FOREX TRADING

Markets Brace For FOMC Decision – USD Firmer

Asian equity markets were mixed after a late session rally leveled off a lackluster day in the US with the Dow up 17.46 points, closing at 10642.15. Financials rallied late in the day after Senator Dodd’s proposed financial regulatory overhaul gained some momentum. Traders are cautious ahead of the FOMC rate decision at 2:15pm in New York today. Although no change is expected, analysts will be once again paying close attention to the language used in the Fed’s statement as well as the number of dissenters. Investors are looking for assurances that rates will remain ‘exceptionally low’ for an ‘extended period.’ We do not see this language changing so long as the labor market continues to deteriorate.

Euro Loses Steam

European finance ministers agreed on a rescue mechanism for Greece in Brussels yesterday, but offered little information on details of what the bailout package may look like. The lack of clarity will continue to weigh heavily on the euro which has softened in the last 2 sessions. Indeed EU officials are being careful not to make a precedent of the Greek situation as other Eurozone countries in financial distress will be keeping a close eye with regards to the structure that is chosen for the rescue package.

The single currency was slightly firmer today against the greenback having tested the 1.3640 support level yesterday. Another attempt at the level is likely with additional demand seen at 1.3530 and the 1.35 handle. The 1.3780 resistance holds strong with additional ceilings eyed at the 1.38 figure followed by 1.3850. Upward momentum picks up pace with a breach of the 161.8% Fibonacci extension taken from the Dec 22nd and Mar 2nd troughs at 1.3980

Yen Drivers

The dollar was stronger against the yen early in London. The greenback fell to the 90 handle before popping up just above the daily pivot to 90.40. USD/JPY has been in consolidation, narrowing into a wedge formation since the Nov 27th low. With talks of implementing additional QE measures, the BoJ’s rate decision tomorrow is widely expected to be unchanged. While the announcement of more accommodative measures may put pressure on the yen in the interim, long-to-medium terms see the yen strengthening as market conditions should increase demand for Japanese equities. In contrast, if the PBOC continue with their policy tightening, Chinese demand for Japanese goods could fall, again putting pressure on the currency. Ultimately, the dollar would need to breech the top of the formation at the 91 handle, and pass the R1 monthly pivot at 91.25 to make any significant advances. Downside momentum picks up with drop below the monthly pivot at 89.90, with targets at 88.50 and the 88 figure. A break below the 161.8% Fibonacci extension taken from the Jan 8th and Feb19th highs at 87.90, opens the door for significant losses for the greenback.

Today’s economic calendar includes the Zew sentiment surveys from Germany and the Eurozone, as well as CPI data. Economic sentiment is seen lower on both figures with Eurozone CPI expected to come in stronger m/m. Manufacturing sales and labor productivity from Canada are scheduled to be released at 8:30pm in New York. From the US, import prices as well as a slew of data on the housing market is expected to show a decrease in prices, with a slight deterioration in housing starts and building permits. The much anticipated Fed rate decision is expected at 2:15pm local time. European markets are firmer while US equity futures are seen unch early in London trade.

MG Financial Group
http://www.mgforex.com

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