Forex Trading News – 25th February 2010

The traders of EURUSD were holding fire on Wednesday ahead of Bernankes speech before congress.  The European Stock market fought back against the loss made in the early trading session and industrial data came out with better than anticipated results.  The EURUSD climbed a little as the headlines from the speech were broadcast but there was not much depth to the speech itself with the FED announcing that the USA would need low interest rates for the forseeable future, however this had already been backed by the hike in discount rates last week.  The S&P issued another update on Greece confirming that it is maintaining the BBB+ credit rating, a rating they have held for a period however that this could be reconsidered within a month.  EURUSD closed at 1.3538 which only measure small gains in comparison to Tuesdays 1.3507.

The Euro remained under extreme pressure overnight with new selling action on the EURJPY pair which inevitably dragged the EURUSD lower as well.  The Euro found no support with Moody’s determining that Greece would have to meet the tough conditions imposed on it to prevent further rating cuts.  With the major European leaders at each others throats politically, this did nothing to calm the nerves of traders who saw the EURUSD come within pips of lows this morning.

It seems traders are waiting for bad news to continue the sell off of the Euro.  Any good data provided by the European Commision today is likely to be ignored with traders ready to leapt on any scrap of bad news to continue their selling position.  With the news is the US showing slight signs of recovery this might provide some springboard action for the USD on the back of bad European data as the recovery of the European countries is less evident than that of its US counterpart.  With Bernanke carefully pitching the second part of his speech before Congress so as not to provide new information to the markets, it is unlikely that the Euro will find any comfort in todays trading.

Trading the pairs – Monday

 GBP/USD

The pair saw a test of the 50% retracement level set by 2009’s rally crossing and sees it likely to have a higher opening for much of this week, however with the stochastic and RSI indicators are suggesting a bearish turn for the pair.  Should the pair keep falling the 62% retracement of 2009’s rally crossing is the next support line

USD/CHF

This pair closed only slightly higher after a good rally on Thursday.  USDCHF is set for a steady opening with the 2008/09 50% retracement level the next upside target to be reached.

JPY

The yen started much weaker as we went into the new trading week and lost ground against all of its major competitors as the Asian stock market did well.  The EURJPY reached its two week high as confidence in German business rose to it highest level since mid 2008.

AUD

Speculation that the BoA will raise its borrowing costs in March helped the Aussie dollar reach a 25 year high.  This trend is likely to continue in the coming weeks as this increases the spread to both US and European interest rates.

EURUSD – Monday trading

The FED triggered a move to dollar strength on Thursday as the trade weighted dollar rose steadily after news that the FED hiked the discount rate.  This meant much of Friday was spent determining how much important to place on this unexpected move.  The EURUSD rached a low of 1.3444 but the dollar could not find the momentum to rise any further.  As the Greek debate continues the Euro seemed contained with limited losses possibly due to the strength of the European stock market and strong European PMI data from the manufacturing sector.  However the dollar too kept up in terms of the stock markets which did not hurt the recent improvement in risk appetite.  The pair closed higher at 1.3613 in comparison to the close of Thursday at 1.3527.

Once again focus has turned to Greece and the plan for moving forward which has lent some support to the Euro against the dollar.  Any type of bail out that comes out of the next few days still contains many risks for the Euro with EMU framework now being tested for durability.  With no significant market news coming for Monday it is likely that the Greek bail out will be the driving force behind market movements, at least for today.

The pair had been running upwards for most of last year however since December a massive correction has taken place with the pair moving steadily through several support levels indicating that the bull which was EURUSD has finally run its course.  The breaking of the 1.4220 support line signalled a downward move which is still continuing with a value of 1.3405 the next target on the EURUSD charts.  It seems unlikely that any rebound will make much difference with the single currency being sold off in droves.

FX – This week in focus

The USD held an eight month high against all major currencies on Friday, helping it to extend the gains that were a result of the FED increasing its discount rate.  It was also apparent that the lower US inflation did weigh on the currency for a short period, however this was quickly shrugged off as the USD went skyward.

Most investors took the signal that the US economy was recovering at a quicker pace than that of its European or Japanese counterparts, however the FED did warn that this was not a sign of complete monetary tightening across the board.

The compounded news in Euroland has meant that the EUR is down 10% against the dollar since November.  The move is thought by many to be caused by the situation in Greece and its debt levels rise and a sovereign default may be on the way

EURUSD – The week ahead

The dollar had a very mixed 5 days of trading as appetite for risk held its passion for the gains made over the recent days.  The currency gained on CHF, EUR, JPY and GBP but overall lost momentum against the Aussie Dollar and the Canadian Dollar.  It seems those countries who are commodity producing are coming out on top at the end of this week.  This trend should be set to continue as the AUDJPY holds its high of 3 weeks.

There will be a chance for rebuying and reselling the subsequent pairs on the pull backs of each, however it does look like the USD is in for a bouncy week ahead as reports and market news are likely to be the measuring tape for how the dollar performs over the next five days.

Many of us were caught sleeping as the FED raised the discount rate this week and showed their hand pointing us in the way of monetary tightening.  The move caused a rise in the value of the dollar as the euro was outperfomed on every level and showed that the FED was the more aggressive of the banks and that hope for recovery of the country is imminenent.  This is in stark contrast to the ECB which is currently struggling and the BOE and BOJ of whom neither can see a clear way out of the current fog as both as still enveloped in the economic crisis.  The hike in interest rates should draw money back as the riskier investments in the above currencies remains non too appealing.

Wednesday and Thursday are days to watch as Bernanke delivers his Monetary Policy Report with a possible sell on the USD as inflation is lowered.

EUR

The Greeks will be experiencing a month of proving to the other EU countries that it can reduce the current budget deficit to a level that is more in keeping with the other EU countries, but it is not a task that is to be taken on lightly.  This was never going to be a problem that was solved in the space of four weeks and it is likely that Greece will be forced to either beg at the door of the IMF or reinstate a very much devalued currency of its own. 

The issues of a single currency are now becoming clear to those wealthier members as the poorer among them fall into disrepute and are held up by the scruff of their necks.  The realisation that they will need further help and monetary input from their wealthier neighbours is now becoming apparent. 

However the release of German IFO Data this week may show that the wealthier nations are improving albeit at a snails pace.  With FED hiking rates it is likely that the ECB with copy the move something that may cause support for the EUR to be a very short lived affair.