Wednesday, October 28, 2009
Cable buying picked up after the U.K
Cable buying picked up after the U.K. construction PMI rose to 47.0 in July. The pair rallied out of 1.6920 after the earlier pull back from 1.7000 ran its course. There is evidence of strong selling pressure from the 1.7000-05 area and further technical resistance at 1.7020-25, which is contributing to the decent supply capping gains. Sellers at the highs have included investment managers and reserve names, perhaps taking advantage of the lofty levels. Pull backs should remain limited however, with a softer dollar backdrop and the shifting U.K. policy outlook encouraging GBP demand. Elsewhere, EUR-GBP continues to find support after bids at 0.8480 held and a move back above 0.8500 is eyed.
The pound has seen choppy
The pound has seen choppy price action after testing 1.7000 despite a jump in construction activity. The Construction PMI reading rose to 47.0 from 44.5 adding to signs that the economy is stabilizing. Indeed, we saw the manufacturing sector move into expansion which should keep the BoE from adding to their asset purchase program at Thursday policy meeting. The crowd is starting to jump on the sterling bandwagon which could see the GBP/USD look to test 1.7332 the 50.0% Fibo of 2.1168-1.3503, but could see a sharp reversal thereafter.
The dollar started to firm overnight as we are seeing profit taking after yesterday’s rally in equities and commodities but has failed to generate consistent support. Markets appear to be taking a breather ahead of the significant event risk to close the week including European interest rate decisions and US non-farm payrolls. Personal spending and income data today could spark volatility as a dearth of consumer consumption is the dark cloud over a potential recovery. An expected 0.2% increases in personal spending will ease some concerns but the forecasted 1.0% decline in personal income will cast doubt on its sustainability. The concerns remain that the mounting job losses will ultimately lead consumers to continue to retrench which would jeopardize future growth once government spending abates. Although we are expecting Friday’s employment report to show job losses easing to 325K from 467K, the unemployment rate is forecasted to rise to 9.6%.
The dollar started to firm overnight as we are seeing profit taking after yesterday’s rally in equities and commodities but has failed to generate consistent support. Markets appear to be taking a breather ahead of the significant event risk to close the week including European interest rate decisions and US non-farm payrolls. Personal spending and income data today could spark volatility as a dearth of consumer consumption is the dark cloud over a potential recovery. An expected 0.2% increases in personal spending will ease some concerns but the forecasted 1.0% decline in personal income will cast doubt on its sustainability. The concerns remain that the mounting job losses will ultimately lead consumers to continue to retrench which would jeopardize future growth once government spending abates. Although we are expecting Friday’s employment report to show job losses easing to 325K from 467K, the unemployment rate is forecasted to rise to 9.6%.
Price action ahead
EUR-USD price action turned choppy after another failed attempt to break mooted 1.4450 option barriers. The pair pulled back from 1.4420 early on and tested 1.4375 bids, which held on the first attempt, leaving narrow sideways action just adrift of 1.4400. Plain vanilla strike interest is reportedly influencing in the absence of large flows and ranges should remain narrow in to the European afternoon. U.S. releases and equity market movement is likely to drive price action ahead. The underlying trend is favorable for further EUR-USD gains, with recent longs targeting a test of 1.4500 ahead of the ECB policy meeting and Friday's U.S. NFP data. Intra-day, should see bids underpin between 1.4375 and 1.4350, while on the topside stops are building through 1.4450-70.
Monday's trading
The EUR/USD rose to as high as 1.4444, before closing at 1.4421. This was the USD's weakest rate against the European currency since the middle of December last year. The Dollar fell by about 250 pips vs. the British Pound to 1.6980. This was the Dollar's lowest level vs. the GBP since about the middle of October last year. One of the only currencies that the Dollar gained ground against yesterday was the Yen. The USD/JPY cross increased by about 70 pips to the 95.43 level, as demand for higher yielding assets increased throughout much of Monday's trading.
