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Wednesday, 10 Aug 2011
Federal Reserve Fails to Address Downgrade
Statements released by the Federal Reserve yesterday sparked a wave of pessimism in trading circles as no clear plans were put forth to address the financial weakness seen since S&P's historic downgrade of the US credit rating.
USD - USD Value Plummets after Fed Statement
The value of the US dollar (USD) versus several of its safe haven counterparts, like the Swiss franc (CHF), plummeted nearly 5% on the day Tuesday, hitting historic lows for the third straight session. Statements released by the Federal Reserve yesterday sparked a wave of pessimism in trading circles as no clear plans were put forth to address the financial weakness seen since S&P's historic downgrade of the US credit rating.
Though analysts view the downgrade as overall bearish for the USD, a sharp downturn was held in check Monday by financial moves elsewhere. Tuesday's rate statement by the Fed, however, unleashed the bears on dollar values as the official position appears to have changed to one which will keep rates near zero through 2013. With no plans were put forth to renew market support, many fled to other stores of value, primarily among them was the Swissie.
The most significant news to hit the economic calendar today will be a release of the Federal Budget Balance, which is forecast to show a severe widening of the deficit. Should such an estimate bear fruit, USD values will likely continue to suffer. Statements from world leaders regarding the S&P downgrade, as well as financial turmoil in Europe over Italy and Spain will likely be released today and throughout the week, causing portfolio shifts that traders will want to be on guard against.
CHF - Swiss Franc Skyrockets amid Market Turmoil
The Swiss franc (CHF) was seen trading with strongly bullish results yesterday following shifts away from the US dollar (USD) and euro (EUR) after both regions failed to produce an adequate response to the current crisis. Against the dollar, the Swissie was trading significantly higher by early morning hours Wednesday, climbing 5% since Tuesday. The euro witnessed similar losses as traders clamped down on regional investments due to heightened risk aversion.
Traders are looking for a way to balance a renewal of risk appetite with continued shakiness in global markets. A strongly pessimistic sentiment towards investing in the US dollar at the moment, due to the S&P downgrade, has many investors on edge. An embattled euro zone, fending off market bears amid turmoil in its peripheral nations, also looks to be losing ground in financial markets as safe haven assets such as the Swiss franc make gains.
Sentiment across the region has turned negative, with many analysts and economists expecting moves towards safety by traders this week. Any more bearishly-leaning news out of any major global economy will likely push up on the CHF as investors flee risk. Going long on the Swissie may appear favorable this week so long as risk aversion dominates the global market outlook, but a rebound should be forming on the technical charts sometime in the near future.
AUD - AUD Continues to Flop as Housing Dips Further
The Australian dollar (AUD) was seen trading significantly lower versus most other currencies this morning after poor housing data drove the appeal of the Aussie even lower. Being linked to the value of commodities, the Aussie experienced an unexpected downturn during a period when shifts away from the US dollar should have helped drive its values higher. The Aussie has been experiencing several wide swings lately from the various shifts into and away from riskier assets, which could explain this week's unpredictable behavior.
The latest moves have helped to push down on the AUD as traders pulled away from commodity-linked assets as a result of the plummeting Dow Jones index. Coupled with the pessimistic housing reports from last week, the Australian economy appears to be contracting this quarter, particularly in the housing sector. If that is indeed the case, the Aussie will likely continue to take losses this week despite a move away from the US dollar.
Gold - Gold Price Decreasing Monday Morning
The price of Gold met resistance over the past week despite the plummeting strength of the US dollar, the currency in which such assets are valued. Gold has been trading with rather mild price action since June, but traders have been awaiting price resurgence due to the rampant increase in risk aversion due to rising tensions from Italy and Spain and a recent downgrade of US debt by S&P's ratings agency.
As investors seek safety, the value of gold, which has been seen trading with mixed results, was expected to rise, but a selloff in commodity futures pulled down on precious metals Wednesday morning. A sudden flop in dollar values due to this week's uncertain environment is expected to do little to suppress this price movement. Should risk sentiment continue to bounce in sporadic directions this week, the price for this precious metal may continue to experience similar swings in value.
An opening gap higher on Monday morning took the pair above its current downward sloping channel that contained the EUR/USD since late July. Selling into EUR/USD gains may be the right play as the pair has been unable to hold a bid above the 1.45 level. Initial resistance comes in at 1.4540 though a break above the June high of 1.4700 would likely reverse the negative technical tone. To the downside support comes in initially at last Friday's low of 1.4050 followed by the 200-day moving average at 1.3940 and the rising trend line from June 2010 which comes in at 1.3840.
Cable looks to be supported after moving lower and receiving a bounce at 1.6220. This level holds the 55-day moving average and a 38% retracement from the mid- July low to the late July high. Resistance is found at 1.6475 followed by 1.6550. A break here and sterling could test the April high of 1.6750. 1.6220 is initial support followed by the 200-day moving average at 1.6085, 1.6000, and the July low of 1.5780.
The spike higher in the value of the USD/JPY due to Japanese government intervention was short lived as the 80 yen level was eagerly sold into. The pair has retraced 68% of its move from the August low to the post intervention high and may continue to move lower. A previously broken trend line from the late July move lower may be supportive but most likely only a short term pit stop on the way back to the all-time low at 76.25. Resistance is found at 79.50 and the post intervention high of 80.22. An additional round of FX intervention could take the pair to the long term trend line off of the 2007 high which comes in at 82.00.
Even measures undertaken by the Swiss National Bank to weaken the Swiss franc have failed to give the USD/CHF a bid. On Monday morning the pair gapped lower to a new all-time low. Momentum is steadily falling and traders may want to continue to hold their shorts. Initial resistance stands at 0.7800 followed by 0.8080 and the downward sloping trend line from the February low at 0.8270.
The Wild Card
After a collapse in the carry trade the Aussie dollar fell to its lowest level since mid-March before recovering. Tuesday's low for the pair coincides with a 38% Fibonacci retracement level from the move spanning from May 2010 low to the July 2011 high. The pair has encountered initial resistance at 1.0400. Forex traders should note that any increase in risk sentiment will likely boost the AUD/USD. Additional resistance is located at 1.0525 followed by 1.0800.
|07:00||JPY||BoJ Outlook Report||-||-||-|
|08:00||EUR||German Retail Sales||m/m||2.5%||-0.8%||-|
|08:45||EUR||French Consumer Spending||m/m||0.7%||-0.3%||-|
|10:00||EUR||Italian Monthly Unemployment Rate||12.3%||12.4%||-|
|11:00||EUR||CPI Flash Estimate||y/y||0.3%||0.4%||-|
|11:00||EUR||Italian Prelim CPI||m/m||-0.3%||-0.1%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|13:30||USD||Employment Cost Index||m/m||0.7%||0.6%||-|
|14:55||USD||Revised UoM Consumer Sentiment||86.4||86.4||-|
|14:55||USD||Revised UoM Inflation Expectations||2.8%||-||-|