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Wednesday, 4 Nov 2009
Dollar Trades Higher as Fed Rate Announcement Awaited
The Federal Reserve is expected to keep its benchmark Interest Rate unchanged near zero today, as traders get ready for a busy news cycle. Investors will focus on the interest rate outlook, but many analysts say the Fed is unlikely to change the wording of its pledge to keep rates low for an extended period. This may have the result of stabilizing USD trading, or potentially driving the world's primary currency to new extremes. Will the USD experience a reversal from yesterday's bullishness?
USD - Dollar Advances vs. EUR ahead of Fed Statement
The U.S. Dollar clung to small gains versus the EUR Tuesday, but pared earlier gains as traders waded through mixed signals on the health of the economy and the Federal Reserve started its 2 day policy meeting.
The Dollar climbed to a 1-month high against the EUR as concerns about the global banking sector reignited safe-haven demand for the greenback. The Dollar climbed against its major rivals as investors retreated from risk assets on jitters over banks and braced for central bank meetings in the United States, the Euro-Zone and the UK.
Traders remained wary ahead of this week's heavy news cycle; the U.S. Federal Reserve started its 2 day policy meeting on Tuesday and the European Central Bank (ECB) and the Bank of England (BOE) will also hold policy meetings later in the week.
The overwhelming consensus is that the Fed will hold the federal funds rate steady at near-zero, where the Fed's target has been since last December. Investors will be paying close attention, however, to the wording of the Fed's statement for any clue as to when the central bank would begin pushing Interest Rates higher. Once American markets open for the day, traders should expect a lot of volatility.
EUR - Sterling Falls Sharply on UK Banking Sector Concerns
The EUR reversed its gains against the U.S. Dollar and the Yen Tuesday, when concerns over the banking sector boosted the greenback, which tends to gain when investors shed risk assets.
The 16-nation currency traded at $1.4760, from $1.4775 yesterday in New York, after rising to $1.4811 earlier. It was also at 132.95 yen, from 133.32 yesterday after strengthening to 133.98 earlier. Sentiment on the financial sector in Europe was weak and that pressured the EUR and the Pound earlier and contributed to the recent strength of the U.S dollar, analysts have said.
The Sterling tumbled to a 1-week low against the U.S. Dollar after the UK Treasury announced a shake-up of British banks, which raised concerns about the financial sector. The British Pound declined for a 2nd day against the EUR and slid 0.1% versus the Dollar at $1.6398 on speculation the BOE will extend its asset-buying program this week.
JPY - Yen Hits Session Low vs. USD
The Japanese yen hit a session low in trading on Tuesday as U.S. stocks cut losses, reducing safe-haven demand for the Japanese currency. The Yen weakened to 90.46 per Dollar from 90.21.
The Yen climbed earlier on reduced demand for higher-yielding assets after the 101-year-old commercial lender CIT Group Inc. listed $71 billion in assets and $65 billion in debt in its Chapter 11 filing in U.S. Bankruptcy Court in Manhattan recently. Low interest rates in the U.S. and the bankruptcy filing of CIT Group are among the reasons Japan's currency is rising against the USD, analysts have stated.
The JPY fell against the EUR on speculation the global economic recovery will boost demand for higher-yielding assets. Japan's currency dropped to 133.89 versus the EUR from 133.32 yesterday.
Crude Oil - Crude Oil rises 2% Ahead of U.S. Factory Data
Oil prices rose above $79 a barrel on Tuesday after data showed U.S. factory orders in September expanded at a quicker pace than expected, signaling potential for more fuel demand in the world's biggest energy consumer.
Crude prices had fallen sharply earlier in the day as the U.S. Dollar firmed to a 1-month high against other currencies and equity markets declined. A firming dollar and falling stock prices are typically signs of investors shunning riskier assets, including commodities.
Oil traders were awaiting weekly U.S. oil inventory data. Analysts expect that U.S. crude inventories rose by 1.4 million barrels last week, but stocks of distillates, like heating oil and diesel, were expected to fall by 1 million barrels, according to experts.
This pair appears to be continuing to trade within a minor bearish channel. Currently at a peak within this channel, it now appears that there are some indications of an impending downward correction. The pair is currently over-bought on the hourly RSI and the daily MACD shows a bearish cross. Going short may be a wise tactic today.
This pair has neared the end of a consolidation trend on the daily chart and a tightening of the Bollinger Bands is beginning to show. As this trend continues, traders will likely see very few indications of a clear direction, but a sharp movement may be on the way in the next week and traders should be on the lookout. Waiting for clearer signals may be a wise move today.
With many indicators floating in neutral territory, this pair appears to be floating within a very tight range. With a fresh bullish cross on the 4-hour MACD, there is a possibility for an impending upward movement. Forex traders should try to capture profits on this pair today by buying on lows and selling on highs within its current range.
This paid continues to show modest bullishness, and few indications that this will stop any time soon. The hourly RSI shows this pair floating near the over-sold border, which could suggest a level of upward pressure. The weekly Momentum oscillator also shows an upward turn, hinting at the quickening pace of the upward movement. Going long appears to be today's preferable strategy.
The Wild Card
This pair is giving off some decent indications of downward movement. The pair has been trading within a tightening consolidation trend since yesterday morning and now appears to have reached the tipping point. Many indicators show neutrality, but the longer-term momentum appears to be down. Forex traders can see a fresh bearish cross on both the 4-hour MACD and daily Slow Stochastic, and use this information to anticipate the strong bearish movement which will likely occur today in order to capture great profits!
|01:30||AUD||MI Inflation Gauge||0.0%||-||-|
|02:00||NZD||ANZ Commodity Prices||m/m||1.8%||-||-|
|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||-||-||-|