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Wednesday, 7 Sep 2011
Global Interest Rates Come into Focus this Week
With most traders focused on the Bank of Canada's (BOC) impending interest rate decision, liquidity will likely be higher in today's early trading. The Bank of Japan (BOJ) is also publishing its latest interest rate move, both of which are expected to make no change in monetary policies. Interest rates are in focus this week and traders would do well to follow their releases and subsequent bank statements.
USD - US Dollar Mixed as Week of Rate Decisions Gets Underway
The US dollar (USD) was seen trading mildly bearish early Tuesday as investors returned to trading following Monday's holiday break. A sudden wave of risk appetite seemed to have dropped the greenback following a move by the Swiss National Bank (SNB) to peg the CHF to the value of the EUR at 1.20. Heightened stability led to some losses on the USD's value as traders sought higher yields.
Data from the American manufacturing sector yesterday also signaled an uptick in output from the previous month. The news has done little to the forex market, however, though it could ripple through longer-term analyses on US capital markets. Manufacturing was forecast to slump moderately going into the third quarter as most indicators revealed decreased demand.
As for today, there will be few US economic releases, with most news focused on the Bank of Canada's (BOC) impending interest rate decision. Liquidity will likely be higher in today's early trading as the Bank of Japan (BOJ) is also publishing its latest interest rate move, both of which are expected to make no change in monetary policies. Interest rates are in focus this week and traders would do well to follow their releases and subsequent bank statements.
GBP - GBP Trading Bullish as Europe Falters
The Great Britain pound (GBP) is expected to be seen trading with bullish results this week ahead of a slew of reports on the country's manufacturing, housing, and service sectors. Against the US dollar (USD) the pound has actually been trending upwards despite the greenback's bullish moves against its other currency rivals.
Traders are looking for a way to balance a renewal of risk aversion with continued shakiness in global markets. A mildly pessimistic sentiment towards investing in the US dollar at the moment 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 (CHF) and Japanese yen (JPY) make gains; though the recent pegging of the Swissie to the euro at 1.20 may affect this attitude in days ahead.
Sentiment across the euro zone has turned negative, with many analysts and economists expecting moves towards safety by traders this week. Great Britain, however, appears positioned for a relatively better quarter than its southerly neighbors. With major interest rate decisions expected all week, the nations most poised for gains are those whose monetary policies are more stable, like Britain's. The pound could see some bullish movement this week as a result.
JPY - Japanese Interest Rates on Tap
The Japanese yen (JPY) was seen trading mildly lower versus most other currencies this morning as its value as an international safe haven was being challenged by an air of impending intervention by the Bank of Japan (BOJ). Being linked to international risk sentiment, the yen has experienced an expected uptick during a period when shifts away higher yielding assets became prominent. The JPY has been experiencing several long strides lately from the various shifts into riskier assets.
The latest moves of the yen are causing some concerns, however, as many speculators are anticipating another round of intervention by the BOJ. With interest rate decisions out this morning, traders are waiting to see what the BOJ will do. A strengthening yen has benefits for the buying power of the island economy, though its dependence on exports makes a strong yen unfavorable for longer-term growth in Japan's current financial model. As the island currency remains bullish, the pressure begins to mount for the expected bank move to lower its currency strength.
Crude Oil - Oil Prices Holding Steady amid Market Turmoil
Crude Oil prices held steady Tuesday as sentiment appeared to favor a mild uptick in global stocks following reports of monetary moves being made by several central banks. Data releases out of Europe and the US last week are still driving many investors back into safe-haven assets as many reports suggested a surprise downtick in growth among global industrial output and consumer spending.
An expected dip in dollar values due to this week's risk sensitive environment has helped many investors ram up their long-taking positions on physical assets, but with the USD's losses not materializing in large enough numbers, sentiment appears to have the price of crude oil holding steady. Should Crude Oil sentiment continue to flatten this week, oil prices may reach a decision point which forces a wide swing by mid-week.
Last week's candlestick highlights two key points; the inability of the EUR to maintain a bid above the 1.4500 level and the formation of an outside day down candlestick pattern on the close. As such the key support levels for the pair are found the 1.4100 level where the August 11th low coincides with the 61% Fib retracement from the July to August move. The other key level is the rising trend line from the May 2010 low which comes into play at 1.3975. To the upside resistance is found at this week's opening gap of 1.4180 followed by 1.4325 and last week's high of 1.4550.
The GBP/USD has the monthly, weekly, and daily stochastics falling while the price is encroaching upon significant support where the 200-day moving average and the August 11th low coincide at 1.6110. A break here could open the door to 1.6000 with additional support way down at 1.5780. To the upside the high from last Thursday/Friday at 1.6250 stands as initial resistance followed by 1.6450 and 1.6615.
The JPY has formed a base at 76.40 while failing to move below the all-time low of 75.94 set earlier in August. Weekly and daily stochastics have turned up but monthly stochastics remain firmly to the downside. Initial resistance is found at 77.70 followed by the post intervention high of 80.20 and finally at 81.30 off of the 2007 falling trend line.
The appreciation of the pair failed at the 0.8275 resistance and the long term downtrend continued with a vengeance, falling as low as 0.7710 before recovering slightly. There are two levels that stand out from the August move higher; 0.7650 at the 50% Fibonacci retracement and the 0.7510 at the 61% retracement.
The Wild Card
On the back of a more hawkish than expected RBA interest rate statement and stronger than forecasted GDP the AUD has made a strong move versus the NZD, rising above the neckline of the pair's head and shoulders reversal pattern at 1.2560. Forex traders can find the pattern's measured move of 400 pips by measuring the height of the chart pattern from the August low to the top neckline. Resistance is found at 1.3000 as well as 1.3180 from the February and June lows.