The US dollar remained broadly weak ahead of an Federal Open Market Committee interest rate decision which was due yesterday evening. Shortly after the rate decision Fed chairman Ben Bernanke was due to address a news conference – and it is interesting to point out that this type of post FOMC news conference (to better present the central bank’s decision) was in fact the first of its kind as it was not customary for the Fed to follow up the FOMC rate decision by a news conference like the European Central Bank already does.
The event was expected to potentially provide more direction on the fate of the US dollar. Another influential data release is expected today; from the United States as well – Q1 US GDP advanced.
Meanwhile in the earlier part of this week and prior to Wednesday evening’s FOMC interest rate decision and Mr Bernanke’s news conference, the EUR/USD continued its rise along the rising trend line that commenced on January 10 this year.
The persistent rise of the euro and the general weakness of the USD, in the light of the increased event risk the USD faced this week, in fact endorsed expectations that the Federal Reserve would leave policy rates unchanged. The perceived reluctance of the Fed to close the liquidity tap has, in the end, tilted support in favour of the euro on the basis of an interest rate differential that favours the single currency.
Apart from the interest rate decision per se any clues regarding the termination of QE were expected to be the highlights of yesterday’s news conference.
After reaching 16-month highs against the USD the GDP was lower across the board in the earlier part of the week. Cable (sterling /US dollar exchange rate) registered average losses of 0.46 per cent against the rest of the majors. Forex investors were awaiting more direction from last Wednesday’s UK GDP data. The better the projected performance for UK economic growth the higher are the chances of an earlier rate hike from the BoE.
Earlier this week the GBP/USD was trading in the range of 1.6439-1.6554. RTFX Trader Tip’s scenario for the current week envisaged a move higher up to 1.6687 at most; but warned that after such rise a correction lower could be expected. To the upside, resistance lies at 1.6687/1.6859 while to downside support lies at 1.6255/1.5995.
Today as well the BoJ was scheduled for an interest rate decision; no change was expected to be made to the loose monetary policy. Comments from BoJ Governor Masaaki Shirakawa, earlier this week, implied that boosting demand through further monetary easing would not be desirable since Japan’s biggest problem at the moment is restoring supply after the “severe supply shock” caused by recent events.
For the former part of the week USD/JPY has traded in the range of 81.57 – 82.43. Throughout this week we expect the USD/JPY to trade within the 81-83 region. To the upside resistance lies at 82.94/83.92, while to the downside support lies at 81.29/80.64. The EUR/JPY currency pair should find resistance at 120.90/122.61 while the pair should find support at 116.98/114.77.
Gold and silver marked new all time highs this week. Gold reached highs of $1518.25/ounce while silver reached highs of $49.81/ounce.
Last week the credit rating agency Standard & Poor’s lowered the outlook for the United States to negative, motivated by deficit concerns, and is believed to have given these precious metals another boost forward. With the economies in both the eurozone and the United States haunted by the spectre of sovereign debt, both metals remained well bid for.
Analysts’ forecasts have projected levels of $1,600/ounce and even of $1,650/ounce for gold within a year’s time. The same cannot be said for silver that has appreciated at a much faster price than gold and is thus believed to be a candidate for a possible correction in the coming year – although there might still be some room for upward price moves in the short term.
The Swiss franc registered all time highs against the weakened USD last Tuesday, the USD/CHF drifted lower to 0.8745. Economic differentials favour the Swiss economy when compared to the US and various analysts argue that it is only a question of time till the SNB will have to hike interest rates as well. Up till now the Swiss central bank has kicked rate hikes further down the road to avoid further appreciation in the Swiss franc.
Upcoming FX key events:
Today: German Unemployment, US GDP advanced and BoJ interest rate decision.
Tomorrow: Canadian GDP & US Michigan consumer sentiment.
FX technical key points:
EUR/USD is bullish, target 1.4750, key reversal point 1.3428.
EUR/GBP is bullish, target 0.9000, key reversal point 0.8500.
USD/JPY is neutral.
GBP/USD is bullish, target 1.67, key reversal point 1.5950.
USD/CHF is bearish, target 0.8650, key reversal point 0.9400.
AUD/USD is neutral.
NZD/USD is neutral.
Please feel free to send any comments or feedback regarding our articles on trading@rtfx.com.
RTFX Ltd (“RTFX”) is licensed to conduct investment services business by the Malta Financial Services Authority. This information does not constitute an offer or solicitation and is provided for information purposes only.
This information shall not be deemed to constitute advice and should not be relied on as such to enter into a transaction or for any investment decision. Any opinions expressed in this document represent the views of RTFX at the time of preparation.
They are thus subject to change without notice. RTFX believes that the information contained herein is accurate as at the date of publication. However, no warranty of accuracy is given by RTFX and no liability in respect of any errors or omissions, including any third party liability, are accepted by RTFX or any director, officer or employee.
www.rtfx.com
Mr Muscat is senior trader at RTFX Ltd.