Our friends at the Pragmatic Capitalist write:

As the can’t lose market continues to power higher I just can’t help but think about some of the catalysts that lie in our path over the next 24 hours.  Investors have been front running the current earnings season with very bullish expectations and the next 24 hours could prove them right as Intel and JP Morgan are set to report.  In addition,the commerce department is set to release their monthly retail sales report tomorrow and current low expectations could add fuel to the bullish fire.

full article

They are expecting a strong showing of risk appetite tomorrow, citing better than expected earnings and Bernanke’s zero interest stance as the catalysts. If this proves to be true, look for the S&P to break past 1200.
This would be an enormous boon for risk AUD, and would bring a nice rally in the carry trade. While today’s price action in US equities showed 1200 as a still unreachable target, it came right back up to that mark at the end of the day. This is quite promising for those looking to take a bite out of the risk apple.

This week has been mixed for the dollar. It is up, down, or relatively unchanged depending on what you are comparing it to. The interest rate decisions came in as expected, Australia increased theirs by a quarter of a percent while everyone else held steady. Equities have been flat finding the resistance difficult to break.

There is a large amount of data to be released next week, although there is not much of it that is of much concern. Keep an eye on Australian housing data, if it gets too weak it could spell weakness for AUD as it will reduce the chances of a nearby rate hike.

Monday 4/12

1:30 GMT Australian Home Loans
As stated earlier, the RBA is watching the housing market for weakness. This would have to show a large drop to affect AUD

12:15 GMT Canadian Housing Starts
Positive housing data would certainly be a boon to this resilient currency, however I doubt this would be enough to push USDCAD below parity.

Tuesday 4/13

12:30 GMT Canadian Trade Balance
The Canadian economy is heavily reliant on exports, and their strengthening currency is working against them. It is doubtful that we would see a strong reading with USDCAD near parity.

Wednesday 4/14

12:30 GMT USA CPI and Retail Sales
The Fed has stated that they believe inflation will remain under target for the foreseeable future. Although it is unlikely, a hot reading in these numbers could increase the expectations for a rate hike from the Fed.

Thursday 4/15

2:00 GMT Chinese CPI and GDP
Although CNY is not really a traded currency it is a good one to watch, especially when trading AUD. A falloff in Chinese growth could spook AUD buyers to let go of their positions since it stands at such high levels right now.

Friday 4/16

13:55 GMT Preliminary Consumer Sentiment
This is the earliest indicator of consumer activity, this would need a reading above 75 to have a strong market impact.

Even though the short term relationship between the US dollar and equities hasn’t been too strong as of late, it is still a powerful indicator to watch over the medium term. The S&P is facing some serious resistance at 1200 on both a technical and sentimental level. Remember that once the market fell below 1200 in 2008 it moved into the free fall that has taken the last year to recover from.

What we can say about this in reference to the dollar is that as long as the S&P stays below 1200 the dollar will continue to gain strength, especially against EUR. Above this mark however, the dollar will most weaken as investors become hungry for risk and seek out higher yields in their currency holdings.

Which brings us to AUDUSD. This pair has moved into the spot that EURUSD has in relation to equities. Australia is the highest yielding major currency, so look for new highs in the pair as the S&P breaks through resistance.

For more information about using equities to help trade Forex, read my article: A Guide to Intermarket Analysis Part 2: Equities.

After today’s announcement it is clear that Australia is continuing on its course to tighten monetary policy. The consensus is that they are targeting a 5.25% interest rate, according to a recent Bloomberg article. But, what about the rest of the world?

According to Bloomberg we will have to wait some time until we get rate hikes outside of Australia.

Policy makers have “gotten their eye off the immediate ball, which is deflation risk,” said Joseph Gagnon, a former Fed official who is now a senior fellow at the Peterson Institute for International Economics in Washington. “It’s misguided for anybody to be talking about exiting” from stimulus during the next year.

