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Tuesday, 16 November 2010 06:27

British Pound Extends Decline Despite Better Than Expected U.K. Inflation Figures

Contributed By: DailyFx



Fundamental Headlines

• European Stocks Slip – Wall Street Journal

• Bond Market Defies Fed – Wall Street Journal

• Fed Officials Defend $600 Billion Stimulus - Financial Times

•U.K. Inflation Rate Increases to 3.2%, Forcing King Letter - Bloomberg

•Ireland’s Cowen to Weigh EU Steps to Shore Up Banking System - Bloomberg

GBPUSD: Annualizedconsumer prices in Great Britain inched higher to 3.2 percent in October from 3.1 percent the month prior amid economists’ expectations of 3.1 percent. Taking a look at the breakdown of the report, education prices rose 2.2 percent, while fuel prices gained 11.4 percent. The report is of great importance due to the fact that it precedes the Bank of England Minutes, which will be released tomorrow at 9:30 GMT. In the currency markets, the GBPUSD rose subsequent to the report, but quickly reversed course as the U.S. dollar continued to rally against all major currencies during the overnight trade. Focus now turns to the producer prices and industrial production reports from the world’s largest economy. Indeed, dismal reports may lead the greenback to pare some of its overnight gains. I will remain long the GBPUSD so long as price action is capped by the 20-day SMA.

Published in Forex News
Tuesday, 16 November 2010 06:27

Forex: British Pound Tests For Support Ahead Of BoE Minutes, U.S. Dollar Benefits From Risk Aversion

Contributed By: DailyFx

Talking Points

* Japanese Yen: Benefits From Risk Aversion
* British Pound: U.K. Price Growth Accelerates
* Euro: Inflation Rises The Most Since November 2008
* U.S. Dollar: Producer Prices, Industrial Production on Tap

The British Pound slipped to a low of 1.5980 during the European trade as investors scaled back their appetite for risk, and the exchange rate may push lower throughout the North American trade as market sentiment falters. However, as the GBP/USD bounces back from the 20-Day moving average at 1.5983, we may see the exchange hold steady throughout the day as market participants wait for the Bank of England policy meeting minutes tomorrow at 9:30 GMT. There is likely to be another 7-1-1 split within the MPC given the broad range views amongst U.K. policy makers, and there could be little reaction to the statement unless we see an increased split within the central bank.

Nevertheless, a report by the U.K. Office for National Statistics showed the headline reading for inflation unexpectedly increased to an annualized rate of 3.2% in October, which forced BoE Governor Mervyn King to write his fourth letter of explanation to Chancellor of the Exchequer George Osborne, and the stickiness in price growth could lead the central bank to start normalizing monetary policy over the coming months as it aims to balance the risks for the region. Mr. King reiterated that the MPC stands ready to move monetary policy in either direction as the central bank expects inflation to hold above target in 2011, but went onto say that the outlook for price growth remains “highly uncertain, with substantial risks in both directions.” As the economic outlook remains clouded with uncertainties, there could be a growing split within the MPC as board member Andrew Sentance pushes for a 25bp rate hike while Adam Posen sees scope to QE further, and we may see the GBP/USD hold steady ahead of the BoE minutes due out tomorrow as investors weigh the prospects for future policy.

The Euro fell back from a high of 1.3654 on Tuesday and the lack of momentum to hold above the 50-Day SMA (1.3641) could lead the single-currency to retrace the overnight advance as policy makers in Europe continue to endorse a bailout plan for Ireland. European Central Bank Vice-President Vitor Constancio said the Governing Council’s temporary bond program has helped to stabilize the financial markets during a speech in Frankfurt, but went onto say that a bailout for Ireland would help stabilize the current situation as investors see a risk for the country to default on its obligations. As fears surrounding the European debt crisis intensify, the recent reversal in the EUR/USD may gather pace as policy makers fail to address the root of the problem, and the ECB could face increased pressures to support the real economy in 2011 as the economic recovery tapers off. Nevertheless, the economic docket showed consumer prices in the Euro-Zone increased at an annualized pace of 1.9% in October to mark the fastest pace of growth since November 2008, while investor confidence in German increased for the first time in seven-months as the ZEW survey increased to 81.5 in November from 72.6 in the previous month. As the outlook for growth and inflation improves, the ECB may look to carry out its exit strategy next year, and speculation surrounding the outlook for monetary policy is likely to play an increased role in driving future price action given the mixed outlook held by the members of the Governing Council.

