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Wednesday, 21 Sep 2011
Dollar Drops against Majors on Expectations Federal Reserve Will Expend Quantitative Easing
The U.S. dollar fell against most of its major currency rivals on speculation the Federal Open Market Committee will announce further easing in order to support the U.S. economy; Crude oil prices gained on optimism that the stimulus will aid the slowing economy and increase demand for fuel and energy.
USD - Dollar Falls to 8-Month Low vs. Pound Ahead of FOMC Statement
The U.S. dollar tumbled against most of its major currency rivals during Tuesday's trading session due to expectations that the Federal Reserve will announce further quantitative easing in an attempt to stimulate the slowing economy.
The dollar saw a 120 pip drop against the euro and the EUR/USD was traded at a weekly high of 1.3740. The dollar fell about 100 pips against the British pound as well, and the GBP/USD reached an 8-month low of 1.3632 as a result.
The Federal Open Market Committee (FOMC) will end its two-day meeting today, most likely with a decision to expend the quantitative easing, and meaning that the Fed will continue to purchase government bonds. This is expected to assist the government with its attempt to avoid yet another recession.
Today, traders are advised to follow the FOMC statement, expected at 18:15 GMT. The market is expected to react with immediate volatility to the statement. The American interest rates for the following month will be declared at this time as well, yet it is almost certain that the FED will leave rates at around 0.25%.
EUR - Euro Recovers From Italy's Credit Downgrade on Expectations Fed Will Expend Quantitative Easing
The euro rallied against most of the major currencies during yesterday's trading, recovering from Italy's ratings downgrade. The euro was also strengthened following expectations the Federal Reserve will expend the quantitative easing.
The euro strengthened against its major rivals after losing ground following Italy's surprising ratings downgrade. Standard & Poor's cut Italy's rating by one notch to A/A-1 due to poor growth prospects and political instability. The downgrade has further emphasized the European debt-crisis.
Nevertheless, the euro recovered most of its losses on expectations that the Fed will finish its two-day meeting with a decision to take further measurements in order to aid the slowing economy.
The shared currency gained about 120 pips against the U.S. dollar as a result, and the EUR/USD pair reached as high as the 1.3740 level. The euro also saw a 100 pips appreciation against the Japanese yen, taking the EUR/JPY cross to the 105.05 level.
JPY - Yen Sees Mixed Results vs. Majors
The Japanese yen continued to strengthen against the U.S. dollar on Tuesday's trading session amid concern global growth is slowing. On the other hand the Japanese currency slid against the euro on speculation Greece will manage to evade default
The yen climbed to a one-month high vs. the dollar as investors expect the Federal Open Market Committee (FOMC) to end its two-day meeting with a decision to expend quantitative easing, in an attempt to stimulate the sluggish economy. As a result, the USD/JPY pair dropped as low as the 76.10 level.
However, the Japanese currency fell against the euro as talks between Greece, the European Union and the International Monetary Fund have boosted speculation that Greece will manage to pay debts and avoid default.
As for today, the low risk-appetite in the market is expected to put further bullish pressure on the yen. However, traders are advised to follow the FOMC Statement on 18:15 GMT, as the statement is likely to affect all the major currencies.
Crude Oil - Crude Oil Rises to $87.65 a Barrel
Crude oil prices climbed for the first time in three days during yesterday's session on expectations the Federal Reserve will take further actions in order to assist the slowing U.S. economy.
The Federal Open Market Committee will end its two-day meeting today and is expected to announce another quantitative easing. This is expected to support the U.S. economy, and as a result to increase demand for energy.
Crude oil has gained about 250 pips as a result, and a barrel of oil was traded for as high as $87.65, recovering from a weekly low of $84.90 a barrel.
Looking ahead to today, the U.S. Crude Oil Inventories report is scheduled at 14:30 GMT. Current expectations are that U.S. stockpiles have slipped by 1.6M during the past week. If the end result will be similar, crude oil prices might continue to strengthen today.
The EUR/USD pair has stabilized around the 1.3680 level for the past week, trading between the 1.3580 and the 1.3740 levels. Currently, as a bearish cross takes place on the 4-hour chart's Slow Stochastic, it seems that a bearish move might be impending. Going short may be the right choice today.
The cable continues with the free-fall and the GBP/USD has reached as low as the 1.5610 level, falling about 130 pips from last night trading. Bearish signals from both the Slow Stochastic and the MACD on the daily chart indicate that the downtrend has more room to go, with potential to reach the 1.5550 level.
During the past ten days the USD/JPY pair has been gradually slipping and is currently trading near the 76.30 level. Currently, as all the technical oscillators on the 1-day chart are providing bearish signals, it seems that falling-trend will extend today. Going short with tight stop seems to be the right strategy today.
The USD/CHF pair gained about 300 pips since the beginning of the week, and is currently trading near the 0.8930 level. Nevertheless, as the daily chart's RSI is pointing down and as a bearish cross takes place on the 4-hour chart's Slow Stochastic, it seems that a bearish correction could be imminent, with a key-target price of 0.8800.
The Wild Card
Silver prices have dropped quite significantly over the past month. During the past three weeks silver fell from $43.40 an ounce to as low as the $39.00 level. However, since the beginning of the week silver is seeing a bullish correction that took it up to the $40.30 level. Currently, silver seems to have potential to reach the next resistance level of $41.50. This might be a great opportunity for forex traders to join a very popular trend.
|05:45||JPY||10-y Bond Auction||0.40|2.8||-||-|
|13:30||USD||Challenger Job Cuts||y/y||20.9%||-||-|
|16:30||USD||Natural Gas Storage||-||-||-|
|01:00||EUR||German Bank Holiday||-||-||-|
|03:30||JPY||Average Cash Earnings||y/y||1.3%||0.7%||-|