FOREXYARD: Forex News Blog | |
- Dollar Downtrend Continues
- EUR/GBP Uptrend Stalling
- US Advanced GDP on Tap
- Bernanke Signals Intent to Finish QEII
- Japan Downgrade Spurs JPY Selling
| Posted: 28 Apr 2011 04:53 AM PDT
The dollar was off of its lows in European trading as some traders may have looked to take profits from the rally in the Asian trading session. Markets are currently anticipating a large amount of US data to be released this afternoon with the headline event being Q1 GDP. Both the euro and the pound were off their Asian session highs as the currencies drifted lower. The yen was even versus the dollar. The release of a strong German unemployment change at -37K on expectations of -33K and higher German import prices did little to influence traders this morning. Equities continue to trade higher this morning with the DAX up 0.33%. Momentum traders are driving the euro higher as traders were more than enthusiastic following Ben Bernanke's comments yesterday, signaling his intention to keep US monetary policy loose. This afternoon traders will be anticipating US GDP, weekly unemployment claims, and pending home sales. Both the euro and the pound appear to be oversold as they have yet to correct lower. The euro in particular has traded sharply higher since the rebound from Monday the 18th when an S&P report triggered knee-jerk dollar buying. |
| Posted: 28 Apr 2011 02:34 AM PDT
Yesterday's UK Q1 GDP release helped to put the Bank of England hawks back in charge in the debate over monetary policy. This should support sterling in the near term as traders continue to favor currencies with rising rates. As such, the EUR/GBP uptrend is stalling at a significant resistance level and an increase in rate expectations will only server to turn the tide in favor of sterling. Uncomfortably high levels of inflation near the BOE target of 4% are claimed to be caused by increases in energy and food prices. These pressures do not appear to be one off events according to the March CPI report that showed inflationary pressures rose on a year over year basis to 4%. While this is down from a previous release of 4.4%, this level of inflation still remains unsustainable in the long term. The BOE has resisted pressures to raise interest rates and rightfully so. Any tightening of the accommodative monetary policy may have the effect of choking off the UK economic recovery prematurely. The previous GDP report underscored those fears as the UK economy contracted by -0.5% in Q4 2010. Yesterday's release of British Q1 GDP of 0.5%, a level in-line with economists' expectations shows the UK economy has sustained little growth over the past 6 months but does not appear in danger of falling back into the red. This GDP report may help to solidify the position of the BOE MPC member hawks as they lobby for a UK interest rate increase. In turn this should support the pound with an increasing interest rate differential. Looking at the daily chart of the EUR/GBP, the uptrend in February has stalled at the 0.8923 level for the second time this month creating a double top reversal pattern. Last October the pair suffered a similar fate as it was unable to garner much support above this price, rising to a high of 0.8940. An entry short may be appropriate with tight stop placed above this level. To the downside, support comes in at the current trend line at 0.8810, followed by the previous trend line from December 2008 high which is found at 0.8700. Could it be that the royal wedding will also help to turn the tide in favor of the pound?
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| Posted: 28 Apr 2011 12:11 AM PDT
A slew of US economic data are on tap today headlined by first quarter GDP numbers. This comes on the heels of a sharp sell-off in the USD following Fed Chairman Ben Bernanke's signal that US monetary policy will remain accommodative. Today's Market Events: EUR – German Unemployment Change – 07:55 GMT USD – Advanced GDP – 12:30 GMT USD – Unemployment Claims – 12:30 GMT USD – Pending Home Sales – 14:00 GMT |
| Bernanke Signals Intent to Finish QEII Posted: 27 Apr 2011 12:55 PM PDT
The dollar continued to lose ground to the euro and the pound in the New York trading session as Ben Bernanke took questions for the first time following a US Fed Funds release. Tomorrow US GDP should signal a pickup in economic activity which should keep the current trend of dollar selling intact. The EUR/USD looks to close on its daily high at 1.4790 from 1.4683 after Fed chief Ben Bernanke said the Fed will carry out the full $600B of Treasury bond purchases in QEII. The Fed does not expect an end to the bond buying program to have a significant impact as this move has already been priced in to financial markets. A slight pickup in inflation expectations has been noted but not significant enough to warrant an adjustment to the ultra-loose monetary policy of the US. The GBP/USD traded erratically after today's Q1 GDP release of 0.5% which was in line with market expectations. The currency pair is also trading on its high at 1.6630 from 1.6500. Later tonight Kiwi traders will be expecting no adjustment to the New Zealand interest rate by the RBNZ which currently stands at 2.50%. Economists are also forecasting the Bank of Japan to hold interest rates steady below 0.10%. Tomorrow's highlight will be US Advanced GDP for Q1 2011. Expectations are for an increase of 1.9%. The trend for dollar selling looks to continue as Bernanke signaled his intention to keep the US ultra-loose monetary policy in place until the economy begins to show significant improvements in unemployment and growth statistics. |
| Japan Downgrade Spurs JPY Selling Posted: 27 Apr 2011 12:16 PM PDT
Today's cut of the Japanese sovereign debt by S&P was the trigger for today's yen selling but the news does not come as a shock following the agency's downgrade of Japan's sovereign credit rating in January. The cause of the downgrade is due to the immense reconstruction costs after the March 11th earthquake and tsunami. This should increase the fiscal deficits for Japan as the nation digs itself out from under the destruction and attempts to rebuild. S&P estimates Japan will need roughly Y20,000B – Y50,000B to finance the cleanup and construction costs. The numbers are well above the Japanese government's estimate. No plan has been released yet by the Japanese government entailing the mechanism to finance any cleanup plan and this is one point many JPY and JGB followers are looking for. S&P expects Japan's deficit is to rise an additional 3.7% of GDP in 2013 and a gross debit limit which is expected to rise to 200% of GDP this year. S&P's decision comes on the heels of last week's cut to the US sovereign debt as the rating agency reduced its view of the US long term outlook to negative. The initial move by the market was to sell the yen following the release of the S&P report. This knee-jerk reaction is in-line with the long term fundamentals of the yen. The Japanese central bank maintains an ultra-loose monetary policy combined with high deficits. This stands in contrast with the ECB and the BOE who are currently tightening monetary policy and reducing excess liquidity in the market. It seems that at this stage, S&P is out ahead of FX players when it comes to factoring in the rising Japanese deficit. |
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