Bernanke Speaks, Gold and the Aussie Could Move

Coming Up This Week

• Canadian GDP
• Fed Chairman Ben Bernanke Speaks

Ready or not it Bernanke time. We and the rest of the financial world have spent the week talking up Fed Chairman Ben Bernanke’s upcoming speech at the Jackson Hole Symposium. We are finally here, and as mentioned on Monday, it been a fairly choppy trading week as many Forex traders are on the sidelines or trimming their trading activities in prelude of the speech. Traders are hoping to hear from the Fed Chairman an update of whether the Fed is ready to apply further monetary stimulus at its upcoming FOMC Meeting. In the Fed’s previous meeting, they hinted to that fact, but doubts have risen of whether they actually will make changes. If Bernanke fails to give much clarity about the matter, we could see a fall in equities and the dollar rally.

Euro & Dollar See Strength Ahead of Jackson Hole

Coming Up This Week

• Preliminary US GDP
• US Pending Homes Sales
• Late Wedneday/Early Thursday – NBNZ Business Confidence and Australian Building Approvals

As expected, Forex traders continue to look ahead to Friday’s speech from Fed Chairman Ben Bernanke. As such, market moves have been muted. Although the gains have been small, it is worth noting that both the Euro and dollar are strengthening overall this week. As such, the dollar’s strength could be revealing low expectations that Bernanke’s will yield much new information about the Fed’s future actions. Also, the Euro’s strength could be an indication that Forex traders are becoming more comfortable with the rumored plans of monetary policy actions from the ECB.

Trading This Week - Jackson Hole Everywhere

Coming Up This Week

• Tuesday - US Consumer Confidence
• Wednesday – US Preliminary GDP
• Wednesday – Pending Homes Sales
• Early Thursday - NBNZ Business Confidence
• Thursday - Saturday – Jackson Hole Symposium
• Friday – Fed Chairman Ben Bernanke Speaks
• Saturday – ECB President Mario Draghi Speaks

It’s another week of trading. Last week featured some back and forth of potential Fed and ECB actions, which ultimately led to the Euro and global equities advancing. This week, the two central banks will stay in focus as Fed Chairman Bernanke is set to speak on Friday at the Jackson Hole Symposium, and will be followed by ECB President Draghi on Saturday. Analysts are split on whether the two central bank chiefs will shed any new light on their respective banks’ plans or not. Nonetheless, as the main news is back ended to the end of the week, it could lead to choppy market conditions.

Market Update: Traders Stuck in Doubt

Coming Up Today

• UK Revised GDP
• US Durable Goods

After the markets convinced themselves on Wednesday afternoon that the FOMC Minutes indicated a pending easing move from the FED and rallied, doubts have begun to emerge. Triggering the second thoughts was an appearance by St. Louis Fed President James Bullard where he stated “that U.S. data has been somewhat better since the July 31-August 1 Fed meeting.” Traders reacted by selling US equities yesterday, which triggered an overall move lower in riskier currencies. Of note, the Aussie continues to see selling pressure after Australian miners have been reporting gloomy forecasts. The news has raised expectations that the RBA will be forced to cut interest rates to compensate for the potential drop in economic growth from the country’s large mining sector.

Market Update - EURUSD Rallies, AUDUSD Slips

Today’s News

• Canadian CPI
• University of Michigan Consumer Sentiment

The EURUSD firmed yesterday after German Chancellor Angela Merkel's reiterated her support for ECB President Mario Draghi's vow to do “whatever is necessary to save the Euro.” On the news, the EURUSD rallied from 1.2260 early yesterday to a current high of 1.2370. Interestingly though, the EU news spilled over to the global equity market which saw gains in prices. However, riskier currencies such as the Aussie and Kiwi have been trending lower. Elsewhere, the GBPUSD continues to hold above 1.5700 as it trades near its 1.5750 long term resistance.

What in the world happened in the markets yesterday?

What in the world happened in the markets yesterday?


While all eyes were on the ECB yesterday, the EU’s central bank needed to share the spotlight with what seemed like every central bank in the world. The ECB cut its Interest rate to 0.75% from 1.00% and its deposit rate to 0.0% from 0.25% in order to offer cheap money for banks and provide potential monetary stimulus options. The ECB wasn’t alone as central banks in China, the UK, Denmark, and even Kenya were slashing rates or adding to their asset purchase programs yesterday. Simultaneously, the US issued better than expected ADP Employment and Initial Claims figures as a prelude to today’s Non Farm Payrolls figures.< p> The big surprise wasn’t the news as much as the market’s reaction. The ECB’s actions and subsequent statements from Chairman Mario Draghi led the Euro much lower with the EURUSD falling over 150 pips to a low of 1.2360. Also, equity prices failed to advance on the news with German, US, and French stock indexes all lower.

So what triggered the fall?


While central bank stimulus in the past could be expected to trigger a risk rally, after seeing these rallies fizzle quickly in the past, Forex traders are beginning to take a more realistic view of the world; IE-“if things weren’t bad, the central banks wouldn’t be getting involved.” The key for the future isn’t how much stimulus is being thrown towards the world but is it working? Therefore, we can expect to see stronger emphasis in on economic numbers in the near future.

