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Wednesday, 4 Mar 2009

European Rate Cuts in the Foreground for Forex Traders

European rate cut decisions, like those expected tomorrow by the ECB and BoE, typically result in traders pricing-in the impact a day or two ahead of schedule. As such, we may be seeing the depreciation of the EUR continue through the day as most traders are near 100% positive that the ECB will in fact slash rates by 50 basis points tomorrow around noon. This weakness will likely continue throughout today's trading.

EUR/USDGBP/USDUSD/JPYUSD/CHFAUD/USDEUR/GBP
Daily Trendupupupnoupdown
Weekly Trenddowndownupupnoup
Resistance1.26001.4150100.001.19000.64500.8975
1.25751.412599.751.18750.64250.8950
1.25501.410099.501.18500.64000.8925
Support1.24901.405099.001.18000.63500.8850
1.24501.402598.751.17750.63250.8825
1.24251.400098.501.17500.63000.8800

Economic News

USD - Equity Losses Fuel USD Appreciation

Slumping equity markets continue to put pressure on higher yielding currencies and in turn are boosting the Dollar. The Dow Jones Industrial Average posted another losing day yesterday. Falling equity markets are influencing the forex market by reducing risk appetite. The Dollar has been the primary beneficiary of these market conditions and yesterday was no exception. At the end the day, the Dollar was higher across the board.

Adding to the market's aversion to risk was a Senate testimony from Federal Reserve Chairman Ben Bernanke. Bernanke remarked that the possibility remains for additional bailouts in the U.S. banking system. Investors did not take too kindly to this news and showed their disdain by buying Dollars. The theme of bidding up the Dollar as risk aversion climbs has been dominating this week's trading.

Today's trading may see a similar theme play out as major economic data is due to be released from the U.S. The ADP Non-Farm Employment Change is forecasted to show another large drop in unemployment numbers. Also the ISM Non-Manufacturing PMI looks to show deepening pessimism in the U.S. economy. The EUR/USD may drop further on negative news, perhaps even past the significant support line of 1.2400.

EUR - European Currencies Pricing in Expected Rate Cuts

The EUR has faced a rough week thus far. Currently losing against every major currency rival, the EUR may in fact be pricing in tomorrow's expected rate cut by the European Central Bank (ECB). Declining to 1.2525 against the USD in today's early trading hours, and down to 0.8900 against the GBP, the EUR is a little worse for wear.

Typically before an important interest rate decision by the ECB, traders begin to anticipate the policy decision and price-in the impact a day or two ahead of schedule. As such, we may likely be seeing a depreciation of the EUR as most traders are near 100% positive that the ECB will in fact slash rates by 50 basis points tomorrow around noon. Moreover, we may likely see a continuation of this pricing-in up until the moment of its announcement.

However, if for some reason the ECB follows Australia's lead and decides to hold rates steady, there will be a dramatic shift into an upward correction for the EUR pairs and crosses as traders re-value the EUR in a positive direction. As this is unlikely, given recent European economic news, traders are likely to see just such a rate cut.

Looking at today, with very few indicators being released from the Euro-Zone the driving force behind the movement of this currency is going to be Dollar news and the anticipation of tomorrow's interest rate cuts by the ECB and Bank of England (BoE). These rate cuts appear to be in the foreground to this week's trading as many traders are making large profits off the movement which typically follows such an announcement.

JPY - RBA Surprises the Market with Interest Rate Decision

The Australian Dollar has seen particularly heavy volatility due to major economic events in the Aussie economy the past two days. Yesterday the Reserve Bank of Australia (RBA) held its cash rate steady at 3.25%, taking the markets by surprise. Economists had forecasted a 25 basis point cut in the Aussie Interest Rate which the market had previously priced into the AUD pairs and crosses. Another surprise to the market was a significantly better than expected Current Account. This measure showed considerable strength in the Australian economy despite a recession-filled global economy.

These two market releases helped to boost the AUD/USD from 0.6292 to a high of 0.6463. However, losses in global equity markets reduced the demand for higher yielding currencies and helped to shed the pair's gains. Early this morning, Australian GDP was released and the indicator came in significantly under the forecasted value. Economists had forecasted a contraction of 0.2% but the actual value released was a drop of 0.5%. This accelerated the selling of the AUD that began with U.S. equity losses. The pair is currently trading near the 0.6360 mark and may continue its descent for the near future.

