Date: Wednesday 11 Aug 2010
The US dollar’s recent gains throughout the course of yesterday were rather sharply pared back after the Fed’s statement last night.
As expected, the Fed downgraded its outlook for the US economy calling investment in commercial property "weak" and making note that employers "remain reluctant to add to payrolls".
The lone dissenter remained President of the Kansas City Fed, Thomas Hoenig who insists that the economy needs no further help while it is still growing.
In an attempt to reinvigorate the US economy’s faltering recovery the Fed said it plans to buy long-dated US Treasuries in an attempt to boost growth in the US economy and in the process maintain the vast amounts of money it has pumped into the US economy during the financial crisis, by using the proceeds from its first tranche of stimulus. This decision to reinvest the proceeds of previous stimulus is probably the least it could have done, but it also leaves the door open for them to go further if necessary.
The US dollar slid back as a result, however these losses were short lived as data out of China showed that the Chinese economy continued to slow with industrial output easing in July to its lowest level in 11 months, while inflation rose to its highest level in 21 months to 3.3%. Retail sales also slipped back during July rising by 17.9% instead of the 18.5% expected, declining from a rise of 18.3% the previous month. These fears of a continued slowdown in China could weigh on risk appetite in the short term and see the dollar continue to rebound.
In data out today the US trade balance for June is expected to show a deficit of $42.1bn.
In the UK the pound could well come under pressure as the Bank of England unveils its quarterly inflation review, where it is likely that the Bank will have to raise its inflation forecasts, and cut its growth forecasts for 2011 and 2012.
Furthermore, Bank of England Governor Mervyn King, when he speaks on matters of the economy, has recently had a tendency to talk the pound lower, which could provoke further weakness.
At the same time the unemployment data for July is also expected to be announced with claimant count unemployment expected to fall by 17,000 in July, which would bring the number of unemployed down to a 17-month low of 1.44m. The ILO unemployment rate is expected to stay steady at 7.8%.
EURUSD – yesterday’s break of trend line support and fall below the 1.3125, 38.2% level Fibonacci level, and previous breakout level saw a sharp slide to 1.3075. However the Fed statement stopped the euro decline in its tracks and sent the single currency back above 1.3125 again. While the single currency is able to close above 1.3125 the likelihood of a rise towards 1.3510, the 50% retracement area of the 1.5145 to 1.1880 down move, remains on the cards.
A sustained move below 1.3125 is needed to see further unwinding of stops towards support around the 1.2950 level, a break of which would open a test towards the 1.2840/50 level.
GBPUSD – the pound continues to look a little wobbly despite the late rally after yesterday’s Fed meeting. The 1.6000 level remains the key barrier for sterling bulls despite three attempts to break above it.
Yesterday’s weakness saw the pound break below the 1.5810/20 level and touch 1.5710 before rebounding sharply above 1.5900. The pound needs to close back above the 1.5870 area to diminish the risk of further declines otherwise the risk remains for a deeper correction towards the 1.5520/50 area.
A break above the 1.6000 level is still possible but it needs to get back above the 1.5870 level pretty quickly.
Long term rising trend line support levels, remain around the 1.5490/00 area, from the June lows at 1.4350.
EURGBP – the cross continued to trade yesterday in the narrow upward channel identified yesterday from the 0.8255 lows of last week with support around the 0.8300/05 level and resistance around 0.8355/60, however this morning it broke to the downside, even though it briefly tried to trade above it.
The key target remains 0.8245 61.8% retracement level of the up move from 0.8065 to the 0.8520 double top, while below the 0.8410 level.
As expected, the Fed downgraded its outlook for the US economy calling investment in commercial property "weak" and making note that employers "remain reluctant to add to payrolls".
The lone dissenter remained President of the Kansas City Fed, Thomas Hoenig who insists that the economy needs no further help while it is still growing.
In an attempt to reinvigorate the US economy’s faltering recovery the Fed said it plans to buy long-dated US Treasuries in an attempt to boost growth in the US economy and in the process maintain the vast amounts of money it has pumped into the US economy during the financial crisis, by using the proceeds from its first tranche of stimulus. This decision to reinvest the proceeds of previous stimulus is probably the least it could have done, but it also leaves the door open for them to go further if necessary.
The US dollar slid back as a result, however these losses were short lived as data out of China showed that the Chinese economy continued to slow with industrial output easing in July to its lowest level in 11 months, while inflation rose to its highest level in 21 months to 3.3%. Retail sales also slipped back during July rising by 17.9% instead of the 18.5% expected, declining from a rise of 18.3% the previous month. These fears of a continued slowdown in China could weigh on risk appetite in the short term and see the dollar continue to rebound.
In data out today the US trade balance for June is expected to show a deficit of $42.1bn.
In the UK the pound could well come under pressure as the Bank of England unveils its quarterly inflation review, where it is likely that the Bank will have to raise its inflation forecasts, and cut its growth forecasts for 2011 and 2012.
Furthermore, Bank of England Governor Mervyn King, when he speaks on matters of the economy, has recently had a tendency to talk the pound lower, which could provoke further weakness.
At the same time the unemployment data for July is also expected to be announced with claimant count unemployment expected to fall by 17,000 in July, which would bring the number of unemployed down to a 17-month low of 1.44m. The ILO unemployment rate is expected to stay steady at 7.8%.
EURUSD – yesterday’s break of trend line support and fall below the 1.3125, 38.2% level Fibonacci level, and previous breakout level saw a sharp slide to 1.3075. However the Fed statement stopped the euro decline in its tracks and sent the single currency back above 1.3125 again. While the single currency is able to close above 1.3125 the likelihood of a rise towards 1.3510, the 50% retracement area of the 1.5145 to 1.1880 down move, remains on the cards.
A sustained move below 1.3125 is needed to see further unwinding of stops towards support around the 1.2950 level, a break of which would open a test towards the 1.2840/50 level.
GBPUSD – the pound continues to look a little wobbly despite the late rally after yesterday’s Fed meeting. The 1.6000 level remains the key barrier for sterling bulls despite three attempts to break above it.
Yesterday’s weakness saw the pound break below the 1.5810/20 level and touch 1.5710 before rebounding sharply above 1.5900. The pound needs to close back above the 1.5870 area to diminish the risk of further declines otherwise the risk remains for a deeper correction towards the 1.5520/50 area.
A break above the 1.6000 level is still possible but it needs to get back above the 1.5870 level pretty quickly.
Long term rising trend line support levels, remain around the 1.5490/00 area, from the June lows at 1.4350.
EURGBP – the cross continued to trade yesterday in the narrow upward channel identified yesterday from the 0.8255 lows of last week with support around the 0.8300/05 level and resistance around 0.8355/60, however this morning it broke to the downside, even though it briefly tried to trade above it.
The key target remains 0.8245 61.8% retracement level of the up move from 0.8065 to the 0.8520 double top, while below the 0.8410 level.
USDJPY – the yen continues to ping around within the confines of the range identified yesterday pushing back from the 86.25 break level which remains a key resistance, and the recent lows near 85.00 and the key support around 84.80.
The key support remains around last years lows at 84.80, a break of which would then look to target the 1995 lows below 80.00.
A break above 86.25 targets resistance at 87.00 the May flash crash low.
source:digitallook
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