.

For the coming week, cable is expected to take out the 1.58 handle with resistance at 1.585 and the next resistance at 1.59. On the downside support is at 1.5670.

PIG(S) and the Korean conflict.

It was a promising start of the week with currencies trading all over the place and in different directions on the back of varying market drivers. The Euro and the sterling jumped out to some early gains on Monday with the weekend news of an EU and IMF bailout for Ireland of some Eur80-90B helping to bolster sentiment in the region.

The loser of the session was the NZD, which fell dramatically upon the unexpected news from S&P who have downgraded the currency’s rating from ’stable’ to ‘negative’ citing weakness in the resilience to foreign debt issues.

The Irish bailout triggered risk rally is rather short lived as market reversed during the London session after Mood's Investors Service warned that it may have multi-notch downgrade for Ireland. Moody's said in a note that the rescue package from EU/IMF would "crystallize more bank-contingent liabilities on the government balance sheet, and increase the Irish sovereign's debt burden". Previously, Moody's put Ireland on review and said it would likely cut the grade by one level. However, the increase in state debt would now exceed original expectations and a multi-notch downgrade" is "now the most likely outcome."

By Tuesday, risk sentiment deteriorated further amid euro zone debt concerns and geopolitical turmoil in Asia.

There are reports of North Korea firing the shells into South Korea that caused military, and even rumored to be civilian, casualties.

A high degree of risk aversion from continued widening of Irish, Portuguese, Greece, and most importantly Spanish Yields against the benchmark German yield is driving sentiment.

A very thin and volatile pre-Thanks giving on Wednesday and Thursday’s dead zone better known as Thanksgiving weekend. A market which is already horribly thin on the ground for liquidity as holiday in the U.S. results in reduced trading flows.

A relatively quiet day for data releases post the Thanksgiving holiday leaves markets more susceptible to events unfolding in the eurozone. Growing skepticism around both Greece and Ireland's future economic growth prospects, and the feasibility of projected deficit reduction programs this week, continues to drive fears of contagion amongst other periphery countries such as Portugal and Spain. While many questions remain around the form of Ireland's assistance, in particular the role investors will play in sharing the burden of any bailout, it is now becoming clear that withdrawal of ECB support to the eurozone banking system is less likely over the short term. The Spanish/German 10-year bond premium was at fresh record level over 255bps. The outright Spain 10-year yield tested 5.25%, which was wider by over 50bps in session (highest level since 2002).

The conflict on the Korean peninsula continued to escalate as North Korea considered declaring war against its southern neighbor due to arranged military drills with the US. There were later reports of artillery fired by North Korea, though it appeared to be part of military drills as it was contained within the northern borders.

The British pound has performed well against the euro. However, against the dollar and yen, we see the currency align itself in the risk scheme. With heavy exposure to Ireland, the UK is leveraging the weight already set by its own austerity measures. The GBP/USD has been slowly declining, but was not showing a bearish signal, until this week. This week, the Sterling finally gave way to the USD.

GBP/USD inability find support at 1.60 handle this week displayed marked bearishness that started on November 4^th. The pair broke down major support at 1.5650 by the end of the week. This drop has established a fresh one-month low for the pair and has given indication of a potential breakdown of the uptrend that has prevailed since the May lows. Further bearishness off the current support breakdown in the approach to December and the New Year is a distinct possibility.

For the coming, the bearish tone is expected to continue with resistance at 1.5675 and support at 1.54 handle.

PIG and China

PIG’s debt crisis and China took the spotlight from Fed's quantitative program last week. The US Dollar was boosted higher on risk aversion in the early part of the week but reversed as sentiments stabilized.

