The market looks ahead to the FOMC rate decision and Bernankes comments
Daily Outlook - 2nd November 2011
Written by Zoe Fiddes
CURRENCY TRADING SUMMARY 02/11/2011
GBP/USD has advanced in the UK open on USD weakness despite the news lines continuing to focus on the possibility of a ‘no’ vote referendum in Greece which would mean they will refuse the next tranche of bailout funds and could to lead the countries default. However, this news was priced in yesterday and the pair came down to test the support zone 1.5890-1.5910. This zone has proved significant reversing the downtrend back up to the 1.60’s. The market now looks ahead to today’s news; at 16:30 GMT we have the Fed s rate decision and shortly after at 18:15 Bernanke will speak. The subject of QE3 has been pushed to the background because of the commotion in Europe but Bernanke is likely to touch on this today; previously signs of QE action from the Fed have weakened the US dollar. In the UK construction PMI gave investors more confidence in the GB pound coming out well above expected at 53.9 vs 50.0 and 50.1 last. This certainly lightens the mood of UK investors after the poor manufacturing PMI at 47.4 on Tuesday causing the pound to tumble down to 1.5900.
From a technical stance for the uptrend to continue it will need to break through the initial resistance at 1.6035 and then it may make its way to the critical 1.6090-1.6100 zone. And in the bigger picture 1.6150 is the major resistance level to watch out for. To the downside 1.5890-1.5910 remains the critical support zone.
EUR/USD was hit hard in yesterday’s trading on the news from Greece and the possibility of a ‘no’ vote was priced in bringing the pair down to 1.3600, a critical support level. This support is the first level since the fall from 1.4200 that has convincingly reversed the downtrend and have seen a 200 pip bounce from this low. It appears the market are looking ahead to the news from the US today and the possibility of QE3 being unearthed hence a weaker USD. However, in the bigger picture, the trend is still down with the near-term topside barrier at 1.3800 and we have already observed this morning that the price is struggling to move through this. To the downside 1.3700 is the initial support and 1.3600-1.3630 as the next support.
Despite moves up this morning and USD weakness on Fed easing prospects the euro remains under pressure as the plans to restore order are breaking. Questions still need to be answered. G20 leaders are due to arrive in France today for the summit on Nov. 3rd – 4th. German Chancellor Merkel and French President Sarkozy will meet the new ECB President, Mario Draghi, today. Sarkozy is also due to meet the Chinese leaders in the hope to receive help to boost the EFSF. The Chinese aid is a key element in the EU plan.
USD/JPY has taken a tumble this morning on USD weakness over the usual Japanese yen safe haven buying. It has fallen from 78.40 down to 77.95. The BOJ’s data suggests the intervention on Monday totaled approximately JPY 7.7 trn (over 61 bln GBP) which surpasses the previous record from August 4. This reveals the strong intention of the BoJ to keep their currency weaker. There are no signs that they will defend a floor on the USD/JPY price like the Swiss has done for EUR/CHF (at 1.2000) but with three interventions this year it certainly shows that the BoJ are not prepare to let the market form its own direction. They believe that speculative trading forces USD/JPY down and hence the strong yen does not reflect its true value.
From a technical stance USD/JPY found a comfort zone above 77.75, the level the price fell back to after the last intervention. If the pair moves back up offers are seen from 78.50 to 79.0 which would prevent the price from moving higher. Trading Central evaluate the pair as under pressure reporting the pivot point at 79.00 with a preference to sell below this with initial profit target (support) at 77.20.
AUD/USD made a good recovery to 1.0420 on USD weakness. To the downside 1.0270-1.0280 is proving to be a significant support zone which has been tested numerous times this week and has held off the downtrend. If the price moves back up towards 1.0420-1.0435 then there is a preference to sell and if the price continues down to 1.0275 the level may provide some good near-term support for a buy opportunity.
Gold (XAU) opened in Asia at 1719.88 and after an initial drop to a session low of 1714.29, gold started to rally quite heavily finding strong resistance at 1728, a level that was very much in play on the 31st of October, again, a price where gold was finding strong resistance. A strong push through this level took gold to a session high of 1732.68 towards the end of the session. Gold is currently trading at 1732.60 and seems to be finding good resistance at 1734.80. Technical analysis points to a higher trading day for gold and has highlighted the next resistance level at 1745, beyond that 1752.
Oil (Crude) started the overnight session at 90.91 and proceeded to trade higher after a lower European trading session. After hitting a session low of 90.62, oil made gradual gains to achieve a high of 92.71 and briefly broke the pivot point of 92.46. Since the European open, oil has traded slightly lower currently at 92.40. Technical analysis indicates oil trading higher with 93.20 as the next resistance level and 93.85 beyond that.
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