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Forex Daily News | Forex Articles | Forex Information
Wednesday, 03 November 2010 12:51

U.S. Stocks, Commodities, and Treasuries Move Higher on FOMC Anticipation

Contributed By: DailyFx

U.S. Session Key Developments
* U.S. Political Analysts Expect Divided Congress Following Midterm Elections Today
* Crude Oil and Precious Metals Rally in Anticipation of Quantitative Easing Measures
* U.S. Dollar Index Continues Descent as RBA Unexpectedly Hikes Rates

U.S. equities, commodities, and Treasuries rallied today, as investors await election results that may show a divided Congress, as well as tomorrow’s announcement from the Federal Reserve that further monetary easing may take place. The news helped the Dow Jones Industrial Average rally 64 points to 11,188, its highest close since April 26. The primary driver of positive investor expectations was potential quantitative easing measures from the Fed, which economists believe to be at least a $500 billion purchase of long-term securities. Some economists expect a “shock and awe” purchase announced tomorrow, while others predict security purchases to be drawn out over a period of six months to a year. Overall, stocks and commodities have rallied significantly over the past six weeks in anticipation of further easing measures from U.S. policy makers. Crude oil rallied for a third time in four days, gaining 1.2 percent to $83.96 a barrel, while COMEX gold futures surged over $6 to $1356.30. Overall, the price of gold has increased by nearly 10 percent since QE rumors first circulated in September. The greenback, on the other hand, declined for a third trading day in the last four as the Reserve Bank of Australia unexpectedly hiked its target interest rate overnight from 4.50% to 4.75%. The U.S. Dollar Index tumbled over 0.7 percent to 76.734, only slightly above its lowest closing level of the year on October 14.

DJIA 30 / 11188.72 / +64.10 / +0.58%
The Dow Jones Industrial Average rallied to its highest close in six months, as twenty-five of the 32 index stocks closed higher on the day. Hardware retailer Home Depot led the Dow’s gains, rallying 2.6 percent, while American Express and Microsoft gained 2.0 percent and 1.6 percent, respectively. JPMorgan Chase was the biggest laggard, dropping 1.2 percent as the SEC prepared to investigate the investment bank over subprime CDO disclosures.

Dow Jones Industrial Average

U.S._Stocks_Commodities_and_Treasuries_Move_Higher_on_FOMC_Anticipation

S&P 500 / 1193.57 / +9.19 / +0.78%
The broad-based S&P 500 rallied for a third time in four days, as all ten S&P sectors closed higher on the day. The utilities sector posted the largest gain for the index, rallying 1.2 percent, as Consolidated Edison, Inc. reported better-than-expected profits for the third quarter. Shares of Con Edison, rallied 2.1 percent on news that net income for common stock was $350 million in 3Q, better than the $336 million expected. Energy stocks posted the second-largest gains on the day, as crude oil rallied above $84 a barrel. Occidental Petroleum and Apache Corp were especially strong, rising over 2 percent on the day.

NASDAQ / 2533.52 / +28.68 / +1.14%
The tech-heavy Nasdaq posted the largest gain among major U.S. indices, as shares of Apple and Chinese search engine Baidu rallied over 1.8 percent each. Also posting 1 percent gains within the tech sector were Microsoft, Oracle, and Cisco Systems.

 

Published in Forex News
Wednesday, 03 November 2010 12:52

Calm Before the Storm; FOMC Readies for Critical Decision

Contributed By: DailyFx

The US elections have failed to stir any volatility, although President Obama can’t be happy with the results which have the Republicans gaining more control and likely to stifle any additional White House initiatives. While the Democrats have retained control in the Senate, Republicans have regained control of the House, and it will be interesting to see how the President responds to this latest disappointment which actualize the increasing public disapproval of the Presidency.

Meanwhile, all has been very quiet in Asia, with most major currencies locked in some tight directionless trade. The biggest mover on the day thus far has been the Australian Dollar, which has taken a minor hit back below parity following a much weaker than expected and disturbing building approvals number. We can’t say that we haven’t been pleased with the latest pullback after establishing a fresh short trade by 1.0005 in Aud/Usd on Tuesday. In our opinion, the RBA has moved too aggressively in raising rates and should be much less worries about inflationary pressures, and more focused on the risks for a cooling off in the economy.

Clearly the key even risk for the day comes later in the North American session when the FOMC finally comes out with its decision on QE2. At this point the markets have all but priced in some form of additional stimulus, and the question is more of just how much the Fed will inject. We have argued that the Fed should do as little as possible, while continuing to convey a message that the economy is stabilizing and starting to show signs of growth. Should the Fed pump in less than the market is looking for, then we can expect to see the US Dollar mount a serious short-term recovery. However, should the Fed match or exceed market expectations, then we can expect to see the buck remain under pressure.

With all of the volatility in the markets expected later today, we would recommend keeping a close eye on Usd/Jpy which is so close to testing its record lows by 79.75 from 1995. We retain a highly constructive outlook for the pair once this level is taken out, and will be looking to issue a buy recommendation in Usd/Jpy somewhere at or below 79.75. Given how we expect markets to move later today, Wednesday could be the day where a new record low is set.

Looking ahead, it is a very quiet European economic release calendar with Swiss retail sales due at 8:15GMT, followed by UK services PMI (52.6 expected) and official reserve changes at 9:30GMT. US equity futures are flat, while commodities are mixed with oil slightly higher and gold lower.