After initial refusal, Ireland finally signaled that they will accept bailout from EU. Irish Central Bank chief Patrick Honohan said that he's expecting a package worth "tens of billions" of euros to help the nation's banks, which were battered by the its property slump. EU, IMF and ECB officials are studying banks' books and would some sort of agreement might be reached soon, probably this week. The news helped Euro and Pound staged broad based recovery during the latter part of week. Despite the Irish “bailout” Eurozone debt crisis story is not expected to end with the markets will start to target Portugal. Also, note that Greece revised up its deficit in 2009 up to 15.4%f GDP, nearly 1.8% higher than prior forecast of 13.6%. Projection for 2010 deficit was revised up from 7.9% of GDP to 9.4%. Eurostat also revised up Greece's debt level figure of 2009 from 115% of GDP to 127% of GDP. So, Greece could be in queue again next to Portugal and the story could be never-ending.

By the end of the week, dollar recovered as the market sentiments was also weighed down by fear of more tightening in China. China raised the so called bank reserve requirement ratio by 50bps to "appropriately control" credit and loans. This was the second reserve increase in two weeks as inflation is viewed as a serious threat to the Chinese economy. There are still speculations that rate hike is imminent, in addition to the current measures.

GBP/USD has been on the downtrend since early November and last week fall found support at weekly Pivot Support S1. Then the pair corrected upward to 50% weekly fibo and by last day of the week it moved downward toward the previous week low and the 1.5950 level.

The pair intraday sentiment is still bearish with resistance at 1.6093. A break below 1.5950 could push the pair to below 1.5750 .

QE 2 has been factored into, USD on the uptrend on NFP.

USD traded higher across the board, also helped by comments from Treasury Sec Geithner denying US is willfully looking to devalue USD to boost its economy. Instead, Geithner notes, the recent inflows into emerging markets reflects confidence in the high growth rates of those countries. Over the weekend, several foreign officials voiced their opposition to the latest Fed move.

The US Dollar escalated to highs against most of the major currencies during early trading in Asia on the back of the stronger than expected US Jobs data that came out on Friday. The headline number for the October Non-farm payrolls rose to 151,000, which was much higher than the 60,000 that most economists had expected on Wall Street.

Fade out GBP/USD at 1.62 on Tokyo open. (24:00 GMT or 2:00 on the chart) with 100 EMA(50 EMA on 30 MTF) acted as resistance.. Enter short at 1.6195 with stop at 1.6215.

Managed to crossover the pivot support S1 with target of T2(1.609) within sight. Exit on pullback at pivot mS2 (1.6108).

Quantitative Easing 2

The biggest news this week and announced after the American Mid-term election, the Federal Reserve delivered slightly more than expected, a 600b program comparing to consensus of 500b in its new quantitative easing policy.

The highly-anticipated Federal announcement sent the US Dollar reeling.

For Sterling, the impressive GBP/USD is further supported by the surprising resilience in 3Q UK GDP reported 2 weeks ago, which led the BOE to refrain from its own QE2 this past week.

On the 1 HTF chart, GBP/USD has been on the uptrend within the ascending channel. The pair was capped by weekly pivot resistance R2 and the psychological level 1.63 .

For the coming week, the sentiment is still of the upward bias with support at 1.609 (31.8%) with immediate resistance at 1.63.

On Monday, I am expecting the GBP/USD to swing further downward with support 1.609.

The end of QE theme

US Dollar was under much pressure for most of the week as US Economics data reported last week were mostly negative with FOMC minutes showed some members viewed that further quantitative easing is needed.

Singapore widened the trading band of Singaporean dollar to allow faster appreciation of SGD while there are speculations that other Asian central banks will follow.

Bernanke's dovish speech on Friday seemed to have squeezed the last downside move out of the greenback as the dollar recovered impressively on Friday’s US session.

Does it mean that the that dollar is finally hitting a bottom and the markets are getting tired of QE II talks. It's seems that QE II is fully priced in for November meeting and market will start to feel indifferent to any further speculations.

For the coming week, there is a possibility for the markets to trade in some volatile manner as traders are searching for new theme.

For cable, a lot of attention will be on the Spending Review to be announced by the government on October 20. This will be a key to establish credibility on the government on its ambitious austerity plan to cut the worrying budget deficit. BoE minutes will also catch a lot of attention on the possibility of more QE from the bank.