The greenback rallied against most of its major counterparts, with the USD/JPY advancing to a fresh monthly high of 83.32, and the reserve-currency may appreciate further throughout the day as it benefits from the rise in safe-haven flows. As equity futures foreshadow a lower open for the U.S. market, the rise in risk aversion is likely to carry into the North American trade, but the event risks scheduled for Tuesday could spark increased volatility in the exchange rate as investors weigh the outlook for future growth. Producer prices in the world’s largest economy is forecasted to increase at an annualized pace of 4.6% in October after expanding 4.0% in the previous month, while demands for U.S. assets are projected to rise $62.5B in September following a $128.7B rise in the month prior. Moreover, industrial outputs are anticipated to rise 0.3% in October, while the NAHB housing market index is expected to increase to 17 in November from 16 in the previous month, and the slew of data could reinforce an improved outlook for the economy as the recover gradually gathers pace.

Published in Forex News

USD Dollar (USD) – The dollar gained against most of the major currencies in Forex trading after Retail Sales data came out at 1.2%, better than the expected 0.7%. This in addition to signs of recovery in the U.S. markets might help the FED to cut part of the QE2 program. The Stock Markets in U.S. closed mixed with no significant change as the Dow Jones advanced by 0.08% and the NASDAQ fell by -0.17%. Crude Oil struggled with the 85 level and closed around $84.50 a barrel. Gold (XAU) decreased after a failed attempt to jump above the $1370 zone, eventually closing at $1360 an ounce. Today, the PPI is expected at 0.8% vs. 0.4% previously. The TIC Net Long-Term Transactions are expected at 100.3B vs. 128.7B. Industrial Production is expected at 0.3% vs. -0.2% previously.

Euro (EUR) – The Euro showed another day of weakness against the dollar and hit a fresh 6-week low as stocks in the US trimmed gains and debt concerns pushed the investors to prefer the safe currency. Holding above the 1.3560 support area and oversold conditions might start a recovery in the pair and push it back upwards to 1.37 zones. Overall, EUR/USD traded with a low of 1.3560 and with a high of 1.3750. Today, the German ZEW Economic Sentiment is expected at -6 vs. -7.2 previously. The CPI is expected unchanged at 1.9%.

EUR/USD – Last:   1.3617







British Pound (GBP) – The Pound fell against the dollar but still holds above the 1.6 zone as it remains trading in the previous day’s range and shows more stability than the European currency. The only action that might cause a bearish trend in the pair, would be breaking the 1.5950 support level, otherwise it will remain in the known range. Overall, GBP/USD traded with a low of 1.6040 and with a high of 1.6153. Today, the CPI is expected unchanged at 3.1% and the Core CPI is expected at 2.6% vs. 2.7% previously.

GBP/USD - Last:  1.6063







Japanese Yen (JPY) – The Dollar completed another positive day versus the Yen reaching 6 week high on signs that the economic recovery is gathering pace. The Tertiary Industry Index came out at -0.9%, worse than the expected -0.5%. Holding above the 82.70 support zone keeps the momentum positive for the pair. Overall, USD/JPY traded with a low of 82.29 and with a high of 83.24. No economic data is expected today.

USD/JPY-Last: 82.99







Canadian dollar (CAD) – The USD/CAD pair closed the day with no major change and fluctuating 40 pips around the 1.01 zone. The USD/CAD is very choppy on the daily chart, but the trend still seems to be positive for the pair as long as it trades above parity. Overall, USD/CAD traded with a low of 1.0055 and with a high of 1.0137. Manufacturing Sales are expected at -0.7% vs. 2% previously.

