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Reserve Currency Status In Question

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

  1. mercaforex

    mercaforex New Member

    Jul 1, 2009
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    By Mercaforex

    Rather light volume within the markets caused a rollercoaster ride in the currency markets as the USD gained early on and then began to lose ground to the EUR. However as the trading session finished for the night the value of the major currencies basically found themselves within the day’s range. The talk of the town among investors is the trading that is going on between the USD and EUR. The greenback is still trading at the weaker side of its trend versus the EUR and this is spurring plenty of questions. There was no major economic news from U.S. on Monday because of the Columbus Day holiday. Today the Federal Budget Balance report will be issued and a couple of FOMC members will be speaking. Tomorrow will be a big day for releases as the Retail Sales figures are brought forth.

    The USD has found itself on the wrong side of the curve against the EUR for a while now and is still trading meekly against the JPY as well. The results from the greenbacks slump have raised eyebrows and brought critics of the USD to the forefront. Questions about the greenback’s ability to remain the ‘reserve currency’ of the world have become louder. Among reports circulating now is the meeting between Russia and China being held, and banter that says among the items being discussed, is a deal which would allow for transactions between the two countries to be settled in their own currencies. While this may in fact be true the real focal point for investors will be to see what the reaction of the U.S. and particularly the Federal Reserve will be to such rumors. At some point if the USD continues to lose ground to the EUR, investors will watch the American government closely to see what its reaction to depreciation is. In other words, does the U.S. at the present time want a weaker dollar? That being said, the equity markets continue to play their part in risk appetite. With traders returning in full force today, the greenback could find itself quickly in the midst of any cautious winds that blow from Wall Street.

    The EUR continued to propel itself to the upper reaches of its range against the USD on Monday. This took place even as Germany released a WPI report which showed that deflation is still a fact of life within the economic giant. Today the German ZEW Economic Sentiment reading is on schedule and it is expected to produce a number that is slightly better than the previous month’s. Europe will also publish its ZEW findings and also is forecasted to show an improvement. The economic data from the continent has been rather lackluster the past month and though stability has shown that it has largely taken hold there are concerns lurking. Latvia continues to signal that not all is perfect within their financial system and if it should falter this could spark a knock on affect for the likes of Sweden, which is heavily invested in the Baltic country. The EUR has done remarkably well the past few months of trading and it continues to find takers even as questions remain about the type of economic recovery that will emerge from its sphere.

    The Sterling languished within its rather poor range on Monday. It did manage to fight back from its lows on the day but continues to show that it is in the midst of a turbulent fight. The BRC released its Retail Sales Monitor and it did produce a gain of 2.0%. The RICS House Price Balance figures also showed an improvement with a 22.0% statistic compared to the forecast of 15.1%. Today the Bank of England will publish its Inflation Letter and this will give investors additional insight regarding the BoE’s outlook for the economy and what it sees as potential dangers. Inflation will likely continue to be in short supply and like its major counterparts, the BoE may find itself addressing deflation instead. Tomorrow the Claimant Count Change numbers will be brought forth. The Sterling very much like the USD finds itself possibly being penalized for full disclosure. In other words, because the U.K. government largely has to be quite transparent regarding its disclosure of economic stimulus and policy, it might be scaring away certain investors for the time being.

    With Japan on holiday yesterday volume within the Asian marketplace was rather muted. Trading within the JPY found a fairly tight range as the Japanese currency continued to maintain its rather strong position against the USD. The next few days will provide some insight as to how the Bank of Japan is thinking. The BoJ is scheduled to hold a press conference tomorrow and will issue their monthly report the following day. Contradictions have abounded from Japanese officials as they have spoken about the JPY and perhaps the Bank of Japan will use the next two days to set the record straight.

    Gold Continues To Rally As Dollar Looks Weak

    Not surprisingly we had a small 8 point trading range yesterday with light volume due to Columbus Day in the states. We gapped up once again, but this time we came as close as we have in the last couple of weeks to actually filling it. Market strength continued and we almost touched the high of 1080.15 set on the 23rd of September. If the market fails here it could be a violent drop down to 1020, and perhaps even lower. Trading resumes to normal and we will see how investors are going to react to yesterday’s action. At the moment, the recommendation would definitely be on the buy side, but personally, if we do not break the highs I am looking for a nice sell on this trade. Support 1071.2, 1060.9, 1057.5, 1047.8, 1042.6, 1020.3 Resistance 1080.2, 1097.6, 1133.5.

    This precious metal manages to impress me every day with its ability to trade consistently higher. We have yet to see any real weakness. The only hint at weakness was a failed bearish reversal candle. The trend remains solidly intact, as we push higher and higher. This breakout above the new highs formed very nicely. The consolidation was tight, and the market set itself up in a text book fashion. I expect to trade higher today unless we actually start to see some true dollar strength. Support 1065.49, 1061.35, 1058.45, 1052.30, 1044.9, 1035.7

    The British Pound seems to be holding on by a thread. Clawing at the cliff to try and maintain its grip, but the chart is pointing down, and we are poised to breakdown. As we break below support its vital to see how we trade, once some momentum is gained we could continue tumbling all the way down to 1.55, and even 1.53. Not expecting to see much strength in this currency, unless some unexpected event is able to turn things around for the struggling Sterling. Support 1.5776, 1.5723, 1.5514, 1.5373, Resistance 1.5809, 1.5882, 1.5931, 1.6009, 1.6119

    While Gold trades higher and higher, so does the Euro. We are seeing a steady attempt to take this currency higher and higher. The trend is holding and as gold makes new highs, the EUR/USD continues to rally and approach resistance of 1.4844. As I suggested yesterday, I expect us to test that level, and back off. However, a combination of continued strength in the metal market, and additional weakness with the American dollar, would allow us to hold and turn resistance into support as we begin the next leg higher back towards the 1.50 zone. Support 1.4761, 1.4704, 1.4673, 1.4649, 1.4480 Resistance 1.4866, 1.4967, 1.5083

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