GBP/USD after crossing the 50 EMA from above on Monday was trending downward and found support at previous week low. By Tuesday, the pair moved up aggressively toward swing resistance(SR) level.

By Fridat during the London session, the pair moved passed RI to almost touched T1 Level.

This week, I am expecting the pair to test support at 1.5888. If the pair managed to get through the resistance of the previous high of 1.6106 the next resistance point is at 1.6240.

BOJ instigated the quantitative easing policy.

The main currency theme this week is Central Bank's quantitative monetary easing. It all started when on Tuesday The Bank of Japan(BOJ) accelerated it easing policy as economic outlook deteriorated. The central bank cut the collateral overnight call rate to 0-0.1% from 0.1% and decides to create a 5 trillion yen fund to buy government bonds and other asset.

BoJ is seen by many as just a start of another wave of easing from world major central banks. The Fed and BoE are both expected to follow in near term. Euro is somewhat supported by speculation that ECB will only have the unlimited funds to maturity until early next year and the bank has not hinted on extension yet.

BoE policy makers opted to leave both interest rate and the Asset Purchase Facility unchanged at 0.50% and 200 billion pounds respectively, inline with forecasts on Thursday.

In US, disappointing employment data spurred speculation that Fed might opt for an aggressive QE II rather than a modest one to boost job growth and economic recovery. Bad US data means more likelihood of QE, which is USD negative.

In Asia, Central banks including the CBC, BSP, BoK, & BNM (Taiwan, Philippines, South Korea and Malaysia respectively) were rumored to be actively participating in the FX market in order to stem the ebb and flow of trade.

GBP/USD has been on the uptrend since Thursday of the previous week as US dollar weakened . In the first three days, the pair was unable to break through the previous week high of 1.5921. By Thursday, the pair managed to penetrate 1.60 level and touched the target resistance level at 1.6018 before taking a breather to a low of fibo 61.8% at 1.5825.

The short term outlook for the pair is still bullish with a penetration above the previous high of 1.6018 is expected to be met with resistance at 1.6118. Near support level is at 1.5852 with next support ance at last week’s low at 1.5751.

GBP/USD

The ringgit consolidate below 3.1125 despite almost all major currencies appreciated against the Us Dollar. It we look at USD/SGD pair, it has been steadily tracking downward. This clearly indicated that BNM has been intervening in the fx market.

With central bank manipulation is quite a task to determine the ringgit movement. However, the pair look to be consolidating waiting for any BNM action or the effect of US dollar venerability.

USD/MYR

USD/SGD

USD weakened but ringgit and cable hardly moved

With major currencies showing very bullish tone against the US Dollar, the ringgit performance against the US Dollar is quite tepid. This could be some intervention by Bank Negara as USD/MYR pair ranging between 130 pips last week. The immediate trend of the pair is still bearish and resistance is at 3.0922 with support at 3.072.

Cable has been consolidating within a tight range of about 100 pips in the early of the week before it was capped at 1.5921 at early London session on Thursday. It then fell sharply to 1.5669. Cable was talked down by thoughts about new quantitative easing. With a doji candle formed on the weekly chart, Cable is now on the crossroad. The coming week could shed some light on cable immediate trend. On intraday basis, Friday rebound from Thursday fall is expected to continued. Resistance is seen at Friday high of 1.5872 with the next resistance at 1.5937. Support is at 1.5767.

GBP/JPY is still trending downward. The intraday support is at 131.48. A break of 131.48 will bring the pair to 130.75. Resistance is at 132.45.

USD/MYR

GBP/USD

GBP/JPY

FOMC Quantitative Easing and Currency Intervention

The US Dollar finished sharply lower against all major forex counterparts on a week of mediocre economic data and a noteworthy shift in rhetoric from the US Federal Reserve. Dollar Ends the Week at Seven-Month Lows.

The highly-anticipated Federal Open Market Committee (FOMC) interest rate announcement and statement forced sharp moves across financial markets on Tuesday.

