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Wednesday, 22 Jun 2011
US Federal Funds Rate on Tap
The US economy will be publishing its recent decision regarding short-term interest rates today, known as the Federal Funds Rate. A rate adjustment is not expected given the sentiment expressed by the Fed in recent weeks. Any hawkishness expressed could lead to further risk taking and drive the USD lower as the week moves ahead.
USD - USD Bearish as Investors Hungry for Risk
The US dollar was seen decreasing late yesterday as traders began to seek riskier assets following several optimistic economic data releases. The EUR/USD was seen moving towards 1.4300 yesterday whereas the GBP/USD was trading in a mildly sideways channel.
US existing home sales lived up to expectations yesterday, in a rare instance of accurate forecasting. The news was to send several traders into a risk hungry shift, helping to lift the value of higher yielding assets and pushing the USD into a mild dip. Interestingly, though, much optimistic sentiment emanating from the Western hemisphere was offset by dismal retail sales reports out of Canada, and this is what may have been behind some of the late-session sluggish movement.
With another heavy news day expected today, traders are sure to see heightened volatility. Most significantly, the US economy will be publishing its recent decision regarding short-term interest rates, known as the Federal Funds Rate. A rate adjustment is not expected given the sentiment expressed by the Fed in recent weeks. Any hawkishness expressed could lead to further risk taking and drive the USD lower as the week moves ahead.
GBP - British Monetary Policy Vote Scheduled Today
The British pound (GBP) was seen trading higher yesterday following news of stable growth in the island economy's industrial orders expectations and an unexpected slowdown in the growth of the nation's budget deficit. With today's interest rate vote scheduled, many traders are anticipated heightened volatility.
While the pound was seen flattening out against the EUR yesterday, it appears to have moved mildly higher against the greenback and continues to see sideways price action versus the Japanese yen. Today's monetary policy vote by the Bank of England (BOE) will help many forex investors get a feel for how the central bank is going to address recent short-falls in employment and manufacturing.
The report published earlier this week by the Confederation of British Industry (CBI) highlighted expectations for a continued rise in unemployment through 2011, but yesterday's industrial orders expectations report revealed a surprise uptick in demand for industrial goods. The result could be a strengthening of the British pound as we head into the middle of the week.
AUD - Aussie Trading Higher despite Dovish Rate Statement
The Australian dollar (AUD) was seen trading higher versus most other currencies yesterday after news began to shift many traders back into riskier assets. The Aussie has been a top performer these past several months considering many traders bank on a strengthening of the AUD due to a rise in Chinese demand for Australian raw materials.
The Reserve Bank of Australia (RBA) released its latest monetary policy meeting minutes which revealed significant dovish sentiment by several members of its policy committee. The sentiment will likely result in a hold on future rate adjustments, and therefore will weaken the AUD over time. However, yesterday's news appears to have moved many investors towards riskier assets and a bet on growth, which favors a stronger Aussie. Today's leading index from the Melbourne Institute (MI) will likely drive more investment towards the Aussie as the recent bullish sentiment catches hold.
Oil - Fears of Reduced Fuel Demand Drops Oil Prices
Crude Oil prices dropped sharply towards $91 a barrel Wednesday as sentiment appeared to favor a downturn in global industry alongside a slump in demand for the black gold. Data releases out of Britain and the US yesterday were driving many investors back into riskier assets as most reports suggested a surprise uptick in growth among global industrial output and consumer spending; albeit with dismal consumer confidence reading these past few days from the major economies of the West.
As investors sought safety, the value of crude oil, which has been seen plummeting all week, fell to a monthly low of $91 a barrel. A sudden jump in dollar values due to last week's risk averse environment has helped many investors ram up their short-taking positions on physical assets. Should Crude Oil sentiment hold steady this week, oil prices may continue to fail to find support near the current price.
Last week's failure of the pair to close below the 100-day moving average should not dismay euro shorts. The late in the week rally failed to move above the 20-day moving average which may induce some traders to sell into any euro gains. Both monthly and weekly stochastics have turned lower and point to potential declines. Support is found at 1.4075 followed by the May low at 1.3970. The 200-day moving average may be a likely target and below that the rising trend line from the May 2010 low comes in this week at 1.3610. Resistance is found at Friday's high of 1.4340 followed by 1.4500 and the early June high of 1.4690.
Cable is on the verge of breaking the neckline of a head and shoulders top which comes in today at 1.6120. A breach at this level and a measured move from the chart pattern could take the GBP/USD lower to 1.5370. The likeliest target on the charts is the December low at 1.5350. On the way lower cable could encounter support at the May low of 1.6050 and the March low at 1.5940. To the upside the pair may see resistance at last week's high at 1.6440 as well as 1.6550 off of the May high.
The pair failed to establish a beachhead above the 81 yen level and proceeded to fall. This level will serve as initial resistance followed by the May 31st high at 81.75 followed by 82.20 and 82.57. Falling daily stochastics hint at further declines. Support comes in at the May low of 79.50 followed by the all-time low at 76.11.
The USD/CHF rose to the May support which has turned into a resistance level at 0.8550, a phenomenon which often occurs in technical analysis. A break higher would run into the 50-day moving average which coincides with the falling trend line off of the February high at 0.8640. This may offer traders a good level to enter short into the long term downtrend. Additional resistance is located at the mid-May low at 0.8750 and the May high of 0.8950. To the downside the all-time low could be supportive at 0.8325.
The Wild Card
The EUR/NOK is encroaching on resistance near 7.950-80, a level the pair has not traded above since early December. Significant support comes in at 7.7850 and 7.7165. These defined support and resistance levels may offer forex traders an opportunity to short the EUR/NOK with a strong profit to risk ratio of at least 3:1.