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Tuesday, 15 Mar 2011
Federal Funds Rate Leading Event in Today's Market
The Federal Reserve is expected to keep its benchmark Interest Rate unchanged near zero today, as traders get ready for a busy news cycle. The Fed Statement is expected to provide an assessment of the current economic condition in the world's largest economy and more importantly provide an economic outlook. It is therefore likely to set the short-term direction for the USD.
USD - Dollar Falls Ahead of Heavy News Day
The dollar extended declines versus the yen to hit a session low in midday trading on Monday, helped by repatriation flows by Japanese insurers in the wake of the country's devastating earthquake and tsunami. By yesterday's close, the USD fell sharply against the JPY, pushing the oft-traded currency pair to 81.70. The dollar experienced similar behavior against the GBP and closed at around 1.6170.
The greenback also remained under broad selling pressure on expectations that U.S. interest rates will stay at very low levels for some time. Low rates reduce the attractiveness of U.S. assets and ease demand for the dollars to buy them.
Investors may look for the unusual price volatility to continue in the EUR/USD as the pair attempts to stabilize and find new support and resistance lines. Large price jumps such as these are not common place and present terrific opportunities to take advantage of the price swings for large profitable gains.
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 been 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 an economic outlook. It is therefore likely to set the short-term direction for the USD.
EUR - EUR Once Again Above 1.4000 against Dollar
The euro extended gains against the U.S. dollar on Monday, hitting $1.40, after Eurogroup Chairman Jean-Claude Juncker said there has been a significant increase in inflation. The euro rose as high as $1.4002, up 0.7% on the day
Expectations that the ECB will raise interest rates next month have boosted the euro in recent sessions.
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 EUR in the coming months. A stronger currency is important to the euro zone because it entices foreign investors to invest in treasury debt that finances the region's record budget deficit. The downside is that it may restrain profit growth at companies with international sales by making European exports more expensive.
Looking ahead to today, the most important economic indicator scheduled to be released from the euro-zone is the German ZEW Economic Sentiment. Analysts are forecasting this figure to increase from its previous reading. Traders will be paying close attention to today's announcement as a stronger than expected result may continue to boost the EUR in the short-term.
JPY - Yen Continues to Book Gains Versus the Dollar
The yen rose against the U.S dollar on Monday and the USD/JPY could test its all-time lows as Japanese insurers and companies repatriated funds to help pay claims and reconstruction costs in the wake of the country's devastating earthquake. The pair continued its bearish session during yesterday trading, and reached as low as 81.70 amid a broad sell-off in the USD.
Analysts said the yen could rise further in the near term, potentially testing its previous record, though they cautioned against betting aggressively on the currency's strength.
The JPY may come under pressure in the medium to long run as the earthquake will likely force the Bank of Japan to keep its easing policy for longer to help the economic recovery.
Crude Oil - Crude Oil Climbs Back To $101.50 a Barrel on Middle East Unrest
Crude oil prices gained slightly on Monday to around $101.50 a barrel, as concerns about the Middle East remained amid the lower demand expectation caused by the Japan's disaster.
Prices pared earlier losses on news that Saudi Arabia sent troops into neighbor country Bahrain to help put down weeks of protests. Concerns about the unrest in the region are likely to continue to boost prices.
In addition, oil and other commodities denominated in dollars for global trading tend to rise when the U.S. currency falls as 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 Statement will likely determine crude's next moves, with any mildly positive elements within them likely to keep the price of oil bullish.
The pair has recorded much bullish behavior in the past several days. However the technical data indicates that this trend may reverse soon. For example, the 4-hour chart's RSI signals that a bearish reversal is imminent. Going short with tight stops might be a wise choice.
The GBP/USD went increasingly bullish yesterday, and currently stands at the 1.6180 level. The daily chart's Slow Stochastic indicates this cross will likely rise further today. However, the 4-hour chart's Stochastic Slow signals that a bearish reversal may take place. Entering the pair when the signs are clearer seems to be the wise choice today.
The pair has been range-trading for a while now, with no specific direction. The Daily chart's Slow Stochastic is providing us with mixed signals. The oscillators on the 4 hour chart are also not showing a clear direction. Waiting for a clearer sign on the hourlies might be a good strategy today.
The daily chart is showing mixed signals with its RSI fluctuating in neutral territory. However, there is a bullish cross forming on the 4-hour chart's Slow Stochastic indicating an upward correction might take place in the near future. In that case traders are advised to swing in after the breach takes place.
The Wild Card
This pair's sustained upward movement has finally pushed its price into the over-bought territory on the 8-hour chart's RSI. In addition, there appears to be a bearish cross on the Slow Stochastic indicating a possible downward correction. Forex traders have the opportunity to wait for the downward breach on the hourlies and go short in order to ride out the impending wave.
|01:50||JPY||Tertiary Industry Activity||m/m||1.4%||-0.6%||-|
|08:01||EUR||German Buba Monthly Report||-||-||-|
|16:05||CAD||BOC Gov Carney Speaks||-||-||-|
|18:30||AUD||RBA Gov Stevens Speaks||-||-||-|