Trichet’s ECB Governing Council convenes April 8 as Mark Wall, Deutsche Bank AG’s chief euro-area economist, and Janet Henry, HSBC Holdings Plc’s chief European economist, scrap forecasts for the refinancing rate to be raised this year from a record-low 1 percent. Both now expect the first increase since July 2008 to come next March.

Major central banks “are going to stay on hold longer than otherwise, keeping zero rates or near-zero rates at least to the middle of next year,” Nouriel Roubini, a New York University professor and chairman of Roubini Global Economics LLC in New York, said in an interview.

According to the Fed, inflation will be kept at bay for quite some time now. In other words, there will be no interest rate hikes for quite some time. The Fed has stuck to the term “an extended period” so look for the exclusion of this term to signal the beginning of a move toward rate hikes.

It looks like AUDUSD has considerable fundamental strength behind it, possibly enough to return to its highs, if not break them.

The entire Bloomberg Article can be read here.

So, the Reserve Bank of Australia, raised rates again, no surprise there. And in their statement that began and ended almost exactly the same as their last one, it was implied that they will be hiking them again in the future. They ended with the statement that they would be bringing interest rates back to their average levels and that this rate hike was “a further step in that process”.

There was some talk about the housing market in their statement, however at this point it doesn’t look like it will halt future rate hikes, but watch the housing data for a significant move toward weakness in the market. If this begins to falter then so do the odds of a rate increase.

Looking at the charts, AUDUSD has been pushing up on the high from March 17^th. If it can break past here it would face some considerable resistance around 0.9310. Despite pushing up on resistance, don’t forget that AUDUSD has been in a down trend since last November. So if the pair falters at the current level expect a return to support at 0.8600. The largest risk to AUDUSD strength is rate hikes out of the Federal Reserve, which are expected to come this year, as early as this summer.

In the yen pairs, AUDJPY has been the strongest pair. It bounced off of 86.18, which was the high from January 11^th. The benefit of trading AUDJPY over AUDUSD is that rate hikes in the US would be beneficial to AUDJPY. So, you can still play AUD strength without fearing an increase in dollar strength.

Last week EURJPY broke above resistance around 127.20, but failed to maintain that level and has since fallen back below it. The up trend that began on March 22nd has turned into consolidation in April, ranging between 127.90 and 126.75. If the pair can break below 126.75 the next support level is around 125.30, which was a previous resistance level. If we see a topside break and 127.20 forms support, look for resistance to form around 129 and 131.40 above that.

The movement in the yen pairs has been strange today, with respect to US equities. Typically EURJPY moves in lock step with the S&P. But today, positive movement in equities has been met with falling yen pairs. Read more about my longer term outlook on the carry trade.

The effect of the unemployment data on the market was enhanced by the thin trading volume that the week closed on. Although this was the strongest and first positive reading since January 2008, it was not strong enough to incite confidence in the market. The dollar rose on risk aversion due to fears of too weak job growth.

Next week opens up on thin trading due to Easter Monday in Europe. There are also three interest rate decisions coming out of Australia, England and the ECB. There is also a Japanse interest rate decision, but don’t expect anything out of it.

Monday 3/29

14:00 GMT ISM Non-Manufacturing PMI and Pending Home Sales

The ISM and home sales data could be more significant than normal due to the below average liquidity on Monday. Traders should be aware of this.

Tuesday 3/30

4:30 GMT Cash Rate and Rate Statement

The Australian rate decision is expected to be up twenty-five basis points. AUDUSD will fall hard if this doesn’t happen. If the statement confirms that they will be continuing to increase rates look for AUDUSD to break above its highs.

Wednesday 3/31

8:30 British Services PMI

The expectation is for a slight decline but still within the expansionary levels. It would take a reading far off from expectations to have an effect on the market.

14:00 GMT Canadian Ivey PMI

Canada has shown itself to be a very resilient currency. The PMI data is expected to see a modest increase; this could be quite a boost to CAD strength

17:30 GMT Bernanke Q&A

His speech is never the important part. What is important is the question and answer section. With rumors of a change in the discount rate, this could be an important even if they do increase the rate.