Officials strongly suggested that they stood ready to restart Quantitative Easing (QE) measures if the need presented itself, and an especially dovish tone on inflation implied that such a move could come sooner than later. Given that the US Dollar fell precipitously on the first wave of QE, the prospect of QE Part 2 could spark continued USD weakness against major counterparts.

USD/MYR pair fell sharply on Wednesday to a support level at 3.089 and breached that level by the end of the day.

Currency intervention by Asian Central Banks (including Bank Negara and Bank of Japan) on Thursday and during Friday’s Asian session managed to contain the US Dollar fall but uninspiring US economic data dragged US dollar down. USD/MYR went lower to 3.082 on the week closing.

FTSE Group, a global index provider, on Friday upgraded Malaysia to “advanced emerging market” status and Morgan Stanley on Sept. 20 raised its assessment of the nation’s stocks to “overweight.”

According to Barclays Capital Plc, FTSE upgrade is one of the key catalysts for further appreciation of the ringgit. Barclay also noted that the upgrade may attract as much as US$3 billion of new funds to Malaysian assets.

Technically, USD/MYR pair is still on the bearish path with support at 3.072. Resistance is seen at 3.098 and the next higher resistance level at 3.118.

Ringgit, US Dollar and risk appetite

The US Dollar Index make a critical bearish break early this week. The bearish dollar did not follow the risk appetite track as falling dollar was trail by bullish stock market. Has the dollar broken free of its overbearing (negative) correlation to investor optimism?

Dollar's selloff on Monday was due to speculation that Fed will announce another massive quantitative easing program by the end of the year. According to the decision of the August meeting, Fed will use funds from maturing agency bonds and mortgage-backed securities to buy about $27 bln of Treasuries and TIPS. There will be nine operations from September 15 through October 6. That's already known. What triggers the acceleration in dollar's selloff today is speculation, as started by a report from Goldman Sachs, that there will be a total of $1T in bond purchase to be announced later this year, possibly in increments in a few meetings, starting November or December.

On the local front, the government may reassess a 12-year ban on offshore ringgit trading, as cited on Sept. 11, by a CNBC interview with Prime Minister Najib .

The Ringgit appreciate on Monday(13^th) and Tuesday on bearish US dollar and the possibility of the government will relax controls on trading the Ringgit offshore.

By mid- week the US dollar moved sideway and Ringgit registered a correction.

US Dollar index's decisive break of 81.88 indicate a completion of a head and shoulder pattern which suggests that rebound form 80.08 is already finished. In this aspect, we'll be looking at the prospect of deeper medium term decline to 75 level upon breaking of 80.

On the Ringgit, I am looking for the immediate support at previous low of 3.0981 with the next support at 3.089. Resistance is at 3.112.

US Dollar Index

USD/MYR

Testing the 1.55 level again

Cable is trotting along the descending channel with early of the week it was rejected by the resistance level at 1.562. It went over the lower channel line after a decisive break of 1.55 level and then bounced off support at 1.538.

The bounce from the resistance was capped by the upper channel line and 100 EMA and ended the week consolidating around 1.55 level.

On intraday basis, GBP/USD look to be pointing downward toward price correction from the uptrend that begin on Tuesday.

A break below 1.55 will meet support at 1.5277. On the up move, resistance is expected first at 1.5617 with the next resistance at 1.5711.

Riggit and Bursa Malaysia going separate way

US Dollar Index formed an inside bar pattern on Wednesday that was followed by two consecutive daily loss. Analysts see this week greenback weak performance more of congestion rather than an exhaustion point. It is believed that the last day of the week greenback performances impressive considering the losses were relatively modest as e compare it to the positive performance of the equities market (the S&P 500 rallied 1.7 percent). These two are generally on opposite ends of the risk spectrum; so a negative correlation is a normal state of being.

US Dollar Index

DJIA

FBM KLCI

MSCI World Index(excluding New York)

For the week, Bursa Malaysia as represented by FBM KLCI was on the bullish mood with a slight fall on Tuesday. Bursa performance was creditable in we compare with equity market performance in New York and the rest of the world(MSCI World Index). Since the second week of August, global equity market has been on the downtrend while the Bursa Malaysia registered an uptrend.

