Aussie Central Bank Shocks the Forex Market

Australia surprised economists by holding interest rates steady after the market unanimously predicted an interest rate hike. Also a chain of positive news has helped spot crude oil prices jump over 5.5% during the past two days.

Economic News

USD – Pending Home Sales Hurt the Dollar

The dollar fell today versus the EUR as worries were reduced over Greece’s ability to repay its sovereign debt. However, trading ranges were tight as investors were hesitant to open such large positions prior to the release of the U.S. Non-Farm Payrolls report on Friday.

The EUR/USD rose to a closing price to day of 1.3965 after opening the day at 1.3914. The GBP/USD also rose to 1.5972 from 1.5929, while the USD/JPY fell to 90.36 from 90.76.

The USD gave back some territory today against the majors after its recent rally. Some of the appreciation of the EUR/USD may have been caused by traders taking profits from the recent decline in the pair.

U.S. economic data was positive today after the release of better than expected monthly pending home sales. The economic indicator posted an increase of 1% after economists predicted a climb of only 0.4%.

Today traders will be following the release of the ADP Non-Farm Employment Change along with the ISM Non-Manufacturing PMI. The ADP report has been known to show a correlation with Friday’s all important Non-Farm Payrolls Report and can significantly move the market. The ISM survey gives a feel for how businesses view the American economy. Better than expected releases for these indicators could send the EUR/USD back to its next support level of 1.3830.

EUR – Greek Debt Fears Subside

Greece’s budget crisis has been driving trading for the EUR, but this issue may be put to rest tomorrow when the European Commission on Greece’s plan to reduce the government budget deficit meets today. The EUR was supported today as the spread on Greek government bonds tightened from their high last week. Larger spreads in government bonds are viewed as a poor signal of financial stability and increased risk in holding the debentures. Greece currently has a budget gap close to 13% of its 2009 GDP. The European Union mandates budget deficits up to 3% of GDP.

A news heavy week promises to create volatility for the major pairs of the EUR. The strengthening the EUR experienced today may not continue throughout the week. On Thursday the European Central Bank will publish its minimum bid rate along with the accompanying announcement explaining the central bank’s position on the European economy. The market is not expecting the central bank to show a significant improvement to the European economy. This could weigh on the EUR during this week’s trading.

JPY – Australian Interest Rate Held Steady, Shocking the Market

The Australian central bank caught the market off guard yesterday with an unexpected decision to keep interest rates steady. Economists predicted the Australian interest rate would rise 0.25 basis points to 4.00%. Instead rates will remain for the time being at 3.75%. The decision to keep rates unchanged may allow the Australian economy to grow faster. However, keeping interest rates lower may also bring about unwanted inflation.

The surprise move was a positive for the AUD/USD as the pair climbed to a high of 0.8881 from an opening day price of 0.8801. The currency pair rallied 28% last year as the Australian central bank raised interest rates 3 times in the previous year. The rising Aussie dollar has weighed on the earnings of many Australian exporters. A stronger currency makes an exporter’s goods more expensive in the local currency.

The next policy meeting for the central bank is scheduled for March 2nd. There the central bank is again forecasted to raise interest rates to 4.00%. Traders should be cautious as trading on Australian interest rate moves has proven to be unpredictable.

Crude Oil – Crude Prices Jump on Positive USD Data

Spot crude oil prices rallied to a two-week high after the release of better than expected U.S. pending home sales. Prices jumped after the data release was seen by traders as an opportunity to buy crude after the positive economic data spurred the potential for higher future crude oil demand.

Crude oil prices rose today to $76.82 from an opening price of $74.68. Over the last two days the price of spot crude oil has jumped 5.5%.

The Pending Home Sales release is just one in a string of positive U.S. economic releases. Both last Friday’s GDP and Monday’s manufacturing data were better than expected, leading some spot crude oil traders to believe that future demand may begin to rise with economic improvement

Today traders will be focused on this week’s crude oil inventory data from the U.S. Energy Information Administration. Oil inventories are expected to rise by a meager 0.4M barrels. A data release below this level could help push crude oil prices up further, perhaps to the resistance line of $79.

Technical News

The Relative Strength Index (RSI) on the daily chart indicates that this currency pair is currently in oversold territory, indicating that a bullish trend may be on the horizon. Still, most other indicators put the pair in neutral territory, meaning that traders may want to take a wait and see approach for the pair today.
The Stochastic Slow on the 4-hour chart indicates that the pair is approaching overbought territory. This sentiment is confirmed by the Relative Strength Index (RSI) on the 2-hour chart, indicating a bearish trend could occur today. Traders are advised to go short with tight stops today.
The Relative Strength Index (RSI) and Stochastic Slow on both the daily and hourly charts indicate that the pair is currently trading in neutral territory. Traders may want to take a wait and see approach today, as it is not yet known what direction the pair could take.
The Relative Strength Index (RSI) on the daily chart indicates that the pair is currently in overbought territory. Usually this means that a downward correction is imminent, although most of the other technical indicators show the pair in neutral territory. Traders may want to wait for a clearer picture to emerge before making any major decisions.

The Wild Card

The Relative Strength Index (RSI) on the 1-hour chart indicates that the pair is currently in overbought territory. This theory is supported by the Stochastic Slow, also on the 1-hour chart. Based on this information, forex traders may want to go short with tight stops today, as the pair may see a downward correction.

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