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Thursday, 28 Apr 2011
US Dollar Takes Beating as Fed Reaffirms Record Low Rates
The US dollar took a beating yesterday following statements from the Federal Open Market Committee (FOMC) that removed any doubt on the persistence of record low interest rates. According to the FOMC report and subsequent statement by Federal Reserve Board Chairman Ben Bernanke, inflation is on track to healthy growth and the energy prices should stabilize and decline in the months ahead, which convinced the Fed to hold rates steady for the foreseeable future. The result has been a broad sell-off of the USD as investors took the statement as a sign that the greenback would not be finding support anytime soon.
USD - US Dollar Dropping Sharply after FOMC Statement
The US dollar took a dive yesterday following statements from the Federal Open Market Committee (FOMC) that removed any doubt on American interest rates in the near future. The record low interest rates will persist for the foreseeable future, according to the FOMC report and subsequent statement. Federal Reserve Board Chairman Ben Bernanke reiterated this sentiment in his remarks given shortly after the official statement was announced.
As a result, traders who had been hesitant to short the greenback found in the FOMC statement and monetary policy sentiment a reason to push hard against the greenback, pummeling the currency to new lows. The EUR/USD rose to a two-and-a-half year high after the statement, reaching towards 1.4865, a price unseen since December 2009. The GBP/USD witnessed a similar spike, climbing to a November 2009 high of 1.6726.
With today's Advance GDP figures being published at 13:30 GMT, traders may find additional reasons to dump the USD in exchange for higher yielding currencies. The continuation of record low rates fuels this investment shift as well. Today's GDP may show the US economy slowing somewhat, with expectations for only a 1.9% quarter-on-quarter growth, down from last quarter's 3.1%. There does not appear to be any reason to resist the bear session on the USD during the remainder of the week.
EUR - EUR Bullish as Traders Seek Higher Yields after Fed Statement
The euro gained in yesterday's trading following statements by the US Federal Open Market Committee (FOMC) regarding US monetary policy. The statement affirmed the notion that the Fed would hold interest rates at their record low for the foreseeable future, driving traders away from the greenback en masse and into higher yielding assets.
The EUR posted gains against all of its rivals immediately following the statement. Troubling for the euro zone, however, was a lower-than-forecast release of regional industrial orders. The figure revealed a growing weakness among industry that has stricken Great Britain, Japan and parts of the United States over the past two months. Ascendant oil prices are playing their part in deterring exports, but a general sluggishness also appears present in the market recently. Should global industry falter further, a second recession may occur, largely driven by sky-rocketing energy costs.
As for the remainder of this week, the euro looks to be gaining against the greenback as traders find additional reasons to pull out of their dollar positions in exchange for higher yields. France will be publishing its consumer spending report at 7:45 GMT and may also reveal a slowdown in growth, linked with the faltering industrial sector in the euro zone. Germany may also show a small decline in its employment sector. These factors, however, will likely be outweighed by the shift in sentiment towards the buck after yesterday's FOMC statement.
JPY - USD/JPY Lower as Japanese Industrial Production Plummets
The JPY lost ground against almost all of its rivals yesterday. An S&P downgrade of Japan's debt outlook from stable to negative has caused a shift away from the island economy in the short- to mid-term. The USD/JPY, however, was trading lower as investors fled the greenback after the Fed's monetary policy statements yesterday afternoon. After reaching upwards of 82.75, the pair quickly dropped to a daily low of 81.61 before stabilizing.
This morning's sharp downturn in industrial production, linked with similar downturns in Great Britain, Europe and the United States, also played a role in pushing the dollar/yen back to its current consolidation level. While the yen suffers from its own economic concerns, dollar bears outpaced the yen's in this morning's trading hours, helping to lift the yen despite its dire economic standing. The pair also looks to be continuing this movement for the foreseeable future given the shift in sentiment away from the US dollar.
Crude Oil - Price for a Barrel of Oil Supported by Weakened US Dollar
Oil prices ended yesterday trading slightly higher on the day after statements by the US Federal Reserve affirmed the continuation of record low interest rates. As investors bailed out of their long positions with the USD, oil prices found support, pushing the commodity back towards $113 a barrel with a closing price of $112.76.
Combative remarks have been tossed about lately by politicians and business leaders searching for blame on the recent spike in energy costs. Gas prices in the United States are approaching nominal highs, causing stirs and outrage by US consumers. The high transportation costs for exporting nations are also feeling the pinch as global industry appears to have begun faltering. The reasons for industry short falls may be tied with high oil prices, but could also be due to an atmosphere of pessimism towards growth in the near-term, analysts have said.
As for today, crude oil traders may want to consider that commodities, which are linked to the value of the US dollar, are likely going to receive a boost in the immediate future due to yesterday's monetary policy statements. Hawkish statements about economic growth may suffice to hold prices stable between $112 and $115, but many speculators are beginning to anticipate another bull run in commodity prices and traders would be wise to watch for the bounce after the price corrects from yesterday's movement.
There is a very distinct bullish channel formed on the daily chart, as the pair is currently trading near its upper boarder. In addition, both the RSI and the MACD on the 4-hour chart are providing bullish signals, suggesting that the bullish move has potential to proceed today. Going long appears to be the right choice today.
The cable is in the midst of a very strong bullish momentum after the pair climbed about 300 pips in a single trading day. The cable is currently trading near the 1.6720 level and seems on its way to ascend further, with a key-target level of 1.6850.
Despite a minor technical correction, the pair's bearish momentum proceeds, and the USD/JPY is currently trading near the 81.70 level. The pair's next significant support is placed near the 81.20 level, and if it falls below the support level, it has potential to reach as low as the 80.00 level.
The USD/CHF pair continued with the free-fall yesterday, and reached as low as the 0.8690 level. Currently, as a bearish cross takes place on the 4-hour chart's Slow Stochastic and MACD, it looks that another bearish session may take place. Going short seems to be the right strategy today.
The Wild Card
Crude oil saw yet another bullish session yesterday and reached as high as $113.65 a barrel. In addition, as a bullish cross takes place on the daily chart's Slow Stochastic, it appears that the bullish momentum has more room to go. This might be a great opportunity for forex traders to join what seems to be a long-lasting trend.
|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%||-||-|