USD/MYR

The ringgit performance this week was move in-line with USD Index rather than the Bursa Malaysia. Compare to SGD, ringgit strength in the last three days was weaker than SGD.

USD index failed to penetrate above 83.45 cluster resistance (38.2% retracement of 88.70 to 80.08 at 83.37). With a short term top formed, some sideway move should be seen in near term.

USD/MYR last week was more at consolidation phase with the open and close for the week at almost same level. The short term bias is still bearish and immediate support at previous low at 3.124. The next support is at 3.115. On the upside, resistance is at 3.152 and 3.163

Support at 1.55

1.5680 level and the 50 EMA was the main barrier for cable to move upward. The 1.55 level was brought to test three times last week and it was temporary broken by Friday during the London/New York session. However by end of the week session, cable managed to recover above 1.55 and find support of 200 EMA.

The short trend is on the downside with support a previous low at 1.547 and below it at 1.538. Resistance is at 1.562.

Easing of Currency Regulation

Ringgit was very bullish last week inspired by two economic announcements:

1. 1. August 18: Malaysia’s economy grew near the fastest pace in a decade in the second quarter with manufacturing industry grew 15.9 percent in the second quarter from a year earlier and exports of goods and services gained 13.8 percent. The economy expanded 8.9 percent in the second quarter, beating the 8.4 percent median forecast in a Bloomberg survey of economists.

2. 2. August 19: Bank Negara Malaysia (BNM) has eased regulations on ringgit transactions for trade settlement. The move was seen as another step towards full liberalization of the Riggit towards a freely traded currency.

Despite such impressive GDP result, the economic performance is still slacking if we compare to Singapore’s economic achievement during the first half of the year.

If we scan through the above chart of USD/MYR(the dark color ) and the USDSGD , the first three days both pairs move in tandem but on Thursday (August 19) there was a correction for USD/SGD while USD/MYR keep sliding downward. This clearly indicate that ringgit strength is more influenced by Bank Negara decision to get rid one of last vestige of the capital controls that Malaysia implemented in September 1998 i.e. that the Ringgit is still barred from international convertibility

Analysts viewed that the Bank Negara decision will the increased flexibility given to corporate hedging activity and this is the biggest driver of the ringgit's strength, as speculation mounted that BNM was moving towards allowing the currency to trade freely offshore.

In anticipation of pickup in capital inflow after easing currency regulation, Malaysian bond yields fell. Benchmark five year bond yields dropped to 3.32%, approaching an 18-month low of 3.29% this week.

Last week, I did mention that the support for USD/MYR was at 3.16. It was broken on Tuesday and the next support at previous low at 3.138 was also breached on Thursday. With both support decisively broken, the pair is currently on the bearish sentiment.

For the coming week, support is at 3.09 with resistance at 3.164.

Cable unable to push above 1.60

Many of us were anticipating GBP/USD to break above 1.60 level last week after the pair has been consolidating below that level for five days.

1.60 seem to be a level hard to be penetrated despite three attempts to do so. The previous week four attempts were made on 1.60 level.

By Tuesday, it was clearly indicated that the pair is not going to move upward. It break the upper line of ascending channel and move swiftly downward breaching the support at 1.561 and by Friday closing it reached my target T1 at 1.558 and the lower line of ascending channel.

From the close last Friday at 1.5941 to the close this week at 1.5592, cable lost 349 pip. That range was the longest for the past few weeks indicating a strong selling all week for the pair. The downward move was within the descending channel with prices having moved below the 100 EMA.

On Friday, the pair’s opening price was almost level with the closing price an indication of trend indecision, the short term intraday seem to be neutral but medium term look very nervous. I am expecting for early of the week GBP/USD will rebound with resistance 1.583.

Failure to take out 1.583 will bring cable down to initial support 1.54.

Falling Dow, Rising US Dollar

Last week we saw US Dollar rally sharply against all major currencies with the Euro and the Sterling effected the most. US Dollar closed higher for the first week in nine amidst a sharp correction in Wall Street.

