Thursday, 7 Apr 2011

Forex Market Focus on Central Banks

As the European and British interest rate announcements draw near, Portugal has sought aid as the market sparsely reacted to the news.

Yesterday Portugal formally requested funds and authorities from the EU and the IMF have been quick to put together a package that could total 90B euros according to a Wall Street Journal article. The move was widely expected by market players and the euro barely budged after the report hit the news wires. Traders are focused on today's interest rate announcements. Prior to today's ECB interest rate release, the EUR/USD is trading off of yesterday's yearly high at 1.4270 from 1.4309.

Traders will be focused on the Minimum Bid Rate at 11:45 GMT where the ECB is forecasted to raise interest rates 25 bps to 1.25%. Following the announcement, all eyes will turn to the ECB press conference at 12:30 GMT for comments by ECB President Trichet. Risk runs high for a pullback in the EUR/USD should Trichet signal the increase to the interest rate is a one-off event and not the beginning of a tightening cycle. Support is found at the 20-day moving average at 1.4150. Resistance is 1.4580.

The BOE will also address interest rates this afternoon but there is a bit less excitement surrounding the event as no adjustment in British rates are expected. The GBP/USD has recovered almost all of yesterday's declines following the weak manufacturing data. Resistance for the pair is 1.6400 and support comes in at 1.6250.

US weekly unemployment claims will come in the afternoon and are fairly insignificant as FX traders focus on European rates.