Date: Tuesday 10 Aug 2010
In Asia today the Bank of Japan kept interest rates unchanged, without announcing any new policy steps to weaken the yen at its monthly meeting in Tokyo this morning. It also kept its economic assessment unchanged, holding fire until, or unless the yen continues to appreciate towards its all time highs at the 79.80 level.
In China the trade surplus rose to an 18 month high in July, with annual imports slowing by a third, which seems to suggest that the Chinese economy continues to slow down. Analysts had expected imports to climb by about 30%. This fear of a continued slow down has weighed on risk appetite elsewhere, with the Australian dollar sliding back, and helping the US dollar rebound against the euro and pound.
This rebound ahead of today’s Fed rate meeting, allowed the dollar to post only its second daily gain in ten days yesterday, as traders look to square up positions ahead of today’s announcement.
Today’s meeting is likely to see the Federal Reserve lower its growth outlook which should be no surprise given Bernanke’s comments last month. It is also highly unlikely that they will announce any form of new stimulus measures, despite the recently poor economic data.
The key focus will be on how the Fed steers the markets in terms of its approach, and whether or not renowned hawk Thomas Hoenig changes his stance with respect to the “keeping rates low for an extended period” language. If he does change camps this could well undermine the dollar further.
In the UK today there is the small matter of the UK total trade deficit for June which is expected to have narrowed to -£3.6bn from the 22 month highs of -£3.8bn in May. There is a concern that the falling pound, while boosting exports has not had the effect analysts had hoped for, while import growth has helped keep inflation higher than it should be as UK domestic demand has improved.
While the visible trade deficit is forecast to have shrunk to £7.6 billion in June from £8.1 billion in May, an improvement but well above the 2009 average.
EURUSD – the euro was unable to break back above Friday’s highs at 1.3335 yesterday slipping slowly back and breaking below rising trend line support at 1.3205 from the 1st July lows at 1.2190/00 in Asia this morning.
A break below the 1.3200 now targets the 1.3125, 38.2% level Fibonacci level and previous breakout level.
While above here the rise towards 1.3510, the 50% retracement area of the 1.5145 to 1.1880 down move, remains on the cards.
A break below the 1.3120 level could well see some 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 1.6000 level continues to frustrate the sterling bulls holding despite three attempts to break above it.
Momentum appears to be starting to wane slightly ahead of Wednesday’s Bank of England quarterly review and today’s break below Thursday’s lows around the 1.5810/20 level could now trigger a deeper correction towards the 1.5520/50 area.
The pound could still break above the 1.6000 level and head towards 1.6280 but it needs to get back above the 1.5870 level pretty quickly.
Long term rising trend line support levels, remain around the 1.5470/80 area, from the June lows at 1.4350.
EURGBP – the cross continues to frustrate and confuse in equal measure. Friday’s break back above the old 0.8315/20 neckline should have precipitated a move towards the 0.8410 level, however a failure to advance beyond 0.8340 saw a dip back below 0.8300 before the cross rebounded as it flounders in a range.
It does appear to be trading in a narrow upward channel from the 0.8255 lows of last week with support around 0.8300 and resistance around 0.8351.
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.
In China the trade surplus rose to an 18 month high in July, with annual imports slowing by a third, which seems to suggest that the Chinese economy continues to slow down. Analysts had expected imports to climb by about 30%. This fear of a continued slow down has weighed on risk appetite elsewhere, with the Australian dollar sliding back, and helping the US dollar rebound against the euro and pound.
This rebound ahead of today’s Fed rate meeting, allowed the dollar to post only its second daily gain in ten days yesterday, as traders look to square up positions ahead of today’s announcement.
Today’s meeting is likely to see the Federal Reserve lower its growth outlook which should be no surprise given Bernanke’s comments last month. It is also highly unlikely that they will announce any form of new stimulus measures, despite the recently poor economic data.
The key focus will be on how the Fed steers the markets in terms of its approach, and whether or not renowned hawk Thomas Hoenig changes his stance with respect to the “keeping rates low for an extended period” language. If he does change camps this could well undermine the dollar further.
In the UK today there is the small matter of the UK total trade deficit for June which is expected to have narrowed to -£3.6bn from the 22 month highs of -£3.8bn in May. There is a concern that the falling pound, while boosting exports has not had the effect analysts had hoped for, while import growth has helped keep inflation higher than it should be as UK domestic demand has improved.
While the visible trade deficit is forecast to have shrunk to £7.6 billion in June from £8.1 billion in May, an improvement but well above the 2009 average.
EURUSD – the euro was unable to break back above Friday’s highs at 1.3335 yesterday slipping slowly back and breaking below rising trend line support at 1.3205 from the 1st July lows at 1.2190/00 in Asia this morning.
A break below the 1.3200 now targets the 1.3125, 38.2% level Fibonacci level and previous breakout level.
While above here the rise towards 1.3510, the 50% retracement area of the 1.5145 to 1.1880 down move, remains on the cards.
A break below the 1.3120 level could well see some 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 1.6000 level continues to frustrate the sterling bulls holding despite three attempts to break above it.
Momentum appears to be starting to wane slightly ahead of Wednesday’s Bank of England quarterly review and today’s break below Thursday’s lows around the 1.5810/20 level could now trigger a deeper correction towards the 1.5520/50 area.
The pound could still break above the 1.6000 level and head towards 1.6280 but it needs to get back above the 1.5870 level pretty quickly.
Long term rising trend line support levels, remain around the 1.5470/80 area, from the June lows at 1.4350.
EURGBP – the cross continues to frustrate and confuse in equal measure. Friday’s break back above the old 0.8315/20 neckline should have precipitated a move towards the 0.8410 level, however a failure to advance beyond 0.8340 saw a dip back below 0.8300 before the cross rebounded as it flounders in a range.
It does appear to be trading in a narrow upward channel from the 0.8255 lows of last week with support around 0.8300 and resistance around 0.8351.
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 support around 84.80 managed to hold in the short term as the dollar found support at 85.02 yesterday. Since then we have seen the yen weaken as the dollar has drifted higher over the last 24 hours ahead of today’s Fed meeting. The 86.25 break level remains a key resistance while behind that there is also resistance at 87.00 the May flash crash low.
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.
source:digitallook
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