Monday, 7 Feb 2011

Dollar Gains Unravel

Late in the day buying during the New York session helped the euro recoup most its earlier losses following a decline in German factory orders.

In a day void of any major US economic data, the dollar failed to hold onto the gains made earlier in the trading day as the major pairs appear set to close near their opening day prices.

German monthly factory orders reported a larger than expected decline of 3.4% after economists expected a contraction of only 1.4%. December's release of 5.2% month over month growth was not revised.

Following the release of the industrial numbers the EUR/USD fell to its lowest level in two weeks to 1.3507, but the widely traded currency pair failed to hold the declines as the price then rose to back towards the 1.3585 level near its opening price for the week.

Most of the majors were also trading near their opening day prices with the AUD/USD at 1.0135. The EUR/CHF was at 1.2980. The GBP/USD was at 1.6110.

Attention will turn later in the week towards the pound as the Bank of England will meet on Thursday to settle future monetary policy. The debate will ensue between the Monetary Policy Committee members as the BOE attempts to fight higher than expected inflation in the UK. The market is pricing in a 1 out of 5 chance for a 25bps rate hike. Currently UK interest rates stand at 0.50% and the Asset Purchase Facility at 200 Bn.

Support and resistance for the GBP/USD are found at Friday's low of 1.6035 and the double top high at 1.6280.