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Dollar Loses As Fed Speaks

Discussion in 'Forex Daily News & Outlook' started by mercaforex, Aug 13, 2009.

  1. mercaforex

    mercaforex New Member

    Jul 1, 2009
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    By Mercaforex

    The USD lost a limited amount of ground to the EUR and GBP as Wednesday concluded. The greenback did this after the Federal Reserve released their FOMC Statement, which showed that they were going to keep their steady approach in trying to tackle what has become the biggest financial debacle in decades. On the news that the Fed said they believe the recession is bottoming and that they are projecting a limited amount of growth in the mid-term, the U.S. equity market rose. As much as the Fed fueled positive sentiment, they did try to remain cautious, saying that consumer spending has stabilized but is still very constrained. The Fed also said that the economy is likely to remain weak by normal standards for some time. Lastly while they anticipate gradual sustainable growth, they added that interest rates will remain exceptionally low for an extended period.
    The U.S. will release weekly Unemployment Claim figures today and they are expected to be slightly better than the previous report. Also Retail Sales data is on schedule and is estimated to be stronger than last month’s outcome. These publications will be important because the jobless problem in the U.S. is a critical lynchpin in household spending and savings rates. American consumers are the engine that makes the U.S. and other major economies go. The level of purchasing power the average American displays has an impact on the U.S. GDP as well as those of the ‘great’ exporting nations. Tomorrow the U.S. will release CPI figures and once again this will give us insight into the level of inflation versus deflation that is exactly taking place. While some economists continue to speak about the dangers of inflation arising because of the amount of money governments are pouring into stimulus packages, there is evidence which suggests that actual demand for products is so bad that prices are struggling merely to hold their ground. The USD traded slightly weaker yesterday as the equity markets climbed. The greenback may continue to face a bit of pressure if Wall Street turns in another good day.

    The EUR gained some ground against the USD on Wednesday as it was helped by positive gains on bourses. The Industrial Production numbers from Europe were released yesterday and provided a negative -0.6% drop compared to the anticipated rise of 0.3%. Today the German and French Preliminary GDP statistics will be published. The German report is forecasted to show a decline of -0.2%, which would be an improvement over the last quarter. The French are expecting an outcome of minus -0.3%. Tomorrow the European Union will bring forth CPI data and this will feed the debate regarding the ‘real’ economy. The EUR found firmer demand yesterday against the USD and it may find that it continues to get some backing if equities repeat Wednesday’s performance.

    The Sterling found some upward movement against the USD on Wednesday. This took place in the wake of the Bank of England releasing its Inflation Report, which said that the economy remains challenging and will continue to face tests for the foreseeable future. The U.K. also released its Claimant Count Change numbers and they came in slightly better than estimated with a result of 24.9K. The Unemployment Rate numbers were brought forth too and turned in a 7.8% reading. Today and tomorrow will be light on economic data from the U.K., thus it is expected that the Sterling will trade in a rather dollar centric manner. Even as it traded lower against the greenback earlier this week, the GBP managed to hold onto the stronger side of its range, and traders may be tempted to see what kind of strength the Sterling has going into the next two trading sessions.

    The JPY lost some ground to the USD on Wednesday as international equity markets climbed after the release of the FOMC Statement. The JPY and USD continue to do battle in a very risk sensitive range and traders will need to continue to monitor the results from bourses in order to choose their positions. Gold managed to pick up some value, climbing above the 950.00 USD mark as the greenback traded lower.

    Written by: Robert Petrucci, Chief Commodity Expert and Forex Analyst.
    Technical Analysis

    What a trading range we have in this product. Support 992.4, Resistance 1018! In the meanwhile we are going to have to see if the market is able to maintain these levels. We pushed all the way to 1012 yesterday and were not able to hold it. A 7 point selling tail formed. At the moment the best trade (long term) is to stand aside until we are able to establish a new direction. On a side note, the previous dollar relationship is back in play. A weaker dollar has helped push equities higher.

    Support 68.845, Resistance 72.824. Inside candle formed yesterday, however while the candle is green it does not necessarily mean that we are going higher. Today’s action should allow for a clearer direction to be found. Many are suggesting that oil is moving higher due to a weaker dollar. And yet, the chart is not showing us any serious strength. i.e.: Lower highs. Looking for a break above or below yesterday’s high and low in order to perhaps get into a trade.

    Yesterday’s statement by the Bank of England was able to give a small lift to the national currency. As I suggested yesterday, I believe this to be a dead cat bounce and expect to see us trading the full range of this channel. While we may have slowed near the 1.6392 area, there is still room to explore the lower side of this range. Support and resistance stay the same within the band of the channel. 1.6744, and 1.5803, with small levels in between

    Yesterday I wrote: “The strong push up in the USD, broke the steady slow decline we have been seeing in the past few weeks. However, the last couple days have seen an attempt to return to an “accepted” price band. Today’s data should tempt traders to make a substantial push in this currency pair. We have completed nearly a 62% retracement. While I do expect us to push a bit lower, I believe, that the dollar strength was just a case of too far too fast, and now that we have returned to “normalcy” another push up by the so called safe haven currency should be in the making.”
    It would seem that that’s exactly how things played out yesterday. We can see that we tested the trend line, and popped right back up. While the candle is neither terribly bullish nor extremely bearish, it does suggest that while the market tried to push lower, serious buying came in. The sellers however would not allow for a sustainable push upwards and pushed for a close just above the day’s opening price. I am looking for today’s price action to allow us to get behind this pair and send it higher.

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