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Tuesday, 10 Aug 2010
Federal Funds Rate Leading Event in Today's Market
The Federal Reserve is expected to keep its benchmark interest rate unchanged near 0% today, as traders get ready for a busy news cycle. The Fed's corresponding rate statement is expected to provide an assessment of the current economic condition in the world's largest economy and more importantly provide a speculative economic outlook, likely setting short-term direction for the USD.
USD - U.S. Dollar Advances vs. Majors ahead of Fed Statement
The U.S. dollar rose against major currencies on Monday as investors squared up positions a day ahead of this week's Federal Reserve monetary policy announcement. As a result, the dollar rose 0.4% to 1.3190 while the British pound fell around 0.5% to 1.5830. The greenback experience similar behavior against the Japanese yen and closed at 85.95.
Traders have started to focus more on fundamentals such as economic growth and short-term interest rates. That shift, just getting underway, could take the shine off the soaring USD in the coming months. A stronger currency is important to the U.S. because it entices foreign investors to Treasury debt that finances the nation's record budget deficit. The downside is that it may restrain profit growth at companies with international sales by making U.S. exports more expensive.
Looking ahead today, all eyes are focused on the U.S. Federal Funds Rate statement scheduled for 18:15 GMT. The overwhelming consensus is that the Fed will hold the federal funds rate steady at near-zero, where the Fed's target has remained since December 2008. The Fed Statement is expected to provide an assessment of the current economic condition in the world's largest economy and more importantly provide a speculative economic outlook.
EUR - Euro Sees Mixed Results vs. Majors
The 16-nation single currency completed yesterday's trading session with mixed results versus the other major currencies. The euro was broadly unchanged versus the GBP yesterday and closed its trading session at around the 0.8320 price level. The EUR did see bearishness as well, however, as it lost over 50 pips against the AUD and closed at 1.4450
A leading indicator released yesterday from Europe was the German Trade Balance report. Germany holds the largest and strongest economy in the euro zone, and thus the relevant publications from this economy usually have a hefty impact over the euro. Data showed that German exports rose more than economists had forecast in June as the global recovery helped bolster an export-led expansion in Europe's largest economy.
Looking ahead to today, the most important economic indicator scheduled to be released from the euro zone is the French Industrial Production. Analysts are forecasting this figure to decrease from its previous reading. Traders will be paying close attention to today's announcement as a stronger than expected result may boost the euro in the short-term.
JPY - Japanese Yen Sinks against Basket of Currencies
The Japanese yen slid against most of the major currencies during yesterday's trading. The JPY pared some of its gains vs. the U.S. dollar as the USD/JPY pair gained 60 pips. The yen fell against the euro and the British pound as well.
The Japanese markets were expected to have a relatively heavier effect on the JPY versus its major currency counterparts today as the Overnight Call Rate was released during the Asian trading session.
The rate was left unchanged, but traders will be paying close attention to the Bank of Japan (BOJ) Press Conference that will follow to look for expectations of Japan's economic future, especially considering the speculation that measures will be taken to devalue the yen. A bullish statement from the BOJ could lead some traders to believe that it is forecasting a rosier financial climate in Japan. Others fear that the climate is declining and monetary measures may be taken to directly influence currency prices.
Crude Oil - Crude Oil Rises Above $81 a Barrel
Crude Oil climbed above $81 a barrel on Monday, extending last week's 2% rise, as long-term weakness in the U.S. dollar continued to provide support, despite doubts about the strength of the U.S. economy.
Oil, and other commodities denominated in dollars for global trading, tends to rise when the USD falls since they become cheaper for holders of other currencies. A move away from dollar-based pricing of the world's leading commodity could further weaken the greenback.
As for today, the FOMC Rate Statement will likely determine Crude Oil's next moves, with any mildly positive elements within them likely to keep crude prices in an upward direction.
The recent bearish movement on this pair has pushed short-term indicators into showing signs of a correction. The hourly and 4-hour Stochastic (slow) are both showing fresh bullish crosses, suggesting the next move will be in an upward direction. The hourly RSI also appears to be floating deep within the over-sold territory. Going long with tight stops may be the preferential tactic today.
As with the above pair, short-term indicators appear to also be showing signs of an impending upward correction. However, this pair's long-term indicators seem to be highlighting the remaining strength of the downward movement. The daily and weekly RSI remains in the over-sold territory and is pointing downward. The weekly Stochastic (slow) also appears to have a fresh bearish cross. Downward momentum on this pair may still remain so traders may want to wait to see if the bullish channel is breached before going short on this pair.
This pair's indicators appear to be predominantly floating in neutral territory. The hourly RSI and Stochastic are both moving in a downward direction, but have not yet entered areas of significance. The 4-hour Stochastic (slow) does, however, appear to have a fresh bearish cross, signifying that we may see further downward movement in this pair today.
The recent bullish movement on this pair has pushed short-term indicators into showing signs of a correction. The hourly and 4-hour Stochastic (slow) are both showing fresh bearish crosses, suggesting the next move will be in a downward direction. The hourly RSI also appears to be floating deep within the over-bought territory. Going short with tight stops may be the preferential tactic today.
The Wild Card
This pair has been trading in a flat range between 7.2500 and 8.0000 since the middle of 2009. The pair has just recently touched the lower border of this range at 7.2500 and long- and short-term indicators seem to be pointing towards an impending upward correction. The daily RSI floats in the over-sold territory, and the weekly Stochastic (slow) is preparing to form a bullish cross. Forex traders have a unique opportunity today to enter this impending upward movement at the lowest possible entry price and ride out the wave for immense profits.
|19:45||NZD||RBNZ Gov Wheeler Speaks||-||-||-|
|21:45||NZD||Overseas Trade Index||q/q||0.3%||-4.3%||-|
|22:30||AUD||AIG Manufacturing Index||49.4||-||-|
|23:30||AUD||MI Inflation Gauge||m/m||0.2%||-||-|
|00:30||AUD||Company Operating Profits||q/q||-6.9%||-1.2%||-|
|01:35||JPY||Final Manufacturing PMI||52.1||52.1||-|
|08:15||EUR||Spanish Manufacturing PMI||52.6||53.1||-|
|08:45||EUR||Italian Manufacturing PMI||49.0||49.5||-|
|09:00||EUR||Final Manufacturing PMI||50.4||50.4||-|
|09:30||GBP||Net Lending to Individuals m/m||m/m||-||2.8B||2.7B|
|09:30||GBP||M4 Money Supply||m/m||-0.7%||0.2%||-|
|14:45||USD||Final Manufacturing PMI||54.7||55.0||-|
|15:00||USD||ISM Manufacturing PMI||59.0||57.9||-|
|15:00||USD||ISM Manufacturing Prices||53.5||52.6||-|
|17:15||USD||FOMC Member Dudley Speaks||-||-||-|