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Aussie Dollar up Sharply on Rate Increase
Can Crude Maintain its New Rally?
Big Week for FX Trading
CHF May See a Much Needed Recovery Today

Aussie Dollar up Sharply on Rate Increase

Posted: 02 Nov 2010 06:35 AM PDT

The day prior to the Fed's announcement that it will begin buying assets thereby increasing the money supply, the US dollar is not surprisingly weaker. Performing well against the greenback have been the Euro and the Aussie dollar.

The Aussie dollar was stronger on the day following the decision by the Reserve Bank of Australia to increase interest rates by 25 basis points to 4.75%. The decision to raise rates was made in order to fend of increasing inflation in the Australian economy that is picking up speed due to the profitable mining industry.

Many analysts were caught off guard with the rate hike as roughly 2/3 of analysts surveyed forecasted the RBA to hold rates steady at 4.50%.

Following the announcement the Aussie dollar soared past parity with the US dollar and traded as high as 1.0022. The AUD/USD is currently trading at 1.0011, after opening the day at 0.9974.

Traders were also bidding the euro higher following better than expected European Manufacturing PMI. The EUR/USD was trading higher at 1.4020, following an opening day price of 1.3916.

Market watchers will be following two headline events to come both today and tomorrow; the US mid-term elections and the Federal Reserve Open Market Committee announcement.

Both the AUD/USD and the EUR/USD should strengthen following these two events. The next resistance level for the EUR/USD is located at the October 25th high at 1.4080.

Can Crude Maintain its New Rally?

Posted: 02 Nov 2010 05:22 AM PDT

Oil prices received a boost yesterday after Saudi Oil Minister Ali Naimi suggested consuming countries are happy with oil between $70 and $90 a barrel, raising the price ceiling by 10$ from the previous range of $70 – $80.

Oil received an additional boost following the release of better than expected manufacturing data from the U.S and China. Oil has advanced this year despite rising inventories as investors bet demand will increase as global economic substantiates. It appears that prices are heading back to around $85, with further room to appreciate.

One major block in crude's resurging rally is the outcome of the U.S. Federal Reserve’s policy meeting on Tuesday and Wednesday. It is widely expected that further quantitative easing measures will be announce in order to recharge the lackluster U.S economic recovery. The only question is the size of the second "stimulus". Oil prices tend to have an inverse relation as oil is denominated in U.S. Dollar and a weak currency makes the commodity cheaper and therefore more attractive to investors. If the scope of the intervention is smaller than expected it is likely the greenback will regain some strength, putting pressure on oil prices.

Tomorrow's release of U.S inventories is expected to show an increase of 1.7 million barrels last week, after a 5 million barrel jump the previous week. It seems, however, that despite the markets oversupplied, prices remain moderately steady. A bigger than expected increase, none the less, will likely suppress oil prices in the short term, pushing them back to below $82.

Big Week for FX Trading

Posted: 02 Nov 2010 02:14 AM PDT

Fundamentally, this may very well be the most important week of the year for the FX markets.

Already today the Royal Bank of Australia raised interest rates 25 basis points to 4.75%.

Later today will bring the mid-term elections in the US and it looks as though the Republicans will come away with the House of Representatives and weaken the majority the Democrats hold in the Senate. Also more than half of the governorships are up for grabs. A republican victory could impact Congress's upcoming debates which include an extension of the Bush tax cuts and an extension of unemployment benefits.

Wednesday will have what everyone is looking forward to, the announcement by the Fed to renew quantitative easing to raise inflation and lower unemployment numbers. Economists are expecting that the Fed will purchase approximately $500 Billion worth of 2 year, 10 year, and perhaps 30 year treasuries.

Thursday brings Central bank meetings from both England and the EU. The markets will be looking for signs that the EU will begin to scale back on their sovereign bond purchases.

Friday will have the Bank of Japan meeting with expectations for the BOJ to address the new quantitative easing in the US along with the strengthening of the Yen. The all-important US Non-Farm Payrolls will end the week with high volatility. The report should show the US economy added 65 thousand jobs in the month of October.

Speculations continue to run as to how traders will react to the further loosening of monetary policy in the US.

Despite short term technical indicators that show the EUR/USD overbought, the pair could rise to the downward sloping trend line on the monthly chart the near the 1.4550 level.

EURUSD Monthly

CHF May See a Much Needed Recovery Today

Posted: 02 Nov 2010 01:52 AM PDT

Following a long bearish streak versus the CAD over the past few days, the CHF seems to be headed for a bullish correction. Forex traders are advised to take advantage of this knowledge by going short on CAD/CHF now.

Below is a daily chart of CAD/CHF. The technical indicators are the RSI, Slow Stochastic and Williams Percent Range.

- A breach of the upper Bollinger Band is evident on the chart (1), indicating an imminent downward correction may be expected. Further more, a doji candelstick is seen indicating a reversal in trend amay be expected.

- A bearish cross is evident on the Slow Stochastic (2), signaling the next move may be a downward correction.

- The RSI (3) signals that the price of this pair currently floats in the over-bought territory, suggesting downward pressure.

- Williams Percent Range (4) further supportds the downward direction.

cadchf