USD/CAD - Last: 1.0080








Published in Forex Articles

Contributed By: DailyFx


AUD/USD:Clear signs of another short-term top emerging with the market stalling out by fresh post-float record highs at 1.0185 several days back, and then reversing course to end a sequence of consecutive daily higher lows. The latest break back below the 20-Day SMA further encourages bearish outlook from here, and we will look for a 2-day close below this shorter-term moving average for additional bearish confirmation. From here the risks are for declines towards critical support by 0.9650, below which will really accelerate. Any intraday rallies should be very well capped ahead of 1.0000.

Published in Forex News
Monday, 15 November 2010 12:02

GBP/USD:The market has come back under pressure

Contributed By: DailyFx


GBP/USD:The market has come back under pressure since capping out by 1.6300, and it looks as though deeper setbacks are in the cards over the coming days, with a fresh lower top sought out by 1.6185. Look for a close back below key support at 1.5950 to force an official shift in the short-term structure and accelerate declines back towards 1.5650 over the coming sessions. Ultimately, only back above 1.6300 negates and gives reason for pause.

Published in Forex News

Contributed By: DailyFx


NZD/USD:We are finally starting to see some form of a top, with the multi-month gains stalling out just shy of critical psychological barriers by 0.8000 and reversing course. From here, there is plenty of room for additional weakness and we see scope for declines back towards 0.7400 over the coming sessions. Intraday rallies should be well capped ahead of 0.7900, while a close below 0.7700 should accelerate.

Published in Forex News

Contributed By: DailyFx


USD/CAD:As per our commentary in previous days, setbacks have been very well supported by parity, and the market finally looks like it could be in the process of carving out yet another base. A break and close back above 1.0100 will confirm a double bottom formation that should accelerate gains well above 1.0200 and then put the focus on some more critical resistance by 1.0375 further up. Ultimately, only a close back below 0.9970 would give reason for concern.

Published in Forex News

Contributed By: DailyFx


USD/CHF: We contend that the market is in the process of carving a material base by 0.9460, and any setbacks should be very well supported in favor of a sustained recovery. A fresh higher low is now sought out by 0.9550 to be confirmed on a break back above 0.9975 over the coming sessions. Above 0.9975 will accelerate gains and open the next major upside extension towards 1.0200 further up.

Published in Forex News

Contributed By: DailyFx


USD/JPY:There is finally some evidence of a potential base with the market carving out a short-term double bottom last Wednesday. The break back above 82.00 neckline resistance triggers the formation and potentially exposes gains towards 84.00 over the coming sessions. The 10-Day SMA has just crossed up above the 20-Day SMA, and this further strengthens the case for additional upside over the short-term. Look for any setbacks to be well supported for now ahead of 81.25, while above 82.80 accelerates.

Published in Forex News

Contributed By: DailyFx


The dollar index had a choppy day of trade Friday as fears of further Chinese tightening weighed heavily on the Shanghai Composite and dragged global equities lower. The dollar however, was not as broadly bid as one may have expected in such risk averse times as some investors took the change to book profit on recent euro short positions off recent highs. Despite the choppy trade the index managed to eke out a positive close capping its best week since early August.

Over night the dollar has found itself happily bid as the yen weakens after Japan’s third-quarter GDP beat expectations lifting risk appetite. The euro also remains under mild pressure despite the fact that Ireland continues to refuse offers from the EU and IMF for financial aid. Concerns over EMU sovereign debt and fears surrounding potential Chinese tightening are likely to be the dominant themes early this week, both of which should be bullish for the dollar.

Turning to technical’s for a moment, the fact that the index failed to close above 78.30 on Friday has us a little concerned that we may stall out around this level if dollar gains don’t get moving again. We remind readers we were looking for a close and break above 78.30 as a signal that a short-term double-bottom is in place and the index can/will accelerate gains, failure to do so would negate, or at least seriously question this outlook and further significant dollar gains.

Published in Forex News
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