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Wednesday, 11 Aug 2010
USD/JPY Looks to Breach Below 85
The U.S. currency hovered within sight of a 15-year low versus the Japanese yen on Wednesday after the Federal Reserve announced plans to boost a flagging economy by reinvesting money from maturing mortgage bonds and government debt. The U.S. central bank acknowledged economic growth had slowed in recent months and reiterated its intention to hold benchmark interest rates at record lows for an extended period of time.
USD - Dollar Pares Gains on Fed's Economic Outlook
The U.S. dollar fell against the Japanese yen and erased most of its gains versus the euro after the Federal Reserve said it will reinvest principal payments on its mortgage holdings into long-term Treasuries to bolster the economy.
The dollar dipped 0.1% to 85.37 yen, edging back toward an 8 month low of 85.02 yen hit last week. A drop under November's low of 84.82 yen would take the dollar to a 15-year low.
The dollar was more buoyant against the euro. The U.S. currency rose 0.2% to 1.3156 having pulled back from last week's 3 month low of 1.3334.
Policy makers took a small step to ease monetary policy again to help promote the economic recovery by reinvesting proceeds from maturing mortgage debt back into the government bonds as many analysts had expected. Analysts said that the more dovish Fed statement might keep the dollar on the defensive in the short term, as the markets push back their estimates for the eventual Fed tightening.
EUR - Euro Falls vs. Dollar to Session Low
The European currency extended losses against the U.S. dollar to trade more than 1% lower on Tuesday as the greenback was boosted by a growing view the Federal Reserve is unlikely to announce any aggressive easing measures at the end of its policy meeting later in the day.
Sterling declined against the U.S. dollar to its lowest level in more than a week after data signaled Britain's economic recovery may be slowing. The Cable has been overbought in recent weeks and now we should have a correction, analysts said.
The pound also dropped versus the Japanese yen after a U.K. housing- market gauge showed the first decline in prices in a year in July. The U.K. currency was little changed at 83.14 pence per euro.
The pound may extend its 1.4% decline against the dollar over the past two days, should the Bank of England's Inflation Report today at 9:30 GMT add to evidence the economic recovery is slowing.
JPY - Yen Rises Broadly vs. Counterparts
The Japanese yen strengthened versus all 16 major counterparts after the Federal Reserve said the U.S. recovery will be slower than expected and reports today showed U.K. consumer confidence dropped and Japan's machine orders rose less than analysts forecast.
The yen climbed to 112.14 per euro from 112.58 yesterday, after rising to 111.70, the highest since July 23. The yen traded at 85.45 per dollar from 85.44.
A dollar drop below 84.82 yen could trigger more market speculation about the possibility of Japanese intervention. Traders think the yen will eventually test those levels as Japan is unlikely to intervene to curb the yen unless the dollar/yen falls closer to 80 yen, or its moves become more volatile.
OIL - Crude Trades near a 7 Day Low
Crude Oil prices dropped 1.5% yesterday as the department said the U.S. economy lost momentum heading into the second year of the recovery from the recession. Crude pared losses after Federal Reserve policy makers announced their first attempt to bolster growth since March 2009.
Oil hovered around $80 a barrel on Wednesday after data showed a rise in U.S. crude imports was offset by steps taken by the Federal Reserve to shore up the economic recovery.
Even though U.S. oil demand is expected to end a 4 year-old decline this year by rising 0.7%, analysts remain skeptical. Economic growth in the world's second-largest energy consumer is slowing slightly, although still remains robust as the government steers credit growth back to normal.
The pair saw high volatility with light volume yesterday as the pair fell to a low of 1.3075. However, the drop in the value of the pair was limited by the minor rising trend line that began on June 29th. Going long close to a trend line can be a a opportunity to enter into a trending market.
Sentiment in the Cable appears to be shifting. Monday's trading had the pair forming a bearish engulfing pattern and yesterday the pair closed near its opening price forming a rickshaw man. The long upper and lower shadows of yesterday's candle show indecision on the part of traders. As this candlestick appears at the top of an uptrend, it could signal a top in the recent bullish move. Support and resistance lines are found at 1.5700 and 1.5960.
This pair appears to have entered an over-sold region on a number of indicators. The hourly and daily RSI both show over-sold, indicting potential upward pressure on this pair today. The 4-hour Stochastic (slow) also appears to be forming a bullish cross, which supports this notion. Going long may be today's preferred strategy.
The long-term indicators on this pair appear to be suggesting an impending upward movement; which could be a breach of its current flat range. The hourly and weekly RSI are floating just inside the over-sold territory, and the weekly Stochastic (slow) is showing a fresh bullish cross. Taking a long position on this pair for the mid- to long-term could be a wise move.
The Wild Card
The short-term indicators for this pair seem unified in their representation of an impending upward movement. The pair has been trading within a bullish channel for a few weeks now and signals seem to support the notion that this trend will continue. The hourly RSI is in the over-sold region; the hourly and 4-hour Stochastic (slow) have both formed what appears to be a bullish cross as well. Forex traders should take advantage of this running trend and join in while there is still momentum.
|01:00||EUR||German Prelim CPI||m/m||0.9%||-||-|
|01:00||EUR||Italian 10-y Bond Auction||1.36|1.5||-||-|
|01:50||JPY||Prelim Industrial Production||m/m||3.7%||-||-|
|09:00||CHF||KOF Economic Barometer||90.1||-||-|
|09:00||EUR||Spanish Flash CPI||y/y||-1.1%||-||-|
|10:30||GBP||Net Lending to Individuals m/m||m/m||2.4B||-||-|
|10:30||GBP||M4 Money Supply||-0.8%||-||-|
|14:30||USD||Core PCE Price Index||m/m||0.1%||-||-|
|16:00||USD||Pending Home Sales||m/m||1.7%||-||-|