FOREX TRADING

USD Lower, Inflation Subdued

• USD: Lower, PPI falls the most in seven months, steady Fed policy
• JPY: Lower, BOJ expands quantitative ease and raised its lending auctions to ¥20trln
• EUR: Lower, annual rate of labor cost rise the slowest in four years
• GBP: Higher, UK claimant count posts biggest drop in 13 years, BOE minutes note increased inflation risk
• CAD and AUD: AUD & CAD higher, strong Australian housing data, easy money from the Fed and BOJ

Overview

The USD traded mostly lower Thursday pressured by the Fed’s decision to hold monetary policy steady and signal that interest rates will remain low for an extended period. GBP surged in reaction to report that UK jobless claims declined the most in 13 years. GBP was also supported by the minutes from the BOE’s March policy meeting which state that the central bank is growing more concerned about inflation risk. EUR traded lower with gains limited by report of slowing rise of labor costs in the EU and selling pressure in cross to the GBP. The commodity currencies traded higher in reaction to firmer equity market trade with the AUD supported by hawkish comments from the RBA’s Debelle and strong Australian housing. Debelle said rates may have to rise a bit more. CAD was supported by report of a surge in Canada’s whole sale trade. JPY traded lower in reaction to the BOJ’s decision to expand quantitative ease from ¥10trln to ¥20trln. Today’s US economic data was mixed with PPI posting a bigger than expected decline. The PPI report supports the Feds forecast that US inflation pressures will likely remain subdued. With the US economic recovery uneven and inflation subdued the Fed will be in no hurry to tighten monetary policy. Focus turns to Thursday’s release of US CPI.

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Currency Crosses Pairs Analysis

EUR/GBP

Current level – 0.9054

Longer term bias remains neutral to bullish for the pair, closing above both bearish trendlines confirms some upside for the week ahead.

Intraday: Yesterdays brake below the trendline isnt confirming a retrace yet. Although the cross is making an effective pullback its loosing bullish momentum and we dont discard a further retrace to 0,8980-0,9000 support zone

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Forex Technical Analysis

EUR/USD

Current level – 1.3801

EUR/USD is in a downtrend, after peaking at 1.5146 (Nov.25,2009). Technical indicators are neutral, and trading is situated below the 50- and 200-Day SMA, currently projected at 1.4793 and 1.4169

The pair almost reached the target area with today’s high at 1.3818 and we still favor a reversal below that zone, that should initiate a downtrend for 1.3530, en route to 1.3440. Nevertheless, current intraday bias is still positive with a crucial level at 1.3715 and on the 1 h. chart only a break below 1.3655 will signal, that the prolonged consolidation has ended.

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Overbought Test Of Resolve

Gbp/Usd moved 100 pips higher during the European session after reports from the U.K. labor market hit the newswires that were better than expected. The minutes from the recent Bank of England rate meeting revealed that nothing much had changed from the previous month, and that CPI and inflation reads were as much to do with a weaker pound than instigated by internal growth.

The MPC minutes suggest that interest rate increases are just as far away in the U.K. as any other major region, with the exception of Australia. This news had a positive effect on the major currencies, but the pound is the only pair to make a substantial breakout. (more…)

Daily Technical Analysis

EURUSD Outlook

The EURUSD had a bullish momentum yesterday, topped at 1.3782 and closed at 1.3771. This fact should keep the bullish scenario targeting 1.3850 intact. The technical evidence that price is in a potential bullish momentum even reversal after touched the triple bottom formation seems stronger now especially if price able to break above 1.3850 area today targeting at least 1.4020/50 area this week. Immediate support at 1.3740 area. Break below that area should lead us back into no trading zone testing 1.3650 area but as long as price still move inside the bullish channel the bullish scenario remains intact.

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FOMC: Less Dovish, but Hikes Remain Distant

• No change to policy measures. Hoenig repeats his lone dissent.
• Growth language slightly more optimistic but no change to inflation outlook
• ‘Extended period’ retained indicating continued commitment to low rates
• Further asset purchases highly unlikely
• No change to our outlook expecting unchanged rates until late this year

Details

The assessment of activity was slightly more upbeat than in the previous statement. As expected the FOMC turned more optimistic on the labour market while on the other hand noting recent very weak housing data. Generally, the committee still expects a moderate recovery including a gradual return to higher resource utilisation. As a result, the outlook remains 3-3.5% growth, a relatively moderate rate historically.

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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.

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Daily Technical Analysis

EURUSD Outlook

The EURUSD failed to continue its bullish momentum yesterday, bottomed at 1.3640 and closed at 1.3674 after bad US TIC long term purchases number triggered risk aversion. This fact leads me to a no trading zone in nearest term as direction is unclear but the bullish reversal scenario triggered by the triple bottom formation should remain intact as long as price still move inside the bullish channel with technical bullish target at least at 1.3850. We will have ZEW economic sentiment and CPI number from the Euro zone which is expected to be the catalyst today. Good result should trigger further upside momentum and keep the bullish scenario intact while bad result should trigger significant bearish momentum and potential threat to the bullish outlook testing 1.3530 support area.

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