Non Farm Payrolls


This all brings us to today’s Non Farm Payrolls figure. Regardless of yesterday’s employment optimism from the ADP Employment and Initial Claims numbers, the Non Farm Payrolls could go either way. Therefore, taking pre-NFP trades would be considered a crapshoot. Even after the figures are out they could be interpreted in two ways. A bad number could trigger an overall risk selloff and lead the dollar higher, or the dollar could tank as Forex traders bet on Fed creating inflationary policies. The opposite scenario could occur for a positive figure.

So what to do? Look for trends


Currently, the EURUSD has been building a base above yesterday’s lows of 1.2360 while finding resistance at 1.2400. As such, a break below 1.2360 could trigger additional selling as buyers at current levels jump ship. Similarly, if the EURUSD manages to trade and hold above 1.2400 it could short covering.
Elsewhere, Forex traders should keep their eyes on some of the outperformers of the week, specifically the Aussie. While falling yesterday, the AUDUSD is finding support above 1.0200 as demand has been building at those levels. As such, if we do see an NFP risk rally take place, the Aussie will be expected to be a leader again.

AUDUSD Sinks on RBA Cut

The Reserve Bank of Australia laid an egg on the Australian Dollar this morning after it surprised Forex traders and lowered its interest rates at its current MPC Meeting.  The 0.25% cut to 3.75% marks two months in a row of interest rate cuts and signals a message to traders that the RBA’s global economic outlook isn’t that rosy.  Even as the US continues to be humming along with its slow but steady growth, and the UK’s Bank of England signaled possible monetary tightening,  we are seeing BRIC countries continually warning about the future.

Monday Forex Chart Patterns

Interesting Chart Patterns that are developing as we start the new week

GBPUSD: Support Keeps Rising.  Technical indicators suggest that the GBPUSD should be bought on the dips with stop losses just below its previous support levels.

Forex Today – Three Stories to Watch

GBPUSD Breakout Continues?
USDJPY Below 81.00
AUDUSD Falls on CPI – Poised to Recover?

GBPUSD Breakout Continues?


If you haven’t been watching the GBPUSD, than you may have missed a pretty impressive move higher in the pair.  The GBPUSD was stuck in a trading range between 1.56 and 1.60 for about two months.  However, earlier this month, the pair started to show a buildup of demand at 1.5800.  Since then, the combination of hawkish comments from the Bank of England as well as better than expected UK employment data has helped send the GBPUSD above 1.6000.  More importantly, after trading above its upper 1.6000 resistance, demand in the GBPUSD rose to 1.6000 to support the pair at that level.  Currently, support continues to rise, with any trading yesterday below 1.6100 being brief. As such, this brings us to today’s trading, where a move above last week’s resistance of 1.6150 could trigger a continuation of the GBPSUD’s breakout and put 1.6250 in play.

Aussie Lower After RBA Meeting

In overnight trading, the AUDUSD fell after the Reserve Bank of Australia left interest rates unchanged.  While the lack of a change to the interest rate was expected, Forex traders reacted to the central bank’s comments that "The Board’s view was also that were demand conditions to weaken materially, the inflation outlook would provide scope for easier monetary policy." Forex traders interpreted that statement that another cut is probably in the cards for the May meeting as inflation remains low.  As a result, the AUDUSD fell to 1.0400 from an earlier high of 1.0460 before the news.  The Aussie weakness was especially seen against its fellow commodity currencies with the AUDCAD falling to a 2012 low of 1.0280.

Aussie Seeing No Love

After a great start to 2012, the AUDUSD has been taken out to the woodshed in March.  At just above 1.0300 on Thursday, the pair is down over 5.0% from its late February high of 1.0850.  Triggering the downturn has been the combination of an overall US dollar rally, worries of a slowdown in Chinese economic growth, and the effects of the ongoing EU financial crisis on the global economy. Specifically, Forex traders are worried that although prices of precious metals may stay strong, overall commodity purchases may decrease.  This fear has caused firms in the mining sector to issue negative forecasts as they factor a drop in demand for 2012.

Chinese Manufacturing PMI Underwhelms

Chinese Manufacturing PMI data came in at 48.1 this morning.  The figure was below last month’s 49.7 level and was the fifth straight month of a below 50.0 report.  A surtvey figure below 50 indicates industry expansion.  Therefore, the PMI number this morning has added more fuel to the fire that China’s impressive growth is in fact slowing as global markets decrease demand.

Commodity Currencies Under Pressure

A double whammy of negative news is hitting commodity currencies today and triggering sour forecasts from Forex traders and economists towards the future.  First up was the release of MPC Minutes from the Reserve Bank of Australia.  The report showed that the central bank will be holding interest rates unchanged for the next few months.  Later in the day were reports that China’s growth is in fact slowing which will decrease demand for commodities.

AUDUSD Falls on RBA & Mining News

In early morning trading, the AUDUSD fell as the Reserve Bank of Australia released its MPC Minutes from its recent Interest Rate Meeting.  While the central bank did indicate that it believes the global economy was seeing improvement, it signaled that interest rates will remain unchanged for the next several months.  Although on the surface the comments could be construed as dovish, Aussie bulls can take comfort that the RBA didn’t stress any worries about the currency’s strength.  As such, the central bank appeared to diminish chances that it would work to intervene to weaken the Aussie.  Such a stance could lead to further AUDUSD gains a Forex traders become more comfortable with Australia’s economic outlook.