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Wednesday, July 6, 2011

FOREXYARD: Forex News Blog

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Dollar Supported as Majors Continue to Consolidate

Posted: 05 Jul 2011 05:06 AM PDT

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A busy European trading session has had a few central bank decisions, comments from Moody's, and mixed economic data. Despite the eventful morning the majors remain consolidating in their current ranges.

The euro sold-off this morning but the EUR/USD found support just above 1.4440. Uncertainties remain over the next Greek bailout as Moody's commented on potential impairment charges for banks that hold Greek debt though the rating agency has not given its opinion if the French rollover plan for Greek debt would constitute a default. Should the 1.4440 level hold the euro could move higher in the New York trading session but would face resistance above the current consolidation pattern off of the May and June highs which comes in today at 1.4520.

Sterling rebounded after a better than expected services PMI reading surprised the market with the index rising to 53.9 from 53.8. It appears that the data could have been leaked early as sterling was seen appreciating minutes ahead of the data release as some punters may have been looking to get ahead of the data. The rally in the GBP/USD held near the mid-May lows at 1.6120. A break here and sterling could tack on an additional 1.5 cents. Support is found at the bottom of the bearish flat pattern of 1.6040.

As expected the Australian central bank kept interest rates steady citing growth concerns and the influence of a strong AUD keeping inflation under control. This kept the AUD on the decline as traders largely ignored the strong trade balance numbers. The AUD/USD fell but found support at its 50-day moving average at 1.6060. Further support may be found at the broken downtrend from the May high which comes in today at 1.0590.

Asian equities were even with the Nikkei just finishing in the black after Moody's soured market sentiment after warning on Chinese banking concerns. According to Moody's, local Chinese governments may have larger than previously reported debt levels. This warning could damper the "risk-on" trade that began last week, thus a potential catalyst for the dollar.

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Swedish Krona Rising on Interest Rate Increase

Posted: 05 Jul 2011 03:10 AM PDT

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The Risksbank increased the repo rate by 25 bps earlier today while raising both its growth and inflation forecasts. Immediately following the announcement the SEK surged versus the euro to a Fibonacci retracement level.

Citing strong economic growth and increased inflation expectations the Risksbank hiked interest rates to 2.0% from 1.75%. In the accompanying rate statement the Swedish central bank said it expects the economy to grow this year by 4.6% in contrast to its previous forecast of 4.4%. Next year the Risksbank forecasts increased growth of 2.3% from 2.2% expected growth. CPI expectations were also increased to 3.2% from 3.1% in 2011 and next year inflationary forces should moderate to 2.8%.

Given the higher expectations for GDP and CPI, the SEK could make further inroads against the euro on expectations of higher Swedish rates. Comparing the euro zone's growth prospects with the background of the peripheral debt crisis and the Swedish krona looks to be much better growth play.

Turning to the charts the EUR/SEK appears to have made a top in its rebound and the move has retraced to 9.0530, near the 38% Fibonacci level from the March to June move. A close below this level would go a long way to shifting momentum to the downside back in line with the long term trend. The next target would be the 61.8% Fib at 8.9170, followed by the June 1st low at 8.8770. Should the pair bounce higher from its current support the EUR/SEK would encounter resistance at 9.1250 and the June high at 9.2725.

EURSEK_Daily

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Tuesday, July 5, 2011

FOREXYARD: Forex News Blog

S&P Says No to Greek Debt Rollover

Posted: 04 Jul 2011 05:26 AM PDT

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Just as quickly as EU officials thought they were out in the clear of the Greek debt crisis, the rating agencies pull them back in. Early in the morning S&P announced that the French led Greek debt rollover plan in its current form would be considered a credit event, sending EU officials back to the drawing board.

In a release earlier this morning S&P announced it would view both French banking proposals as a "selective default." The view by S&P is discouraging as it is the first of the three major rating agencies to comment on the proposed rollover plan. S&P cited both proposals would return a reduced value to the holders of Greek debt than previously expected under the original debt agreement. Under ECB guidelines the European Central Bank will not accept Greek debt as collateral in exchange for ECB liquidity after a default. While the decision by S&P is certainly a negative for the euro, the 17-nation currency was off its early highs versus the dollar but has been able to maintain its position above the 1.4500 level, perhaps due to expectations of an interest rate hike by the ECB this week. Initial resistance is found at the top of the consolidation pattern at 1.4520 and a solid close above here would likely target 1.4700. To the downside 1.4440 from the June 22nd high is the initial support.

Cable was stronger after construction PMI survey was in-line with consensus forecasts, falling to 53.6 from 54.0. Sterling was initially supported as were gilts, but the rally faded as the European trading session extended into the afternoon hours. Recent UK economic data releases have been in the doldrums and therefore sterling got a lift from the data. Talk of an additional round of quantitative easing at the next BOE meeting may keep sterling on its back foot in the near-term. Market positioning has also fallen out of favor with sterling as Friday's CFTC Commitment of Traders report shows speculators are now net short sterling for the first time since mid-January, a possible signal of a shift in the long term trend of the GBP/USD.

The majors will likely be range bound for the remainder of the day, typical of trading conditions with tight liquidity as US markets will be closed in observance of Independence Day. Happy 4th of July.

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