Low Interest Rates through 2013 Helps USD Stabilize

The plummeting value of the USD was offset yesterday after the Fed announced Tuesday that it would hold interest rates near zero for the next two years. So far, this adjustment by the Fed has been enough to stave off a massive downturn in global stock markets like the one seen Monday.

Forex Market Trends

Daily Trend no no down down no no
Weekly Trend up up down down up up
Resistance 1.4700 1.6750 81.50 0.8270 1.0800 0.9150
1.4540 1.6550 80.20 0.8080 1.0525 0.9080
1.4400 1.6475 78.50 0.7800 1.0400 0.8880
Support 1.4050 1.6220 76.25 0.7065 0.9925 0.8760
1.3940 1.6085 0.9700 0.8650
1.3840 1.5780 0.9530 0.8610

Economic News

USD – USD Holds Ground on Low Interest Rate Statement

The US dollar (USD) was seen trading sideways at yesterday’s close after a day of mixed news from the global economy. The plummeting value of the USD was offset yesterday after the Fed announced Tuesday that it would hold interest rates near zero for the next two years. So far, this adjustment by the Fed has been enough to stave off a massive downturn in global stock markets like the one seen Monday.

Economic news this week has pushed traders into a position of market pessimism; though trading yesterday was behaving with more balance than many analysts had anticipated. Little news has emerged which put a dent in the amount of pessimism surrounding the forex market, traders are now eyeing the finer details of the US debt ceiling plan to determine when, or if, a return to risk appetite is expected.

With a moderate news day expected from the US and Canada, traders will be witnessing the release of this week’s unemployment claims report and trade balance data. Following yesterday’s better-than-expected federal budget balance and wholesale inventories, today’s data should help generate some volatility as investors assess risk appetite. Should it also support optimism, traders may return mildly to riskier assets and away from the USD.

EUR – EUR Mixed as Data Confounds

The euro (EUR) was seen trading with largely mixed results yesterday as traders moved into and away from riskier assets across the region. Against the US dollar (USD) the euro was seen trading sideways in late trading as shifts back into the greenback, due to bolstering brought on by statements by the Federal Reserve over interest rates, caused several market participants to opt for US Treasuries instead of riskier assets.

The largely bearish reports out of Europe yesterday have appeared to confirm many fears felt by traders who were anticipating a string of pessimism. Debt concerns remain a priority in the euro zone’s periphery, and the holiday season in Europe is generating significant uncertainty as European leaders take leave amid a tremendous crisis.

On tap today, traders will witness the release of a less significant report on the German Wholesale Price Index (WPI). Many analysts are now looking to Germany to shore up much of the euro zone’s economic strength, with added responsibility falling to one of the few nations which has experienced very little economic distress. Should today’s report show a weakening in Germany, traders may flee the region in larger numbers.

AUD – Australian Employment Data Expecting Decline

The Australian dollar (AUD) was weighed down yesterday, as market reports showed contraction across the boards. Piling atop recent reports on Australia’s shrinking housing sector, the publication of Australian retail sales and its national trade balance showed a broadening contraction striking several sectors of Australia’s economy. Job advertisements have also slumped heavily this past month. Many are anticipating a bearish figure from today’s employment data, which gives more weight to the notion of a bearish AUD towards this week’s closing.

Australia’s economy has been much worse in its performance than it was expected to be just one month ago. Investors were once piling into the Aussie en masse as its lucrative potential shone through. As housing has slumped, and as monetary adjustments take place in China, Japan and New Zealand, the Australian economy now finds itself bearing the brunt of the blows coming down on the Pacific. Should this bombardment continue, the AUD will likely remain in its current bearish channel.

Oil – Crude Prices Lower as Ratings Downgrades Dampen Demand

Crude Oil prices fell mildly lower Wednesday as the downgrade of US debt by S&P pulled demand for oil significantly lower. Data releases out of Europe and the US last week are also driving many investors back into safe-haven assets as many reports suggested a surprise downtick in growth among global industrial output and consumer spending.

The impact has been a decline in oil values from over $100 a barrel last week to a current price near $88. An expected jump in dollar values due to this week’s risk averse environment has helped many investors ram up their short-taking positions on physical assets, but with the USD’s gains not materializing, sentiment appears to have the price of crude oil holding steady, with gradual losses priced in. Should Crude Oil sentiment continue to flatten this week, oil prices may reach a decision point which forces a wide swing by week’s end.

Technical News

An opening gap higher on Monday morning took the pair above its current downward sloping channel that contained the EUR/USD since late July. Selling into EUR/USD gains may be the right play as the pair has been unable to hold a bid above the 1.45 level. Initial resistance comes in at 1.4540 though a break above the June high of 1.4700 would likely reverse the negative technical tone. To the downside support comes in initially at last Friday’s low of 1.4050 followed by the 200-day moving average at 1.3940 and the rising trend line from June 2010 which comes in at 1.3840.
Cable looks to be supported after moving lower and receiving a bounce at 1.6220. This level holds the 55-day moving average and a 38% retracement from the mid- July low to the late July high. Resistance is found at 1.6475 followed by 1.6550. A break here and sterling could test the April high of 1.6750. 1.6220 is initial support followed by the 200-day moving average at 1.6085, 1.6000, and the July low of 1.5780.
The spike higher in the value of the USD/JPY due to Japanese government intervention was short lived as the 80 yen level was eagerly sold into. The pair has retraced 68% of its move from the August low to the post intervention high and may continue to move lower. A previously broken trend line from the late July move lower may be supportive but most likely only a short term pit stop on the way back to the all-time low at 76.25. Resistance is found at 79.50 and the post intervention high of 80.22. An additional round of FX intervention could take the pair to the long term trend line off of the 2007 high which comes in at 82.00.
Even measures undertaken by the Swiss National Bank to weaken the Swiss franc have failed to give the USD/CHF a bid. On Monday morning the pair gapped lower to a new all-time low. Momentum is steadily falling and traders may want to continue to hold their shorts. Initial resistance stands at 0.7800 followed by 0.8080 and the downward sloping trend line from the February low at 0.8270.

The Wild Card

The spike higher to parity found resistance at the falling trend line from the May 2010 high which comes in at 1.0030. Forex traders may have an opportunity to enter back into the long term downtrend with a protective stop above the trend line and a target back to the July low at 0.9400.

Written by Forexyard.com