Oil - Traders Await Crude Oil Inventory Report

The Price of Crude Oil saw heavy price volatility yesterday, which declined in the European trading session but later jumped 5% during the New York trading session. The rise in price was due to increasing expectations that OPEC will make further supply cuts during its next meeting. Crude Oil closed the day up at $41.45 from yesterday's price of $39.59.

A number of conflicting forces are influencing the price of Crude Oil. Declining equities throughout the world's markets combined with weakening demand in the face of the recession are exerting pressure on the price. In contrast, future OPEC supply cuts mixed with a decline in last week's Crude Oil Inventory Report have helped to increase the price.

Today, Crude Oil traders await this week's Crude Oil Inventory Report from the Energy Information Agency (EIA). The report is forecasted to show a rise in Crude stocks by 300,000. A reading higher than the expected value could put further pressure on the price of Crude Oil with a target price of $40.

Technical News

EUR/USD

It appears a violent breach of the lower border on the 4-hour chart's Bollinger Bands has occurred, signaling that an upward correction may occur in the near future. The recent bullish cross on the daily chart supports this notion. Going long might be a wise choice today.

GBP/USD

This pair appears to be leveling off in anticipation of a volatile movement. The Bollinger Bands on the hourly and daily chart have begun to tighten, signaling that this movement could be coming later today. With momentum shifting into a downward position, this volatile move may be negative for the GBP. Traders should wait for the breach, and then ride out the wave for profits.

USD/JPY

A bearish cross has recently formed on the 4-hour chart's Slow Stochastic and the price of this pair currently floats in the over-bought territory on the daily chart's and 4-hour chart's RSI. These oscillators are signaling that the upward momentum may begin to shift in the near future into a downward posture. Going short with tight stops might be a wise choice later today.

USD/CHF

It appears a breach of the upper border of the hourly chart's Bollinger Bands occurred early this morning, indicating the pair may correct downwards in the nearest future. However, the bullish channel which this pair is currently trading in has not been penetrated by a clear breach of its upper or lower levels. Trading within this range by buying on lows and selling on highs might be a wise choice today.

The Wild Card

Gold

The price of this commodity currently floats in the over-sold territory on the 4-hour chart's RSI, indicating an upward correction may occur in the immediate future. With the recent bullish cross on both the 4-hour and daily chart's Slow Stochastic oscillators, this correction may indeed be imminent. Forex traders can earn high profits today by opening large buy positions and riding out this impending movement.

Current Time: 11/28 22:49 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
11/30
19:45NZD+ RBNZ Gov Wheeler Speaks---5
21:45NZD+ Overseas Trade Index q/q0.3%-4.3%-3
22:30AUD+ AIG Manufacturing Index49.4--1
23:30AUD+ MI Inflation Gauge m/m0.2%--1
23:50JPY+ Capital Spending q/q3.0%2.1%-1
12/01
00:30AUD+ Company Operating Profits q/q-6.9%-1.2%-3
01:35JPY+ Final Manufacturing PMI52.152.1-1
05:30AUD+ Commodity Prices y/y-16.9%--1
08:15EUR+ Spanish Manufacturing PMI52.653.1-3
08:30CHF+ SVME PMI55.352.9-1
08:45EUR+ Italian Manufacturing PMI49.049.5-3
09:00EUR+ Final Manufacturing PMI50.450.4-1
09:30GBP+ Manufacturing PMI53.253.1-5
09:30GBP+ Net Lending to Individuals m/mm/m-2.8B2.7B3
09:30GBP+ M4 Money Supplym/m-0.7%0.2%-1
09:30GBP+ Mortgage Approvals61K59K-1
14:45USD+ Final Manufacturing PMI54.755.0-1
15:00USD+ ISM Manufacturing PMI59.057.9-5
15:00USD+ ISM Manufacturing Prices53.552.6-1
17:15USD+ FOMC Member Dudley Speaks---3
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