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Will the Fed expand 'Operartion Twist'?

Daily Outlook - 20th June 2012

Written by Zoe Fiddes

CURRENCY TRADING SUMMARY 20/06/2012

Sterling / U.S Dollar (GBP / USD):

GBP/USD traders were faced with volatility this morning which caused a spike down to 1.5650 which rapidly recovered back to 1.5700 in a matter of minutes. The sharp move down came as a host of significant UK data was released; the BoE minutes show that the split for unchanged rates and quantitative easing (QE) was tighter than expected at 5-4 (7-2 split was expected) and to add to this jobless claims changed increased in May to 8.1K from -12.7K in the previous month. However, the pair has since made a good recovery to trade back in the 1.57’s as profit takers came in to buy. The high yesterday, tested twice, was 1.5757 and the initial ceiling lies at 1.5775 but offers are now seen at 1.5760 and the 76.4% post Greece retracement level is at 1.5758. On the downside the initial support and preference to buy lies at 1.5650. At 17:30 BST we have the FOMC rate decision, at 19:00 the FOMC will release projections of the US economy and to follow, at 19:15, Bernanke, Fed chairman, will hold a press conference. The feeling in the market is that the FOMC will extend ‘operation twist’. This is the Fed’s purchase and sale of long and short-term bonds to affect bond yields. If this happens then higher yields can lead to a stronger US dollar. This is a very important announcement, to find out more speak with a dealer at easy-forex.  

Euro / U.S Dollar (EUR / USD):

EUR/USD did not move viciously as the UK data came out instead it rose in the minutes to follow on US dollar weakness. The pair tested 1.2670 low before rising to test the 1.2700 big figure making a high of 1.2707. It was a flash up above 1.2700 but the pair now trades at 1.2686 as Asian sovereign offers are noted at 1.2710. If the pair retraces back to 1.2640 there is a preference to buy with the initial resistance noted at 1.2725. This pair is expected to become volatile, along with the other USD pairs, from 17:30 BST as the FOMC news hits the market.

U.S. Dollar / Japanese Yen (USD / JPY):

USD/JPY is range trading from 78.80/85 to 79.08/12. An attempt to break below 78.80 overnight failed and in the London open the pair has climbed to trade at 79.00, however we are seeing some reliance at the big figure. Traders have reported of Japanese hedging activity on upticks and on the 30 min bar chart the pair is capped by a negative trend line, which is indicating a preference to sell from the 79.15 pivot point.    

Australian Dollar / U.S. Dollar (AUD / USD):

AUD/USD made new highs yesterday and again in the London open, the pair is testing the 1.0200/07 resistance zone and moves to this area so far have been met with pull backs to the 1.0170/90 area. Intraday technical analysts see further upside noting that the RSI is lacking downward momentum and there is a preference to buy from the 1.0140 pivot point with 1.0215 as the initial resistance. This pair is likely to experience volatility around the FOMC announcements later today, with the moves being USD driven.  

Gold (XAU):

XAU/USD has dropped in the Asia close and into the London open, moving down from 1622.0 to 1610.0. The pair currently trades at the low and there is a preference to buy from 1608.0, as long as this holds, with the initial profit target eyed at 1623.7, followed by 1633.0. If 1608.0 breaks the 50% Fib level lies at 1603.0 followed by the 61.8% at 1594.0.   

Oil:

OIL/USD dropped from 84.50 down to 83.80 in the London open/ Asia close. But the slippery commodity reversed off this low and regained all losses as the US dollar weakened across the board, it now trades at 84.40. There is a preference to buy from the pivot point 83.89 and 84.70 is the initial ceiling closely followed by 85.17.

Technical Commentary:

  Sup 2 Sup 1 Last Res 1 Res 2
GBP/USD  1.5615 1.5650   1.5745  1.5775  1.5800
EUR/USD  1.2610  1.2640  1.2714  1.2725  1.2745
USD/JPY  78.60  78.75  79.02  79.15  79.30
AUD/USD  1.0100  1.0140  1.0203  1.0210  1.0245
XAU/USD  1603.0  1608.0  1612.0  1622.0  1633.0
OIL/USD  83.20  83.89  84.61  84.70  85.17

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