Friday, March 30, 2012

Forex Market Update

Fed Chairman Ben Bernanke didn’t drop more hints yesterday in his speech to GW University students.  Unlike Monday’s talk where he outlined the need for further stimulus to boost employment growth, Bernanke stayed the course with the subject content, and discussed how the Fed has assisted the US economy in the last few years. Bernanke defended the Fed’s Asset Purchases and near 0.0% interest levels as being beneficial for the overall US economy.

With Bernanke doing little to contradict the overall tone from his Monday speech that the Fed was ready to apply new stimulus, along with this week’s US economic figures being more or less in line with expectations, Forex traders were out selling the greenback yesterday.  The result created an afternoon risk rally with the EURUSD and GBPUSD bouncing over 100 pips from their lows. 

The GBPUSD has shaken off weakness from Wednesday’s downward UK GDP and has traded above 1.6000 this morning. The 1.6000 figure had been a point of resistance for the pair.  Therefore, with the GBPUSD finally breaking that level is a bullish indicator for GBPUSD traders.  Looking ahead, Forex traders should keep their eyes on the 1.6000 for next week.  If the GBPUSD can successful hold this level today, it will indicate that demand for the Pound is continuing to get stronger and could provide upward momentum next week with a possible move towards its next critical resistance level of 1.6250.

Like the GBPUSD, the EURUSD rebounded from its mid-week selling pressure.  However, unlike the GBPUSD, the EURUSD failed to overcome its 1.3390 resistance, with its current rally falling short at a high of 1.3375.  As such, as we close the week, the question for Forex traders today isl whether the EURUSD will be able to trade above its 1.3390 resistance and reach 1.3400.  If the pair once again fails to overcome 1.3390, it could cause the pair to trade within a range next week as Forex traders await another event to trigger a new direction in the EURUSD.

Commodity Currencies
Similarly, the commodity currencies all strengthened against the dollar.  Nonetheless, their gains were limited to the dollar as they continued to underperform against the Pound and Euro.  Specifically, the Aussie continues to be losing ground as the EURAUD was up over 40 pips from yesterday afternoon to 1.2840, while the GBPAUD advanced 50 pips to 1.5385.  The lack of outperformance from the commodity currencies, even during a period of risk buying is illustrating that Forex traders remain worried about the underlying fundamentals.  Today, the sector will remain in focus as Canadian GDP is due to be released.

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