Looking ahead to today, forex traders can expect much of the same volatility in the market. The Dollar is set to move a lot against its major pairs, such as the GBP, EUR, JPY, and CAD. This is likely to occur, as investors continue to trade on much of yesterday's data. Additionally, the U.S. market is set to be the main market mover again with the with the release of Personal Spending and Personal Income data at 12:30 GMT, and the publication of U.S. Pending Home Sales at 14:00 GMT. In order to take advantage of the very volatile forex market, it's advisable that you open your USD positions now.
Looking ahead to today, forex traders can expect much of the same volatility in the market. The Dollar is set to move a lot against its major pairs, such as the GBP, EUR, JPY, and CAD. This is likely to occur, as investors continue to trade on much of yesterday's data. Additionally, the U.S. market is set to be the main market mover again with the with the release of Personal Spending and Personal Income data at 12:30 GMT, and the publication of U.S. Pending Home Sales at 14:00 GMT. In order to take advantage of the very volatile forex market, it's advisable that you open your USD positions now.
Lowest level in 7 months.
he U.S. Dollar tumbled on Monday after the publication of far better than forecast ISM Manufacturing PMI from the U.S. economy. The reading rose to an 11 month high of 48.9, notably higher than the forecasted figure of 46.4. Construction data in the U.S. also showed some big improvements. This led to a drop in the demand of the USD, as risk appetite grew throughout the day. The greenback tumbled against virtually all of its major currency pairs, as traders feel that the recession is nearly over, and economic growth will soon return to the U.S. economy. As a result, the USD fell to its lowest level in 7 months.
The Euro continues to consolidate
The Euro continues to consolidate its gains from yesterday as we are seeing a pull back in risk appetite. Lower European equity markets are weighing on the single currency, which has kept the EUR/USD trading around the 1.4400 price level. Euro-Zone producer prices falling to a record low of -6.6% on a yearly basis could raise concerns of further measures from the ECB and add to the heavy trading. However, a 0.3% price increase in June could ease concerns as it may be signaling an end to deflationary pressures.
The first monthly gain in producer prices since July, 2008 will have a major influence over the ECB’s decision on whether to add to their covered bond purchase program. The central bank has maintained that deflation is no longer a concern as they expect that emerging growth and rising energy costs will bring prices back to their target rate of 2.0%. Indeed, energy costs rose 1.4%during the month but still remain 15% lower from a year ago which dragged the annual rate to its record low. The central bank has only exercised 4 billion of its 60 billion purchase program signaling that the bank will refrain from adding to it as it maintains its measured approach. However, Euro-Zone banks continue to tighten lending standards and their deposits remain at elevated levels. The EUR/USD still appears to have potential to reach 1.4613-61.8% Fibo of 1.6037-1.2325
The first monthly gain in producer prices since July, 2008 will have a major influence over the ECB’s decision on whether to add to their covered bond purchase program. The central bank has maintained that deflation is no longer a concern as they expect that emerging growth and rising energy costs will bring prices back to their target rate of 2.0%. Indeed, energy costs rose 1.4%during the month but still remain 15% lower from a year ago which dragged the annual rate to its record low. The central bank has only exercised 4 billion of its 60 billion purchase program signaling that the bank will refrain from adding to it as it maintains its measured approach. However, Euro-Zone banks continue to tighten lending standards and their deposits remain at elevated levels. The EUR/USD still appears to have potential to reach 1.4613-61.8% Fibo of 1.6037-1.2325
Current economic crisis
The JPY fell by 70 pips against the USD to the 95.43 mark. The Japanese currency plummeted to 137.38 from 134.84 on Monday vs. the EUR. Against the British Pound, the Yen dropped nearly 360 pips to the 161.91 level. As a whole, the Yen it still a strong currency. However, if economies such as the U.S., China and Britain start showing growth in the coming months, then we may see the JPY lose lot of the strength that it gained since the start of the current economic crisis.
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