The USD was up across the board yesterday prior to today’s FOMC meeting. With such key events occurring near the end of last week perhaps investors took the weekend to digest the news from Europe before sending the EUR and equities lower.
Forex Market Trends
USD – USD Strengthening Prior to FOMC Meeting
After a period which lacked significant US data releases the USD returns to the limelight today with the Federal Reserve FOMC meeting. We’ll also get CPI and retail sales numbers prior to the FOMC statement. The Fed is not likely to change its policy in today’s statement but the central bank could sound more upbeat given the trend of better US data over the past 2-months. The next opportunity for the Fed to announce a potential QE3 program will be at its meeting on January 24, 2012.
The USD could continue to find support as Europe lacks a credible solution to the European debt crisis in the near-term. Liquidity may be on the light side with the approaching holidays and this could push short term trends even further. The EUR/USD has support at 1.3145 from the October low. A break here will put in play 1.3050, the 61% Fibonacci retracement of the 2010-2011 rally from 1.1875 to 1.4940.
EUR – EUR Falls as Equities are Crushed
With such key events occurring near the end of last week perhaps investors took the weekend to digest the news from Europe before sending the EUR and equities lower. The EUR/USD was down more than 1.00% while the German DAX was lower by 3.36%.
The ECB made it clear it would support the European banking system and has flooded banks with liquidity. However, investors were disappointed when Draghi stressed it was not the ECB’s duty to fund EU sovereign debt. The ECB did lower interest rates but scuttled investors’ hopes for quantitative easing to support the EU economy which is quickly falling into a recession.
While some commentators see the most recent EU summit as a failure, European leaders made significant steps towards increased fiscal coordination and enforceable EU budget rules. Unfortunately the policy changes will be slow to implement and do little to support economic growth in the near term. Most likely the austerity measures will stiffen growth and intensify an EU recession. The absence of a political solution could keep the pressure up on both European bonds and EUR as we close out the year.
GBP – Sterling Supported Despite UK Rejection of EU Plan
The UK decided against joining the EU in agreeing to tighter deficit and debt restrictions. There have scathing criticisms of UK PM David Cameron from a variety of media sources for his rejectionist policy. However, markets have reacted positively to both sterling and gilts. After moving below its initial support level at 1.5560 from last week’s low the GBP/USD found a bid. Gilts were also stronger with the 10-year yield falling to 2.12%. 1-week ago the 10-year was yielding 2.33%.
Today we’ll get UK CPI data which is expected to fall to 4.8% from 5.0%. A confirmation of declining inflationary pressures would confirm the BoE’s forecast and lend additional support to more QE from the BoE.
The EUR/GBP is testing the bottom of its consolidation pattern from Q2 which comes in at 0.8450. The next support below here is at 0.8390 from the chart pattern from October 2008 low. Resistance is found at 0.8620 from the December high.
Gold – Look for 23% Fibonacci Level
Yesterday’s price declines have taken spot gold below its triangle chart pattern. The commodity originally had support at $1,665 from the rising support line off of the September 29th low. A measured move from the chart pattern suggests gold could fall an additional $80. There may be additional support beforehand at $1,622, the 23% Fibonacci retracement from the September collapse in the price of spot gold.
The 20-day moving average is now at 1.3420 and has served as a significant resistance level with the EUR/USD last closing above this line on November 3rd. While weekly stochastics are beginning to look oversold the monthly stochastics still have room to move lower. With the downtrend firmly entrenched the supports from the November low of 1.3260 and the October low of 1.3145 are within striking distance. A move higher may find willing sellers at the December high of 1.3550 and the November 18th high of 1.3610.
Sterling has been caught in a range trading environment between the levels of 1.5780 and 1.5660 where the 55-day moving average is found. With daily and monthly stochastics moving lower the November and October lows of 1.5420 and 1.5270 look to be within reach. Resistance for the GBP/USD can be found at the November 18th high of 1.5890 followed by the falling trend line from the August high which comes in at 1.5925.
The doji candlestick from December 8th stands out as the day’s low coincides with both the 55-day and the 100-day moving average. This may be the start of a base being formed for a test of the June 2007 trend line which comes in at 78.50. A break here will expose the post-intervention high of 79.50. To the downside the November 18th low of 76.55 is the last support prior to the pair’s all-time low at 75.56.
The pair continues to struggle to overcome the 0.9330 resistance level despite multiple attempts to move higher. A concerted move higher may find resistance at the 20-month moving average of 0.9380 followed by this year’s high of 0.9780. The downside may be capped at the support of 0.9065 which coincides with the pair’s 55-day moving average. Additional support is located at the November low of 0.8760.
The Wild Card
Yesterday’s price declines have taken spot gold below the triangle chart pattern. The commodity originally had support at $1,665 from the rising support line off of the September 29th low. A measured move from the chart pattern suggests gold could fall an additional $80. Forex Forex traders may find additional support beforehand at $1,622, the 23% Fibonacci retracement from the September collapse in the price of spot gold.
Written by Forexyard.com