Early of the week, US Dollar rally was seen as an unwinding of overextended US Dollar short position but by mid week it showed that the US Dollar may yet to continue higher till the end of the week.

Fundamentally, The US Dollar strong rebound was attributed to the lite version “Quantitative Easing ” announcement which downgrade the economic outlook. Wall Street was on the sell off mood and the US dollar rebounded.

Our immediate reading on the US Dollar move into next week is whether US Dollar can maintain its trajectory and pace. Interest rate and economic fundamental considerations take a back seat to trader sentiment trends; but confidence can be catalyzed or destroyed by meaningful fundamental events.

It will be critical to watch whether the highly-correlated US S&P 500 will continue lower in the days ahead. The index had recovered sharply following noteworthy tumbles in mid-June to early July. Yet a substantial 11.7% trough-to-peak advance was not enough to take it above highs set in June, and the recent turn lower leaves momentum firmly to the downside. It may be especially important to watch when/if the S&P tests the 1050 mark, as a break below would leave the strongly psychologically significant 1000 handle as next significant support.

Technically, US Dollar Index managed to hold above the psychological 80 level and has rebounded strongly since then. The current development suggested that The US Dollar is still bullish and expected to test resistance at 83.45 (38.2% retracement of 88.70 to 80.08 at 83.37).

The USD/MYR pair fall further to T2 before rebounding on strong US dollar moved against almost currencies on Wednesday. The uptrend rebound was resisted by the downtrend line and on Friday the pair experienced a sharp fall on strong showing of local stock market.

The next week, the pair is expected to test the support at 3.16 with resistance at previous high at 3.1952.

A break of 1.60, next target is 1.61

GBPUSD has cleared the top of a rising channel set from the lows in May but met a strong resistance of 61.8% retracement at 1.5966 from a swing high of August 2009 to swing low of May 2010. By the middle of the week the pair found support at T1 before attempting to break the resistance level on Friday to test the 1.60 psychological level on the heels of the non-farm payrolls (NFP) report, and establishing a new 6-month high for the pair.

The intraday and medium term sentiment is still bullish. A push above 1.60 is expected to carry the pair to 1.61. Support is at 1.5810.

Ringgit Appreciation due to …weak US Dollar or Our Economic Performance?

Last week we saw that the ringgit strengthened against the US Dollar with the most of the move occurred on Monday and Friday.

On a trade-weighted basis, the benchmark currency, US Dollar Index slipped below the midpoint of its December-to-June rally (approximately 81.40) in early of the week and it marked a total nine percent loss.

Over the past two-months, the US Dollar depreciation can largely be largely attributed to a ‘price correction’ effect but the six-month uptrend preceding the June reversal developed well before the negative turn in risk appetite and the fundamental deterioration behind the European Union (the most prominent threat to global financial stability since the US housing collapse). This could be due to excess premium built into the US Dollar as reserve currency that could easily dissipate as soon as the trend was broken and risk appetite enlivened.

By Friday, The US Dollar dropped to as low as 80.08 before closing at 80.41 as poor non-farm payroll report intensified speculation that Fed will re-start the quantitative easing program in this week's meeting.

Most technicians viewed fall from 88.70(June High) is merely a correction to rise from 74.19 only and should be contained by 80 psychological level. However, the previous weeks downside acceleration at such stage and the bullish outlook in EUR/USD and GBP/USD made this view very vulnerable.

The overall weakness in US dollar caused an appreciation in Asian currencies including the Ringgit. The South Korean Central Bank was very busy this week to contain the rampant appreciation of the won against the US dollar.

The strengthening of Asian currencies could also be attributed by international investors flocking back into Asian markets with higher yielding currencies. It was estimated that foreign investors bought almost a net US$9bil of stocks in India, Indonesia, South Korea, Taiwan, Thailand, Vietnam and Pakistan in July, although no figures were available for China and Malaysia.

Official statistics released by Bank Negara last Friday showed overseas funds raised their holdings of ringgit-denominated bonds for a fourth straight month to RM96.1bil in June.

