Investors Eagerly Awaiting ECB Rate Decision

The euro took some mild losses against the yen and US dollar during the Asian session ahead of today’s euro-zone Minimum Bid Rate, scheduled to be announced at 11:45 GMT. The European Central Bank is widely expected to raise interest rates, a move which will likely help the EUR turn bullish once again to close out the week.

Forex Market Trends

Daily Trend up down up down up up
Weekly Trend up up up down up down
Resistance 1.4512 1.6459 85.94 0.9296 1.0558 0.8875
1.4415 1.6401 85.75 0.9249 1.0534 0.8853
1.4350 1.6387 85.53 0.9205 1.0500 0.8795
Support 1.4255 1.6257 84.84 0.9127 1.0403 0.8715
1.4205 1.6176 84.04 0.9029 1.0342 0.8663
1.4190 1.6147 83.80 0.8990 1.0270 0.8654

Economic News

USD – Dollar Remains Bearish Against European Currencies

While the US dollar was able to eke out small gains against most of its main currency rivals in overnight trading, the currency remained bearish overall ahead of a key decision from the European Central Bank later this morning. It is widely assumed that the ECB will hike euro-zone interest rates up to 1.25%, a move which is likely to send the EUR/USD pair soaring. In addition, the dollar has recently taken losses against the UK pound, as positive US data has sent investors toward riskier assets.

Currently the EUR/USD is trading at1.4300, down about 50 pips from yesterday’s high but still very much bullish overall. Similarly the GBP/USD, currently trading close to 1.6300, dropped slightly during the overnight session, but is still well above levels seen at the beginning of the week. The yen appears to be the only currency the dollar has been able to consistently make gains on. The USD/JPY pair went up close to 60 pips yesterday before staging a mild correction, and is currently trading at 85.15.

Turning to today, in addition to the ECB rate decision, traders will also want to pay attention to the US Unemployment Claims figure, set to be released at 12:30 GMT. Following last week’s surprisingly positive Non-Farm Payrolls report, a low unemployment number today may help the dollar recoup some of its recent losses as we near the end of the week.

EUR – EUR Shrugs off Portugal Debt Worries Ahead of Rate Decision

Despite the news that Portugal would need further EU assistance to overcome its sovereign debt troubles, the euro remained bullish overall ahead of a key rate decision by the ECB. An expected hike in euro-zone interest rates has helped investors maintain their confidence in the euro. While the EUR/JPY dropped close to 70 pips during Asian trading, the pair remains close to its recent 11-month high. In addition, the EUR/USD appears to be trading steady around the 1.4300 level after dropping around 35 pips last night.

After the ECB decision is announced, it is widely expected that these pairs will turn bullish once again, providing traders with an excellent opportunity to make some short term profits. That being said, today’s US Unemployment Claims figure could still play a role in the markets today. The number of people seeking first time unemployment insurance in the US is expected to drop from last week. If true, the news may help blunt any gains the euro makes in afternoon trading.

JPY – Yen Remains Down As Japan Rebuilds

The Japanese yen remained bearish overall in overnight trading, as the Bank of Japan has signaled that it will keep its monetary policy on hold in light of efforts to rebuild the tsunami ravaged nation. Experts are warning that the full scope of the disaster is not yet known, and that the cost of rebuilding will likely be massive.

The USD/JPY remains close to its recent six month high, and is currently trading right around the 85.15 level. The EUR/JPY came off its recent 11-month high during the overnight session, but remains up overall. The pair is currently trading around the 121.80 level.

Today, the yen is unlikely to see any major gains, as the expected euro-zone interest rate hike is expected to drive investors to riskier currencies. Whether the euro will be able to exceed its recent 11-month high against the Japanese currency is yet to be seen, but analysts are warning that it may happen.

OIL – New Price High Despite Low Volatility

Crude oil prices moved higher yesterday despite low price volatility in the commodity. The price of spot crude oil climbed as high as $109.12 to close at $108.41 from an opening day price of $108.07. Yesterday traders shrugged off higher than expected US inventories as the weekly inventory report showed an increase of US stocks by 2.0M on expectations of 1.3M.

A noticeable decline in volatility has occurred this week as crude oil traders may need a new catalyst to send the commodity higher. The 20-day Average True Range has fallen to $2.10 from a high of $3.50 since the middle of March. Yesterday the commodity moved only $1.21.

Supply fears driven by the geopolitical events in the Middle East and Africa remain in the back of traders’ minds as increasing economic growth is providing a bulk of the support for the crude oil gains. Despite short term indicators showing crude prices are overbought, forecasts remain for rising crude oil prices with a near term target at $121. Support is found at $107 and $102.

Technical News

The currency pair continues to perform well and yesterday put in a solid close above the 1.4280 resistance level off of the November high. Serious technical damage will be inflicted should the pair close on a weekly basis above this level as it also coincides with a long term trend line off of the July 2008 high. Traders will now target the January 2010 high at 1.4580 with a possible extension to 1.5140. To the downside, support comes in at 1.4280 and the 20-day moving average at 1.4120.
Sterling remains well bid following a rebound near the 100-day moving average at 1.5950 and should continue to find buyers near this support level. The 50-day moving average at 1.6150 should also prove to be supportive. To the upside, the 1.6400 mark is in play today. Further resistance is found at 1.6460 followed by a target of 1.6880 off of the November 2009 high.
Yesterday’s price decline of 14 pips, albeit a modest decline was the first price drop in 6 trading sessions and the pair failed to move above the trend line off of the 2007 high. However, momentum remains to the upside and traders should be targeting the mid-September high at 86 followed by 88.
The franc rose sharply against the dollar yesterday and the USD/CHF traded as low as 0.9130, a level that coincides with the short term trend line from the pair’s all-time low in March. A move below 0.9100 would put the bears back in the driver’s seat and target the all-time low at 0.8904.

The Wild Card

Spot silver climbed higher yesterday to $39.74 from $39.36. The all-time high for spot silver at $48.70 was made on January 17th, 1980. As it stands now, the commodity looks on its way towards this level and forex traders should be targeting this price. Supports come in at $38.15, followed by $36.50 and $31.60.

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