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Friday, 9 Dec 2011

ECB Cuts Rates but Disappoints Investors

During yesterday's press conference European Central Bank President Mario Draghi laid out 3-pillars for the “Fiscal Compact”. He also stressed the ECB will not use QE nor will it purchase unlimited amounts of European bonds. The EUR fell below the 1.33 level following the disappointing comments.

EUR/USDGBP/USDUSD/JPYUSD/CHFAUD/USDEUR/GBP
Daily Trenddowndowndowndownnodown
Weekly Trenddowndowndowndowndowndown
Resistance1.35501.600080.200.97751.07500.8830
1.34601.589079.500.94601.04500.8760
1.33701.578078.700.93301.03400.8660
Support1.32601.556076.550.90651.00500.8460
1.32101.542075.560.89200.96600.8400
1.31451.52700.87600.93850.8355

Economic News

USD - US Data Releases Go Unnoticed

All eyes are on Europe today with the European economic summit in Brussels. Yesterday US weekly unemployment claims were overshadowed by the ECB press conference. The data showed 381k new jobless claims were filed on expectations of 397k. Inventories for the month of November rose 1.6% on consensus forecasts of a 0.4%. This hints at reduced business spending in Q4 and potentially lower year end US GDP. The data was largely ignored in favor of events in Europe and this will likely be the case today as we will get US trade balance data and consumer sentiment.

The EUR/USD has resistance at 1.3440 from the 20-day moving average followed by 1.3550 off of last week's high. Support comes in at the November low of 1.3210 followed by the October low of 1.3145.

EUR - ECB Cuts Rates but Disappoints Investors

The ECB lowered its key refinancing rate by 25 bp and introduced long term refinancing operations for banks to increase liquidity. During his press conference European Central Bank President Mario Draghi laid out 3-pillars for the “Fiscal Compact”. These three pillars consist of growth, rules on debt levels, and a stabilization mechanism. What Draghi didn't announce was the ECB's intention to cap sovereign bond yields, nor will the central bank be the last lender of last resort. Draghi stressed the final decisions are in the leaders' hands. Investors were disappointed as well when Draghi said the ECB is not ready for quantitative easing.

Draghi has placed the ball back in the court of the European politicians who are meeting today in Brussels. Expectations are high for additional steps to integrate Europe and fund the debts of the fiscally strapped nations. However, given the gaps between Germany and other countries involved and yesterday's disappointing ECB meeting market sentiment has been dampened.

The price action for the EUR/JPY shows the pair failed to overcome its 55-day moving average at 104.40 and is moving lower towards the 102.50 support from November 25th. A break here would open the door to the October low of 100.75.

GBP - BoE Leaves Rates, Bond Buying Unchanged

As expected the BoE left both the interest rate and its bond buying program unchanged. This means the market will not find out details of the past Monetary Policy Committee meeting until December 21st. In October the BoE unexpectedly increased the level of bond purchases to GBP 275 bn from 200 bn. Governor Mervyn King has already signaled the central bank's willingness for additional bond buying as both the BoE and the government expect GDP fall. The most recent report from the Office of Budget Responsibility predicts GDP will be 0.7% in 2012.With the euro zone struggling to ward off both a debt crisis and a financial crisis this does not bode well for the UK which has the EU as its largest trading partner. As such sterling could come under additional selling pressure.

The GBP/USD failed at the 1.5780 resistance level but is still within its consolidation pattern from the past week and a half. A break of support from the December 6th low of 1.5560 would expose the November 25th low of 1.5420.

Silver - Silver Falls on European Woes

The price of spot silver fell in-line with the EUR yesterday as European Central Bank President Mario Draghi signaled the ECB would not come to the rescue of the indebted European nations. Higher yielding assets such as equities and the AUD all lost ground during Draghi's speech which weighed on market sentiment. In response traders moved into the typical safe haven assets such as US Treasury bonds and the USD. However, there may be a silver lining to Draghi's comments as the reduced ECB interest rate and increased liquidity measures may make access to cheap funding sources available for investments in metals such as gold and silver.

Spot silver has been trading in a triangle consolidation pattern from the November highs and lows. The commodity has resistance at the top of the pattern at $33.15 and at the bottom of the consolidation at $31.50. Forex traders should note that the chart pattern provides a measured move for $1.75 which could come in either direction.

Technical News

EUR/USD

The weekly chart shows the pair is trading in a symmetrical triangle pattern with the resistance line falling from the May high and support line rising from the yearly low. The first support from this chart pattern comes in this week at 1.3200. A break here will likely open the door to not only the October low of 1.3145 but also1.3050 from the 61.8% Fibonacci retracement of the bullish move spanning 2010 to 2011. The January low of 1.2875 could contain the near-term price action. To the upside the November 18th high of 1.3610 is the initial resistance followed by the mid-November consolidation at 1.3860 where the 100-day moving average also lies. The top of the triangle pattern would likely contain any move higher near 1.4230-1.2350.

GBP/USD

Last week cable found resistance at 1.5780, a level that has proven to be resistive in the past. Additional resistance is found at the October high of 1.6165. Monthly and weekly stochastics continue to move lower and as such the November low of 1.5435 is the initial support followed by the October low of 1.5270. The last bastion of support for the GBP/USD is found off of the rising trend line from the 2009 and 2010 lows which comes in at 1.0590.

USD/JPY

The USD/JPY is encroaching on its long term trend line off of the 2007 high and comes in at 78.70. A break above this level is needed to confirm the recent price appreciation. Both weekly and monthly stochastics are moving higher so traders may look for additional resistance at 79.50 from the post intervention high. The 200-day moving average is also lurking just below this price. Should the pair fail at the long-term trend line the congestion between 77.50-77.60 may prove to be supportive while the all-time low near 75.60 stands out as the last support.

USD/CHF

As weekly stochasttics have already turned lower the monthly stochastics are beginning to roll over. This is occurring after the pair looks to have failed to break above the 0.9330 resistance level. As such the pair has support at last week's low of 0.9065 followed by the November low of 0.8760 and the October low of 0.8565. A break above the 0.9330 resistance could spur gains towards this year's high of 0.9780.

The Wild Card

Silver

Spot silver has been trading in a triangle consolidation pattern from the November highs and lows. The commodity has resistance at the top of the pattern at $33.15 and at the bottom of the consolidation at $31.50. Forex traders should note that the chart pattern provides a measured move for $1.75 which could come in either direction.

Current Time: 09/21 15:30 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
09/21
23:00NZD+ Westpac Consumer Sentiment121.2--3
09/22
01:00EUR+ German Buba Monthly Report***3
14:00EUR+ ECB President Draghi Speaks***5
15:00EUR+ Consumer Confidence-10--3
15:00USD+ Existing Home Sales5.15M--3
15:05USD+ FOMC Member Dudley Speaks***3
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