Friday, September 28, 2012

Market Update: Traders Waiting Till Next Week?

Coming Up Today
After falling steadily throughout the week, the EURUSD finally saw buying demand yesterday on the back of an encouraging Italian bond sale. Also, better than expected US economic results on Thursday led to overall gains for equities which buoyed riskier currencies. So far, the EURUSD continues to see momentum as it trades at 1.2950 this morning and has nearly erased all of its earlier losses of the week.

Friday, September 21, 2012

Forex Market Update: Looking For the Next Move

Coming Up Today
  • UK Public Sector Net Borrowing
  • Canadian CPI
  • Fed Member Lockhart Speaks
 Not a whole lot going on today as the markets continue to look for direction after last week's risk rally. Overall. not much has changed since last week's FOMC Meeting. In fact, it can be said that risk sentiment has actually risen with the Bank of Japan joining the party and increasing its own monetary stimulus plans. As such, with riskier currencies in the forex markets seeing weakness this week, we appear to be in a period of profit taking after the previous run-up.
Looking forward, forex traders may want to keep their eyes on EU sovereign debt yields, specifically those of Italy and Spain for an indication of whether the "good times" are set to continue or whether the longer term risk adversity theme is still in play.
Charts to Watch
EURCHF: Nothing new has occurred in the EURCHF but it continues to find support on any of its dips. Whether this is a precursor to another move higher remains to be seen, but it does indicate that buyers (SNB or someone else) are stepping up from their previous 1.2000 level.
GBPUSD: The GBPUSD is showing its resilience by shaking off yesterday’s weakness to trade back towards it week highs this morning. The return to its previous highs contrasts to other forex pairs such as the AUDUSD, EURUSD & NZDUSD that are still well off of their previous best levels of the week. As such, if the pair manages to trade and hold above 1.6275, it could lead to further bullish momentum to start next week.

Wednesday, September 19, 2012

Forex Trading Update - BoJ Follows the FED, ECB, ETC

Coming Up Today
  • UK MPC Minutes
  • US Building Permits & Existing Homes Sales
Earlier this morning the big story was that the Bank of Japan has joined the party as it announced at its Monetary Policy Meeting that it would increase its asset buying and loan program, by 10 trillion yen ($127billion) to 80 trillion yen. The move ends months of inaction from the BoJ which had been aggressive with applying economic stimulus earlier in the year before slowing down. The move is partially seen as a defensive play by the BoJ as forex traders expected that a potential run into the yen was possible after the US Fed activated its QE3 plans.

Wednesday, September 12, 2012

FOMC Meeting, QE3, Gold & the USDJPY

If you are looking for a proxy on expectations of from forex traders on what the Fed will at its upcoming FOMC Meeting, you don’t need to look much farther than the USDJPY.  After gathering momentum and hitting 79.00 last week, the pair has been in a nosedive since last Friday’s Non Farm Payrolls release.  The drop was a result of statements from last month’s FOMC Minutes that the Fed was ready to act if the US economy didn’t improve.  These words were then backed up by Fed Chairman Ben Bernanke at Jackson Hole.  As such, going into the Non Farm Payroll report, the overwhelming belief was that a poor figure would tip the scales in favor of Fed actions.  Therefore, with the NFP missing expectations, forex traders have been shorting the dollar in favor of the yen.

Tuesday, September 11, 2012

Market Update: Central Banks in Focus

Coming Up This Week

  • German Constitutional Court Ruling
  • RBNZ Meeting
  • UK Claimant Count Change
  • US Fed FOMC Meeting
Following last week’s ECB Meeting and the US’s Non Farm Payrolls figures, forex traders will continue to be focused on central bank actions. In the EU, after Draghi’s plan that called for “unlimited” bond buying was finally made official, the question for traders is whether it will get German backing at Wednesday’s Constitutional Court Ruling. The current feeling is that the German’s are on board with the Bundesbank endorsing the project. Although the consequences of the ECB’s bond buying is higher inflation, at this point the realities are that Germany’s key manufacturing sector is gaining from the existence of the Euro.

