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Thursday, 4 Nov 2010
Dollar is Mixed After Quantitative Easing Announcement
Wednesday afternoon the Federal Reserve launched a second round of quantitative easing. The Fed announced its much anticipated decision to buy an additional $600 billion of Treasuries. Following the announcement the dollar traded near its 2010 low against a basket of currencies and a 28-year trough against the Australian dollar.
USD - Dollar Recovers Versus the Euro
The dollar rose versus a basket of currencies on Thursday, benefiting from the euro's inability to extend its gains through the $1.40 level. The greenback extended gains after St. Louis Federal Reserve President James Bullard weighed in on the public debate about how the Federal Reserve should structure a quantitative easing program.
The U.S currency had been under pressure earlier as a trio of economic reports from the U.S. and data out of Europe seemed to bolster the case for the Federal Reserve to ease monetary policy by buying bonds.
Against the Japanese yen, the dollar traded at 81.30, up from 81.08 late Wednesday. Earlier, it rose as high as 81.82 yen due to fears that Japanese authorities could intervene again to curb the yen's strength.
The main focus for the currency markets has been and will continue to be whether the Federal Reserve will engage in quantitative easing and how much debt it will commit to buying, analysts said.
EUR - Euro Retreats from 9 Month High
The single currency fell versus 13 of 16 major counterparts on speculation the European Central Bank will delay withdrawing stimulus at today's meeting and that Ireland's government will struggle to pass the 2011 budget. Ireland is due to announce budget targets by tomorrow.
The euro declined to $1.4123 from $1.4139 yesterday, when it touched $1.4179, the highest since Jan. 26. The common currency was at 114.53 yen from 114.64 yen.
Europe's currency also weakened as the Federal Reserve's decision to buy an additional $600 billion of Treasuries through June may force the ECB to postpone the removal of its stimulus steps, economists said. The ECB will leave its benchmark interest rate at a record low of 1 percent today, according analysts. The decision is due at 12:45 GMT in Frankfurt and ECB President Jean-Claude Trichet holds a press conference 45 minutes later and will be closely watch by market players.
JPY - Yen Rises on Speculation Japanese Exporters Purchased Currency
The yen rose for the first time in four days against the dollar on speculation Japanese exporters bought the currency after it touched a one-week low. The yen climbed to 80.80 per dollar from 81.07 yesterday, when it fell to 81.58, the lowest level since Oct. 28. The currency advanced to 114.20 per euro from 114.64 yesterday, when it reached 114.82, the weakest since Oct. 11
The Japanese currency is still stronger than the 89.44 per dollar average that large manufactures predicted for the six months to March 2011, according to the Bank of Japan's Tankan survey released in September.
OIL - Crude Oil Trades at 6 Month High
Crude oil prices settled at a six-month high Wednesday, extending its rally after the U.S. Federal Reserve announced it would spend an additional $600 billion in bond purchases to support the economy. Oil prices were already higher after a government report delivered no surprises on the inventories front and the day's round of macroeconomic data painted a brighter picture of the U.S. economy. These gains came despite a firmer U.S. dollar.
Oil has advanced almost 3 percent this week as investors bet that record stimulus, aimed at reducing unemployment and averting deflation will weaken the dollar.
After yesterday's sharp upward movement, the price of this pair may be searching for a new range. Most oscillators are indicating neutrality. However, the Slow Stochastic on the hourly chart shows an impending bullish cross forming. Once the recent movement bottoms-out, going long with tight stops might be a good strategy.
There appears to be a fresh bearish cross on the daily chart's Slow Stochastic, signaling that the long-term trend of this pair may continue downwards. However, a bullish cross appears to be forming on the 4-hour chart's Slow Stochastic which indicates that today's movement may be bullish. Riding the upward movement and then selling at the pivot point of the swing may be a wise choice today.
The sustained downward movement of this pair has pushed the price into the over-sold territory on the RSI of the hourly and 4-hour charts, indicating upward pressure. The fresh bullish cross on the 4-hour chart's Slow Stochastic supports this notion. Going long might be wise today.
The Bollinger Bands on the hourly chart appear to be tightening in expectation of a sharp movement later today. The price is riding along the upper border of these Bollinger Bands and a bearish cross has formed on the chart's Slow Stochastic. The impending volatile movement may be downwards. Going short might be a wise choice today.
The Wild Card
The continuous downward movement of this pair has resulted in the price floating in the over-sold territory of the hourly and 4-hour charts' RSI. The 4-hour chart's Slow Stochastic also illustrates a recent bullish cross. All of these indications point in the direction of an impending bullish correction. Once the upward swing occurs, forex traders will have a great opportunity to enter the new trend at a fantastic entry price.
|01:00||AUD||CB Leading Index||m/m||0.1%||-||-|
|01:00||EUR||German 10-y Bond Auction||1.41|1.6||-||-|
|01:30||AUD||MI Leading Index||m/m||0.2%||-||-|
|09:30||GBP||MPC Meeting Minutes||0-0-9||0-0-9||-|
|10:00||CHF||ZEW Economic Expectations||2.2||-||-|
|15:30||USD||Crude Oil Inventories||2.5M||-||-|
|19:00||USD||FOMC Economic Projections||*||*||*|
|19:00||USD||Federal Funds Rate||<0.25%||<0.25%||-|
|19:30||USD||FOMC Press Conference||*||*||*|