Central bankers and politicians were the drivers of the FX markets last week and this will likely continue this week. There are 9 central bank meetings on the economic calendar with the most important being the ECB who could cut rates by at least 25 bp.
Forex Market Trends
USD – Central Bank Meetings Galore
Central banks have stepped in to fill the void left by politicians on both sides of the Atlantic. Congress was unable to come to an agreement to lower the US deficit. European politicians have so far failed to contain the 2-year old European debt crisis. Thus central bankers have taken it upon themselves to support financial markets. The move by the leading central bankers to increase liquidity through discounted currency swaps helped to support financial markets where the politicians have failed.
This week there are nine central bank meetings. The Fed will meet next week on December 13th. The market tone this past week was much more positive than throughout most of the month of November and may continue into the new week. This would likely lead to additional USD declines.
With the exception of Friday’s trade balance and consumer sentiment survey the US lacks major data releases this week. This will leave markets to be pushed and pulled by news reports and market rumors which make for a difficult trading environment. That being said, there is no substitute for strict risk management.
EUR – ECB Highlights Week Full of Central Bank Meetings
Central bankers and politicians were the drivers of the FX markets last week and this will likely continue this week. There are nine central bank meetings on the economic calendar with the most important being the ECB who could cut rates by at least 25 bp. Given the recent comments by Draghi there appears to be a shift in the ECB policy as the bank recognizes the risk of deflation creeping into the euro zone economy. This comes from the expectations of a slowdown in growth as signaled by the downward trend of European PMI surveys. In response the ECB may lower interest rates by 25 bp for the second consecutive month. There is also a talk of a possible 50 bp rate cut but this may be an exaggeration. Additional liquidity measures could be be opened by the ECB to improve access to funding for European banks. The world’s central banks took this step last Wednesday with the discounted swap lines.
Draghi has also suggested the ECB may be more open to assisting European nations who have come under funding pressures. In a speech last week Draghi said that a commitment by EU politicians to adhere to, “Stricter budget discipline and binding their economies more closely is definitely the most important element to start restoring credibility. Other elements might follow, but the sequencing matters.” Should the ECB begin to feel that EU governments are taking concrete steps the ECB could unleash its “bazooka” to help stem the debt crisis.
AUD – RBA Expected to Cut Interest Rates
Consensus expectations are for the Reserve Bank of Australia to lower interest rates on Tuesday by 25 bp for the second consecutive month. This comes on the heels of a data which showed a -10.7% contraction in building approvals and below consensus retail sales numbers. The Australian economy is slowing and this will likely be confirmed on Wednesday with the release of Q3 GDP. Data coming out of China is also worrying as the HSBC Purchasing Manager’s Index fell to a 32-month low of 47.7 in the month of November from 51 in October.
Looking at the AUD the commodity currency continues to move higher off of its October lows with the improved market sentiment but the gains may have pushed too far with the AUD/USD rising over 6.5% last week. The pair has resistance at 1.0330 from the November 14th high. There is additional resistance at the November 3rd high of 1.0450 followed by 1.0610 from the downward sloping trend line off of the July and October highs. Forex traders may notice that the daily stochastics are beginning to roll over. Support is found at 1.0050 at the 20-day moving average.
Corn – Unreliable Government Crop Reports
An article in Monday’s Wall Street Journal shows how unreliable the recent government harvest reports have become. According to the WSJ the US Department of Agriculture monthly forecasts have been less than accurate over the past two years, the most inaccurate in the past 15-years. The government’s stockpile report has also come under criticism. The stockpile report shows the amounts of corn which is placed in storage facilities and silos. When the government reports are released they can create large price swings in the commodities markets as the release of the data is considered high impact news. Both hedgers and speculators have begun to question the accuracy of the government’s reports as their recent releases have triggered markets’ circuit breakers on corn prices over the past 3 years according to the WSJ. Corn prices are currently trading near their recent lows at 584.58. The commodity has support at 581.60 and 571.60 with resistance at 631.00.
The weekly chart shows the pair is trading in a symmetrical triangle pattern with the resistance line falling from the May high and support line rising from the yearly low. The first support from this chart pattern comes in this week at 1.3200. A break here will likely open the door to not only the October low of 1.3145 but also1.3050 from the 61.8% Fibonacci retracement of the bullish move spanning 2010 to 2011. The January low of 1.2875 could contain the near-term price action. To the upside the November 18th high of 1.3610 is the initial resistance followed by the mid-November consolidation at 1.3860 where the 100-day moving average also lies. The top of the triangle pattern would likely contain any move higher near 1.4230-1.2350.
Last week cable found resistance at 1.5780, a level that has proven to be resistive in the past. Additional resistance is found at the October high of 1.6165. Monthly and weekly stochastics continue to move lower and as such the November low of 1.5435 is the initial support followed by the October low of 1.5270. The last bastion of support for the GBP/USD is found off of the rising trend line from the 2009 and 2010 lows which comes in at 1.0590.
The USD/JPY is encroaching on its long term trend line off of the 2007 high and comes in at 78.70. A break above this level is needed to confirm the recent price appreciation. Both weekly and monthly stochastics are moving higher so traders may look for additional resistance at 79.50 from the post intervention high. The 200-day moving average is also lurking just below this price. Should the pair fail at the long-term trend line the congestion between 77.50-77.60 may prove to be supportive while the all-time low near 75.60 stands out as the last support.
As weekly stochasttics have already turned lower the monthly stochastics are beginning to roll over. This is occurring after the pair looks to have failed to break above the 0.9330 resistance level. As such the pair has support at last week’s low of 0.9065 followed by the November low of 0.8760 and the October low of 0.8565. A break above the 0.9330 resistance could spur gains towards this year’s high of 0.9780.
The Wild Card
The AUD has run into resistance at 1.0330. There is a lot of resistance at this level as this price coincides with a previous resistance from the November 14th high as well as the 100-day moving average which comes in at 1.0300. Forex traders may notice that the daily stochastics are beginning to roll over. Support is found at 1.0050 at the 20-day moving average.
Written by Forexyard.com