Friday, September 7, 2012

Non Farm Payrolls Preview

Coming Up Today

  • UK Manufacturing Production
  • Canadian Employment Change
  • US Non Farm Payrolls

The ECB Meeting came and went yesterday. The big surprise was that Mario Draghi announced that the central bank had cut its GDP forecasts for the EU for 2012 and 2013. All that other bond buying stuff was as expected. In any event, on the news, the EURUSD tanked from about 1.2650 to 1.2560. But, that move was short lived as Forex traders quickly ignored the EU and took their cue from equity traders that were going bananas on the strong ADP Employment change and Initial Claims figures that were released. The news caused the S&P 500 to hit four year highs. As a result, rather than care about the cut in GDP forecasts, Forex traders put their attention on the fact that the ECB was in fact going to expand its bond purchasing program (big surprise!) and positive US news. The change in sentiment triggered an overall risk rally that continues this morning.

 Yesterday’s moves bring us to today’s Non Farm Payrolls. Based on last month’s better than expected data and yesterday’s ADP figure, it’s safe to say that Forex traders are expecting to see another positive result. Two items to watch are the USDJPY and Gold. The USDJPY spiked higher from around 78.40 to a high of 79.00 on the ADP news yesterday. Similariliy, prices of Gold fell as the dollar strengthened against other safe havens. However, until this morning, Gold’s weakness was minimal. As such, prices of Gold could see a sharp rally if the NFP fails to impress and expectations of QE3 entering the market. On the other hand, the USDJPY continues to look like a solid buy on positive US news. Although the Bank of Japan is setting pat itself and isn’t stimulating, it appears like Forex traders are looking for excuses to short the yen.  

Charts to Watch

EURCHF: Back from the dead, the EURCHF has sprung to life over the last few days. Currently the pair traded above 1.2100 this morning and has found support on its way. Traders should keep watching to see if another base forms in the pair to reveal support that was sitting at 1.2000 has climbed higher.

Thursday, September 6, 2012

ECB Meeting Preview - Get Ready To Roll!!!

Coming Up Today

  • Bank of England MPC Meeting
  • ECB Interest Rate Meeting
  • US ISM Services PMI

It’s crunch time for the ECB today as they hold their monthly interest rate meeting. Earlier in the week, ECB President Mario Draghi stated that they will do what needs to be done to preserve the Euro, even if this includes unlimited sovereign bond buying. With this backdrop, traders, analysts, media pundits, etc have been building up today’s meeting as a “do or die” session for the survival of the Euro.

A few of the headlines:
From the WSJ: Moment of Truth for Draghi's Plan
Bloomberg’s take: Draghi Credibility At Stake As ECB Tries To Save The Euro
The Financial Times: ECB adopts crisis role of IMF

But here’s the little secret, this is like the “gazillionth” time we have heard this type of talk. Whether its been EU Summits, the last moments of a bailout package announcement, or ECB Meeting, the market has given us numerous occasions of “now or never” situations. Basically, it comes down to this; the EU has tried cutting its deficits to strengthen its finances. While there have been deficit improvements, budget cuts have worsened the EU’s overall economy. As such, the ECB is currently betting on growth. They will fire up the printing presses and hope inflation doesn’t hit before growth does.  For traders, the key takeaway is the lack of much movement in the market. Although it seems a given that the ECB will stimulate, European stocks and the Euro are only slightly higher on the week. Therefore, it appears that the news is already being factored into the markets, and prices could tank as traders “sell on the news” or Draghi underwhelms with his plans.

Charts to Watch
GBPUSD: Keep your eyes on this one today. As you can see from the chart, the GBPUSD had hit resistance at 1.5900 for the past week. However, yesterday, the pair finally broke above this level and has been finding support at 1.5900. The chart indicates that buyers that were providing demand at 1.5750 have stepped to around the 1.5900 figure. With demand present, the GBPUSD could be set to explode if today’s news from both the UK and EU leads to risk buying in the market.
EURUSD: After moving steadily higher from mid-August, the EURUSD has begun to go sideways and has spent most of the past two weeks around the 1.2500 level. Overall, it appears that Forex traders are taking a “wait and see” plan with the EURUSD until after today’s meeting. As such, after consolidating, the pair could be primed to either breakout higher and get dumped, once more clarity about the EU’s futures is revealed.