Thursday 4/1

1:30 GMT Australian Employment Change and Rate

Even though 20K new jobs are expected the unemployment rate is not expected to change. Given that we will get an interest rate statement two days before this, it is unlikely to be an impacting event.

11:00 GMT BoE Official Bank Rate

This is only of significance if we get a rate hike, which is not likely to happen. If it does, look for massive GBP strength.

12:30 ECB Interest Rate Statement

The actual rate change comes in and hour and a half before this but since it will most likely not change the statement is far more important here, although I believe Trichet will only reiterate what he has stated in the past, rate hikes to come at the end of the year.

Friday 4/2

0:30 GMT Bernanke Q&A

More question and answer out of Bernanke, this is less likely to be impacting since he will be doing the Q&A session on Wednesday

11:00 GMT Canadian Unemployment Change and Rate

This looks to be strong for CAD as the employment situation is expected to show further strengthening out of Canada.

This week has seen the yen take major hits across the board. Is this the end of the carry trade fallout? Or is this just a head fake in expectation of positive employment data?

Look back at USDJPY in the long term, all the way back to 2007, and you will notice that it has broken that long term down trend. Meanwhile, EURJPY and GBPJPY are pushing up on former support levels and we have AUDJPY pushing up on medium term resistance.

Most of the yen pairs have bounced off of the 61.8 on the Fibonacci retracement drawn from the bottom of their unwind to their recent highs. Add on to all of that, the room that a yen sell has to grow and you have set the stage for a profitable long term trade.

Of course the one factor missing is the equation is of course the high paying interest rates. Australia leads the pack with a (relatively) whopping 4%, giving it a 3.9% advantage over the yen. The euro lags behind with a 1% yield followed by the UK at 0.5% and US at 0.25%.

Tomorrow’s employment data could have a significant, but short lived impact on the yen pairs. The expectations for the non-farm employment change are high, and likely to fall quite short, however the rate could come in line or even better, so it is hard to say which one will have the higher impact. Regardless of the outcome tomorrow we will be getting rate hikes this year, but not for at least three more months. If history serves as a warning, the carry trade will take off before the rates go up.

From Reuters.com

Traders cited talk of intervention by the Swiss National Bank to lift the euro against the franc. They also said there was also some SNB activity in the dollar/Swiss franc pair.

The SNB was not immediately available for comment.

The euro fell to record lows below 1.4150 francs EURCHF= but surged to session highs at 1.4410 right after. It was last at 1.4329, up 0.6 percent.

The dollar rose against the Swiss franc to 1.0561 francs CHF

The full article can be read on reuters.com

We finally got that intervention from the SNB that we were looking for. It looks like they are trying to keep EURCHF above the 1.4300 mark. They will be able to keep it above that level for a while, but if history is any indication the intervention from the SNB never lasts in the long run. You can read more about my thoughts on the SNB intervention here.

We have seen the European currencies lose some major ground against the dollar over the last couple of weeks. And while AUD has lost ground against USD, it is nowhere near the level of other currencies. Does AUDUSD have the strength to break past its recent highs?

Looking long term (on a day chart looking back to last November), AUDUSD has not been able to make new highs, in fact it is traveling in a downward channel. However in the short term, AUDUSD has broken above its down trending highs, and is currently in consolidation just above last week’s highs.

Without the weakening of the dollar across all currencies, I don’t see AUDUSD breaking above the highs at 0.9250 but at the same time I believe that support at 0.9000 will hold. If it fails to hold, look for AUDUSD to make a plummet toward 0.8830. A break past 0.9250 would be difficult to maintain in the current interest rate environment. AUDUSD is poised as a good buy on a dip if you are looking for a currency to buy against the dollar.

There is some Australian news this week, but it will be overshadowed by the US unemployment data due out on Friday. No change in unemployment is expected, however the trend has been for better than expected data. If we see this trend continue then this would actually be positive for AUD, however the reaction to better than expected unemployment has been rather subdued as of late. AUDUSD currently trades at 0.9180.