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Central Banks Spark Caution

Discussion in 'Forex Daily News & Outlook' started by mercaforex, Oct 9, 2009.

  1. mercaforex

    mercaforex New Member

    Jul 1, 2009
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    By Mercaforex


    Range trading encapsulated much of the day for the USD and other major currencies as investors turned in a cautious day across the broad marketplace. The USD does remain at the lower ebbs of its range versus the EUR but managed to not slip too much further on Thursday. The weekly Unemployment Claims numbers were released and produced a figure of 521K, which was a tad better than the forecast of 543K. Equity markets were rather lackluster though they did have slightly positive returns. Today the U.S. will publish its Trade Balance statistics and is anticipated to have an outcome of minus -32.8 billion, which would be slightly worse than last month’s report.
    Essentially the USD finds itself at a rather important crossroad as it goes into the last trading day before the weekend. Federal Reserve Chairman delivered a speech last night in which he pointed out that the Fed still has an arsenal of monetary policy possibilities at its disposal if it so chooses. Like his counterparts from the EBC and BoE yesterday, Bernanke spoke about stability and his belief that an economic recovery is in the works. He also pointed out that he is poised to tighten monetary policy when the time arrives. Since economic data will be relatively light today, last night’s speech by Bernanke and the knowledge that quarterly earnings will continue to build in the coming days may affect investor sentiment. After last week’s rather ugly performance on Wall Street, equities have managed to not only hold on but gain. The USD may find itself under some additional pressure going into the weekend if optimistic sentiment continues to outweigh the concerns some investors have, but investors will have to keep Ben Bernanke’s comments in mind if they are interpreted as hawkish by a majority.


    The EUR took a breather on Thursday after a week of solid gains against the USD. The EUR continues to trade at the higher part of its range against the greenback and is being watched closely by investors who know that the currency pair is at an important juncture. The European Central Bank surprised no one yesterday when it did not take any action with its interest rate. ECB President Trichet stressed that the economy is showing signs of recovery but cautioned that volatility still exists within the economic data and warrants a guarded approach. On that note, German Industrial Production figures turned in a 1.7% gain yesterday, but fell below the estimate of 1.9% and the previous month’s outcome was revised downward. Today the German’s will release their Trade Balance numbers and Final CPI data. The French and Italians will publish their Industrial Production statistics today. The EUR has had a good run this week against the greenback on what appears to be abundant risk appetite, the question traders must ask themselves is how long can this momentum continue.


    The Sterling moved in a tight range on Thursday as the Bank of England maintained its historically low interest rates. The MPC also said that it will keep its current monetary policy of quantitative easing in place at least until next month and will continue to review its plans in a timely fashion. The U.K. will release its PPI data today along with Trade Balance figures and investors will sift through the reports as they continue to monitor the depth of the economic problems that face Britain like its international counterparts. Yesterday’s trading in fact was rather tame as caution prevailed in the currency markets, investors showed an inclination to digest the day’s risk events carefully. The GBP has climbed in from its ledge against the USD the past two days, but it still finds itself in a rather vulnerable position. Sterling traders will certainly get a chance to test its range before going into the weekend.


    The JPY lost ground to the USD on the heels of the speech from the States by Fed Chairman Ben Bernanke. Having turned in a solid performance against the USD for the past two months the JPY continues to trade at the stronger side of its range against the greenback. Having given back some of its gains in the later part of the trading session yesterday, traders will be keen to see where momentum takes the JPY today. Gold continues to hover around its record highs and is trading near the 1046.00 USD mark after pulling back slightly, signaling that the mixture of speculation and questions about the overall health of the international economy have given the precious metal a solid but volatile base.

    Bernanke’s Hawkish Comments Could Lead To A Change In Sentiment


    Another unfilled gap up yesterday, but we the range was tight and it might be a reversal indicator. Some consider this type of gap to be a last push before the market turns. We will be monitoring today’s goings on with a close eye. After Bernanke’s relatively hawkish comments yesterday the dollar may show some strength and that could be all that the American equity market needs in order to start selling off. Support 1065, 1060.9, 1047.8, 1040.1, 1020.3 Resistance 1070.6, 1080.2, 1097.65.


    After three solid days of upward trading we have finally seen a candle that might signal a reversal or at least a pause in this continuous breaking of highs. Yesterday we topped out at 1061.35 and closed the day at 1049.52. I continue to look for a pause in this market after these spectacular moves. If the dollar shows signs of strength, look out for some serious downward pressure on the XAU. Support 1042, 1034.5, 1024, 1021.33 Resistance 1048.35, 1051.32, 1061.35


    The Sterling began to show signs of life yesterday but that all sputtered to a halt as the dollar began to pop out of its hole. We neared the 1.6125 resistance level and immediately started to sell off. Currently we are trading almost two cents lower. I expect this was a dead cat bounce and the currency pair will trade lower over the coming weeks. Support 1.5933, 1.5858, 1.5769, 1.5523 Resistance 1.5959, 1.5972, 1.6034, 1.6125


    The Euro continues to show strength against the dollar and is holding its uptrend. Over the course of the beginning of the day we saw some selling and now we seem to be consolidating just under the 50 MA, while holding the trend line. I would like to see a close above the 50 MA before I go long this market again, but both the moving average and the trend line create additional support for this currency pair. Support 1.4704, 1.4649, 1.4610, 1.4480 resistance 1.4745, 1.4796, 1.4823, 1.4844

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