They owned RM59bil worth of government bonds, the highest level since records began in 1970, according to a Bloomberg report.

In other words, the ringgit has been on riding up on this wave of foreign money coming into the market rather than the uninspiring local economic performance.

On the daily chart of USD/MYR (see the above chart), the pair has breached the previous low of 3.1701 (26/4) and consolidating at T1 in early of the weeks. On Friday, the pair broke that level and approaching the T2 level at 3.1341.

Cable target above 1.58

Cable continued the bullish mood that started since Thursday of the previous week. It moved toward the upper resistance line of ascending channel and on Thursday it reached the target upper T2 and make a price correction on the 20 EMA.

By end of the week, cable managed to test the strong resistance level at 1.5708 and the 50% retracement of swing high of 5^th August 2009 and swing low of 20^th May 2010.

Given that US dollar is getting weaker, GBP/USD is expected to continue its uptrend next week. The resistance level is at 1.5838 with support at 1.5527 .

Deteriorating FDI

The U.S. dollar ended lower for an eighth straight week as concerns over domestic growth and firm risk appetite weighed-in.

US reported a disappointing GDP figure last week, which showed lower than expected growth of 2.4% annualized rate in Q2. 2007's GDP was revised down from 2.1% to 1.9%, 2008 down from 0.4% to 0.0%, 2009 down from -2.4% to -2.6%. Peak-to-trough decline was revised down from -3.8% to -4.1%. These revisions showed a much deeper recession than originally reported and in turn indicated that the US economy has a deeper hold to dig itself out of.

The Dollar index slipped further to as low as 81.46 last week as the fall from 88.70 continued. The near term still clouded with bearish tone and 83.45 resistance level still intact. Support is at 80.04, which is close to 80 psychological level as well as 61.8% retracement at 79.73 to contain downside and bring rebound.

The overall bearish US dollar resulted in bullish ringgit. USD/MYR moved to as low as 3.1766 penetrating the last low of 21^st June. The slide of the pair is within the downtrend line that started in 25^th May.

The bullish ringgit against the US dollar is also reflected in bullish tone in local stock market despite bad news on the economic front-the deteriorating Foreign Direct Investments (FDI). FDI figures were hotly debated last week with the ruling government, BN flip-flopping the issues so much so that the ex-Finance Minister, Tengku Razaleigh insinuating that the International Trade and Industry Minister Mustapa Mohamed is not telling the truth about the reason for the deteriorating FDI.

As for the coming week, I am expecting the pair to test the previous low at 3.1701 with support at 3.166. Resistance is at 3.1930.

Pound expected to move above 1.55

GBP/USD pushed to as high as 1.5470 (the hisghest since April 27^th) this week week and formed a temporary top before retreating. Before surging upward, the pair broke the previous week low and tested the initial support at 1.4976(see the 4 Hr chart above). The pair went to the lower target-T2 before rebounding during London session. A double bottom formed on Monday and Tuesday signaled that the pair bearish tone has been arrested.

With a weak dollar and a solid U.K. fundamentals and signs that the European debt crisis won’t reach British shores boasted the pound. Despite the austerity measures put forward by the new PM, U.K. economy display signs of being able to sustain growth . Jobless claims declined by 20,800 in June as the claimant count rate fell for a fifth straight month to a one year low. The improving labor market and declining inflation raised the outlook for domestic growth. Indeed, consumer prices decelerated from 3.4% to 3.1% but remained above the central bank’s threshold for a fifth month. Inflation trending lower takes pressure off policy makers to raise rates which would typically be bearish for the pound, but declining from such dangerous level is a positive for the long-term health of the economy.

The surge carried the pair above the upper target of previous week swing high and low I,e,T2 and just beyond the 100% upper target. With a such overbought position, a deep correction is expected that could pushed the pair below the inner retracement of 38.2% of daily swing high and low on Friday. (see the 30 minutes chart below.

