Bernanke to Testify in Congress Today

Federal Reserve Board Chairman Ben Bernanke will be testifying before the House Financial Services Committee in Washington, D.C. at 15:00 GMT today. His remarks tend to generate significant volatility in the forex market as they may hint at future monetary policy moves by the Fed.

Forex Market Trends

Daily Trend down down down down no down
Weekly Trend up up down down up up
Resistance 1.4370 1.6270 82.80 0.8845 1.0890 0.9075
1.4160 1.6140 81.50 0.8755 1.0770 0.8950
1.4070 1.5910 80.45 0.8550 1.0660 0.8830
Support 1.3950 1.5750 79.50 0.8360 1.0570 0.8720
1.3840 1.5650 76.11 0.8275 1.0380 0.8630
1.3720 1.5350 1.0275 0.8530

Economic News

USD – Bullish USD Gathers Strength alongside Market Pessimism

The US dollar has been increasing since late last week as traders appear to be seeking shelter following speculation that the global economy is slowing and economic recovery may experience setbacks as the year progresses. Fears of debt contagion in Europe as well as recent inflationary sluggishness in the UK are only the latest in a string of reports that paint an ominous economic picture.

The news so far has sent the EUR/USD towards 1.4000, with 1.3900 eyed should the price break beyond that trend line. With the economies of Europe, the UK, and the US publishing several impactful news items yesterday, traders witnessed a massive surge towards safety as Britain’s CPI figures disappointed, similar data from France and Germany witnessed very little growth, and the US trade deficit breached a 2-and-a-half year high.

With another heavy news day expected today, traders are sure to see a continuation of portfolio adjustment as volatility remains elevated. The US economy will be publishing data on its federal budget balance, import pricing, and crude oil inventories. Federal Reserve Board Chairman Ben Bernanke will also be testifying before the House Financial Services Committee in Washington, D.C. today. His remarks tend to generate volatility as they may hint at future monetary policy moves by the Fed.

GBP – UK Inflationary Figures Place Pressure on Today’s Employment News

Forex traders interested in the strength of the British pound sterling (GBP) this week have noticed a subtle shift away from the island currency as news of sluggish inflation began to increase the structural debt and employment woes affecting the region. With Italy’s economy being eyed with concern over a potential bailout becoming necessary, structural deficiencies are becoming intensified in the current debate.

Such news was also intensified by the UK’s weaker than expected inflationary figures mentioned above. The CPI and Core CPI reports from the British Office of National Statistics noted a marked fall from what was forecast by economists. The concomitant reports on RPI and DCLG’s HPI were also below expectations, adding to fears that growth may be seeing the beginning of a stagnating period. The unexpected rise in the nation’s trade deficit also added to these concerns.

As such, traders appear to have grown more concerned about how data such as today’s employment reports will affect the recent morass building behind this week’s market outlook. If the UK’s Claimant Count Change report reveals a deeper infliction of unemployment claims than previously thought, the news could send the GBP reeling as investors flee risk. The earnings index may also show that fewer companies are hiring or raising wages, which speaks to a yet deeper structural deficiency in the employment sector.

JPY – Japanese Yen Remains Bullish as Risk-Taking Subsides

The Japanese yen (JPY) was trading stronger versus most of its currency counterparts yesterday after several data releases have shifted traders back into safety since late last week. The yen has been gathering momentum these past few weeks as risk aversion became predominant in the global market following news of Greece’s debt woes, a global manufacturing slump, and rising energy costs. Fears of a debt contagion spreading from Greece to Italy also now factor greatly into risk assessment.

This movement has helped lift the yen against all of its currency rivals, including other safe-havens like the US dollar (USD). The steady, and dovish, monetary policy of the Bank of Japan (BOJ) feeds the yen’s appeal as investors find its low yield as an affective store of value. The rate statement released by the BOJ yesterday morning did not change much of this sentiment as rates were kept at their all-time low. Traders appear to be anticipating a continuation of the JPY’s appeal as a defense against unwanted risk.

Oil – As USD Pares Gains, Oil Rebounds

Crude Oil prices found mild support Tuesday as sentiment appeared to favor a downturn in the value of the USD from a minor uptick in EUR values. Data released out of Europe and the US last week are still driving many investors back into safe-haven assets as many reports suggested a surprise downtick in growth among global industrial output and consumer spending.

As investors sought safety, the value of crude oil, which has been seen rising since the middle of last week, fell to a weekly low of $95.60 a barrel on Monday, only to be supported and reaching back above $96 on Tuesday. A sudden 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 yesterday’s temporary downswing has so far helped lift oil prices throughout the New York trading session. Should Crude Oil sentiment hold steady this week, oil prices may continue to see such sideways movement.

Technical News

After a false breakout higher from the triangle chart pattern the EUR/USD is approaching the rising support line off of the May low at 1.4160. Falling daily and monthly stochastics suggest the next move will be to the downside. A break here and the next major support is found at 1.3970. The 200-day moving average at 1.3905 may also prove supportive. Below this key technical mile marker the rising trend line from the 2010 May low comes in at 1.3710 and traders may see buying interest at this level. To the upside the July 7th high at 1.4370 could be supportive, as well as the falling resistance off of the May and July highs at 1.4530. A close above the June high at 1.4700 would likely signal a shift in momentum to the upside.
Cable is caught in a 220 pip range as the pair struggles to stay above its 200-day moving average and its initial support at 1.5910. A move lower and the next support to enter the picture stands at the late January low of 1.5750, not far from the 38% Fibonacci retracement from the 2010 May to 2011 April move. Support is also found at 1.5650 which has served as both support and resistance in October and in December of last year. The consolidation pattern is capped at 1.6140 where the neckline from a head and shoulders pattern rests. For traders who are not yet short this would be a point from which to sell a potential rally. The head and shoulders reversal chart pattern shows a measured move which could take the GBP/USD lower to 1.5370.
A series of higher highs and lower lows has created a bullish channel on the daily chart but the pair will likely remain locked in a range that has contained the USD/JPY since early June. A number of resistance levels will provide ample opportunities to sell into any gains, a play that is in-line with the long-term trend. The top of the channel is found at 81.50 and is close to the 100-day moving average. Additional resistance is located at the May high of 82.20 and the falling trend line from the 2007 high comes in at 82.80. The bottom of the channel could prove to be supportive at 80.45 but a break here could test the May low at 79.50.
The daily chart provides an interesting technical picture for the Swissie. The pair is flirting with its 50-day moving average at 0.8550, a technical indicator the pair has not traded above since February. A potential head and shoulders bottom reversal may also be forming with the neckline falling from the mid-June highs and the high from July 1st. A measured move from the pattern suggests potential gains of 260 pips and a reversal would likely target the mid-May lows at 0.8755 and the March 16th spike lower which is also a Fibonacci retracement target at 0.8845.

The Wild CardGold

Spot gold prices have drawn a safe-haven bid, rising in step with the increased tensions from the euro zone. Yesterday’s appreciation of $3.40 took the commodity above the $1,557 resistance and the price of spot gold is encroaching on the May all-time high at $1,576. Forex traders may note a breach at this resistance and spot gold prices will likely test the next big round number at $1,600.

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