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Wednesday, 27 Apr 2011
Today's Fed Statement a “Make-or-Break” Moment for USD?
The euro witnessed a sharp surge in yesterday's trading as investors became uncertain about the monetary policy statements expected by the Fed later today. The statements to be released have caused a stir among market analysts as it may actually represent a make-or-break moment for the US dollar. In the meantime, the EUR is gaining from the dollar-averse trading environment, reaching a 16-month high in yesterday's trading versus its primary Atlantic rival, the greenback.
USD - View of the Fed Maintaining its Lagging Monetary Policy Weighs on USD
The divergence between the monetary policies of Europe and the United States has caused reactionary movements in the foreign exchange market since yesterday. The US dollar, recently gaining ground on positive fundamentals and rising risk aversion, now appears on the defensive as risk appetite returns and traders eye the Fed's impending decision on monetary policy.
The EUR/USD, in today's morning hours, felt some sharp reverberations as traders shifted back into EUR positions, pushing the pair to a 16-month high of 1.4630. Whether or not the dollar will rise back to previous levels at this point is anyone's guess, but for the moment the Fed's policy statement today will no doubt be a main driver in currency values.
Today's news, however, will also witness a spattering of impactful data releases from Europe and Great Britain. Following a poor industrial order expectation reading out of Britain yesterday, today's euro zone figure on industrial orders could cause a flight to safe havens should it also disappoint. Traders will want to eye this figure, and Britain's GDP, as both may carry the possibility of driving traders back into the arms of the US dollar.
EUR - EUR Returns Full Force as Traders Weigh US Fed Meeting
The euro witnessed a sharp surge in yesterday's trading as investors became uncertain about the monetary policy statements expected by the Fed later today. The statements to be released have caused a stir among market analysts as it represents a make-or-break moment for the US dollar. In the meantime, the EUR is gaining from the dollar-averse trading environment, reaching a 16-month high in yesterday's trading versus its primary Atlantic rival.
A second market force boosting the EUR is a return of risk appetite as many analysts have begun to believe that Europe is handling its debt crisis effectively and may in fact raise rates once more in the immediate months ahead, despite dovish statements by the European Central Bank (ECB) last week. A potential deterrence to the euro's recent rise, though, is today's industrial orders data. After yesterday's dismal reading from the UK, the euro zone is now under the microscope for similar shortfalls in industry, representative of a sinister impediment to recent growth forecasts.
German inflationary figures on the consumer side are also set to be released today and may help traders gauge how effectively growth rates are maintaining in the region's largest economy. Traders, however, may want to pay closer attention to the United States today as the statements made by the Federal Open Market Committee (FOMC) today at 17:30 and 19:15 GMT will likely carry the most significant impact on currency values.
JPY - JPY Largely Bearish as Capital Flows towards Europe
The Japanese yen was trading lower this morning as Japanese pension funds and a variety of importers began to purchase US dollars with yen amid a downturn in negative news regarding Japan. The reprieve from international skepticism helped alleviate international pressures on the JPY, allowing many investors to shift direction in their portfolios heading into the early Asian session today.
Japan's currency strength has traditionally hindered its exporting capability, but at a time of national reconstruction and emergency management the increased buying power is actually helping the Japanese economy for the time being. Traders should, of course, be on the watch for any news of an intervention, but shy of such a move the JPY should continue to trade near its present value. The most important news today for JPY traders will no doubt be the direction the US Federal Reserve takes in regards to its monetary policy.
Crude Oil - Oil Prices Steady after Dropping below $112
Crude Oil prices declined yesterday as analysts said market participants appeared reluctant to aggressively push crude in either direction ahead of the start of the two-day Federal Open Market Committee (FOMC) meeting Tuesday and a scheduled press conference by Federal Reserve Board Chairman Ben Bernanke on Wednesday. The anticipation of the Fed's statement has caused a dip in USD values, though, which some expect could lift oil back above $112. In the meantime, oil prices are steady.
Reports have also begun to show that high oil prices may be positive for the US in the long-run. US Treasury Secretary Timothy Geithner said a continuation of high oil prices are a strong signal for future US economic growth, but also stated that current prices won't put recovery at risk, according to the Wall Street Journal. This contradiction to the statements of OPEC, President Obama and officials at Aramco gives further impetus to a climb in oil prices, even though today's movement was bearish from previous sentiment. Traders will want to pay close attention to today's Fed statement for indications about where the USD will be heading in the weeks ahead; pushing oil prices in the process.
There is a fresh bearish cross forming on the 4-hour chart's Slow Stochastic indicating a bearish correction might take place in the nearest future. The downward direction on the weekly chart's Momentum oscillator also supports this notion. Going short with tight stops might be the right strategy today.
The pair has been range-trading for a while now, with no specific direction. The Daily chart's Slow Stochastic providing us with mixed signals. All oscillators on the 4 hour chart do not provide a clear direction as well. Waiting for a clearer sign on the hourlies might be a good strategy today.
The pair has recorded much bearish behavior in the past several days. However, the technical data indicates that this trend may reverse anytime soon. For example, the daily chart's RSI signals that a bearish reversal is imminent. . Going short with tight stops might be a wise choice.
The USD/CHF cross has experienced a bearish trend for the past several days. However, it seems that this trend may be coming to an end. The RSI of the daily chart shows the pair floating in the oversold territory, indicating that an upward correction will happen anytime soon. Going long with tight stops might be a wise choice.
The Wild Card
This pair's sustained upward movement has finally pushed its price into the over-bought territory on the 4-hour chart's RSI. Not only that, but there actually appears to be a bearish cross on the Slow Stochastic pointing to an imminent 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.
|00:00||EUR||French 10-y Bond Auction||-||-||-|
|00:00||EUR||Spanish 10-y Bond Auction||-||-||-|
|00:00||GBP||MPC Rate Statement||-||-||-|
|02:30||AUD||RBA Deputy Gov Lowe Speaks||-||-||-|
|04:45||JPY||30-y Bond Auction||1.46|2.7||-||-|
|08:00||EUR||German Factory Orders||m/m||4.2%||-0.8%||-|
|13:00||GBP||Official Bank Rate||0.50%||0.50%||-|
|13:00||GBP||Asset Purchase Facility||375B||375B||-|
|13:30||USD||Challenger Job Cuts||y/y||17.6%||-||-|
|13:45||EUR||Minimum Bid Rate||0.05%||0.05%||-|
|14:30||EUR||ECB Press Conference||-||-||-|
|14:30||USD||Revised Nonfarm Productivity||q/q||-1.8%||-2.2%||-|
|14:30||USD||Revised Unit Labor Costs||2.7%||3.1%||-|