Next week, GBP/USD is expected to test the support at 1.5146 before continuation of the bullish mood. Resistance is at the previous high at 1.5515 and ability to penetrate the next resistance at 1.5670 will move the pair to much higher level.

Singapore outperformed Malaysia

With South East Asian region recovering from the American and European financial crisis, Singapore managed to registered an impressive 26 percent y.o.y GDP growth in the second quarter . Singapore’s growth for the first quarter was revised to 45.9 percent, the fastest since records began in 1975. GDP is expected to rise between 13 percent and 15 percent in 2010, compared with an earlier forecast of as much as 9 percent, the ministry said. The growth is expected the highest in the world.

China, the world’s third-largest economy, recorded an expansion of 10.3% in the second quarter, slower than 11.9% achieved in the first quarter.

Malaysia which recorded a 10.1% rise in the first quarter is expected to announce its second-quarter GDP numbers next month. Thus far, economists are expecting to see a growth rate of around 7.5% to 8.5% for the quarter.

As expected, the week saw the Singapore Dollar appreciated more than the Ringgit against the US Dollar. Refer to the chart below. The USD/SGD candles is in red and green color while the USD/MYR is in dark orchid color. The USD/SGD has moved passed previous week low while USD/MYR pair was stop dead at previous week low.

The USD/MYR pair is still on the downtrend (refer to the chart below) despite a two day upward spike in prices. There may be an effort by the authority to lessen the appreciation of the ringgit in order to make FDI more attractive especially in the local bourse (http://myfxfix.blogspot.com/).

The stochastic has moved passed the 20 level but turning back down with MACD histogram oscillating at the zero level and at negative territory . The pair sentiment is still bearish with previous week stated support at 3.18 and the second support at 3.17 is still valid. Inability to overcome the resistance level at 3.2776 still indicated the pair bearish tone.

Third Time OPR was raised……to support the stock market?

Locally, the big news this week was Bank Negara raising OPR(Overnight Policy Rate) by 25 basis point on Thursday.

Bank Negara has now raised rates three times this year by a total of 75 bps, after earlier increases in March and May.

It cut rates by 150 bps during the financial crisis, from 3.5 to 2 percent.

Bank Negara was the first central bank in emerging Asia to raise rates after the global financial crisis.

Malaysian economy grew at a blistering pace of 10.1 per cent y.o.y. in the first quarter.

On Monday, the PM indicated that economic growth might slow in the second half of the year because of external factors.

The speech marked a change of tone for the PM, who has been making fairly bullish noises about the economy. It conflicted with the government’s own full year forecast for the economy, released last month, which predicted growth of 6 per cent - up from an earlier forecast of between 4.5 and 5.5 per cent.

PM’s change of tone is political one as his economic reform program’s the New Economic Model is stalling as a result of opposition from the ultra conservatives in his party, UMNO.

While the developed countries are keeping low interest rates, any increase of policy rate make Malaysia's interest rate spread widened and may attract more hot money to flow into the country.

An interest rate hike also about the appreciation of ringgit.

This week, USD/MYR slide to our expected get support at 1.3189. The appreciation of the ringgit is more due to weakness in US Dollar as seen in the euro and the cable. The effect of Bank Negara decision to raise rate was quite muted.

This week the local stock market was quite bullish from Tuesday onward while the USD/MYR only registered a meaning full push downward on Thursday.

The recent bullish move of the local burse was not accompanied by increase in volume indicative of less participation by foreigners.

The MPC (Monetary Policy Committee) decision to raise the OPR could also be seen to invite hot money to park in the share market and drive share prices upward, creating a scenario of prosperity in the share market and the economy as a whole. Giving PM changing view on the economy, a bullish stock market at least politically give him a breathing space.

For next week, USD/MYR is still under the descending channel and MACD in the negative territory, the pair has a bearish tone. Stochastic is below 20 but showing no signed of penetrating that level yet.

Support is at 3.18 and penetration of that level the next support is at 3.172. Resistance at 3.218 with the pair inability to overcome that level the bearish trend is still intact. The next resistance is at 3.252.

FBM KLCI

USD/MYR Daily