Published in Forex News

Contributed By: DailyFx

* Dollar: Laying Out the Scenarios for the FOMC’s Policy Decision and Market’s Reaction
* Euro Financing Troubles Temporarily Overlooked as the Greenback Takes Center Stage
* British Pound Little Moved on Construction Activity Report, Traders Wait to Compare BoE to Fed
* Japanese Yen Future Dimming as BoJ Minutes Show Group Expects ETF Purchases to Boost Confidence
* Australian Dollar Carries RBA Momentum Far, Services Activity Not too Shabby Either
* New Zealand Set for Risk Wave as well as 3Q Employment Data

Dollar: Laying Out the Scenarios for the FOMC’s Policy Decision and Market’s Reaction

The event that the markets have been waiting for is finally upon us. In less than 24 hours, the Federal Open Market Committee will wrap up its two-day meeting and announce the decisions that have been reached. Considering how investors and traders have speculated and positioned ahead of the event, the outcome would seem a foregone conclusion. If this were the case, the market’s reaction to the event would be subdued. However, that is hardly the case. The fact that the greenback tumbled so sharply and risk appetite rallied so aggressively through September and into October is testament to the level of influence this affair can actually have. Now, in the final approach, we further see the signs of a market that is preparing itself for a potential explosion of volatility and perhaps even the beginnings of a new trend. After four weeks of congestion, EURUSD has put in for a last gasp push to alleviate a rare ‘diamond’ technical pattern. What’s more, volume on the December futures euro futures contract has dropped off notably from the active levels of just a few weeks ago. And, though the S&P 500 may still hold its general bullish bias of the past two months; the pace has been more congestion than progress, volume has trended lower as the advance progressed and short interest has shown a parallel advance. The quiet before the storm.

To benchmark the market’s reaction to the FOMC’s rate decision, it is important to first asses the three general outcomes for any event: inline, better-than-expect or weaker-than-expected. The implications of this shift in monetary policy are a little more complicated than judging in such one-dimensional terms; but we will stick with it for simplicity’s sake. So, to begin, we start with the popular consensus for a second stimulus program (expansion of the current facility) to the tune of $100 billion infusions per month over a series of five to six months. Of the three scenarios, the most difficult to project in terms of market reaction is one where the Fed will offer a more expansive stimulus program than expected. This is certainly a possibility given the bias of the market and the fact that the central bank polled Primary Dealers last week (supposedly to establish expectations so as not to miss them and send capital markets into a tail spin). Here, a ‘nuclear option’ of a large one-off figure (like another $2 trillion) or larger monthly injection for an indefinite period would fulfill the scenario. For risk appetite, this could extend risk taking much further than the current market highs; but for the dollar itself, the marginal devaluation of the currency through money supply will quickly diminish. The scenario with the greatest impact potential is an outcome where the Board of Governors offers a much smaller package than what was expected or abstains all together. Most traders are familiar with the adage ‘buy the rumor, sell the news.’ This would be the case here as speculative positioning has adjusted the dollar and sentiment to a level that is consistent with a certain outcome. If that level is not met, trades will be unwound wholesale. And, finally, we have the ‘in-line’ scenario. We know the general consensus; but this does not mean that the market will not react. There is a wide degree of expectations for the outcome of this policy decision. What’s more, considering speculative interests were responsible for leveraging the capital markets and the dollar to their current position; there will be a strong desire to take profit.

As traders, we may become caught up in the volatility of the event; but it is important to remember there is a short-term and long-term reaction to the fundamental development. Short-term, we are playing against speculative benchmarks; but long-term stimulus is a temporary solution and it is exceptionally dubious when other nations are taking the exact opposite tack. And, a short aside as to the nation’s mid-term elections: the preliminary results seem to be pushing the government towards gridlock. Ultimately, the economy will sway policy, not the other way around.

Euro Financing Troubles Temporarily Overlooked as the Greenback Takes Center Stage
It isn’t a stretch to suggest the euro will borrow much of its direction and volatility from the activity of the US dollar near term. However, when Fed chatter settles, perhaps the market will take note of the record highs in Irish yield spreads and reports that the ECB supposedly bought the nation’s debt. Germany is pushing hard against bond holders, which kills investor confidence for struggling periphery European economies.

British Pound Little Moved on Construction Activity Report, Traders Wait to Compare BoE to Fed
It may seem that the pound was a big mover Tuesday; but this was actually cross-market activity (euro, franc, Aussie dollar). The only data of note through the session was construction activity which hit an 8-month low. A service sector health report coming up is good for long-term growth projections; but more immediate is pricing the value of the pound by contrasting the Fed’s moves with the BoE’s decision Thursday.

Japanese Yen Future Dimming as BoJ Minutes Show Group Expects ETF Purchases to Boost Confidence
Eventually, reality will dawn on the markets; and investors will stop bidding up the Japanese yen for safe haven-, investor-, Asian region exposure-purposes. When this day comes, investors will refer to long-standing deflation, trouble stabilizing the credit market, an imbalanced economy (towards exports) and the extraordinarily liberal use of monetary policy and increase the pace of selling.

Australian Dollar Carries RBA Momentum Far, Services Activity Not too Shabby Either
The Australian dollar is still riding high off the surprise rate hike from the RBA Monday night / Tuesday morning. This isn’t necessarily that shocking considering the group’s bias. Then again, when we compare it to the Fed’s, Bank of Japan’s and Bank of England’s lean; the Aussie dollar looks even better. For this reason, this currency can be the amplified counterpart to the greenback.

New Zealand Set for Risk Wave as well as 3Q Employment Data

There is little doubt as to what trends the kiwi dollar will follow. Wherever risk trends go, this investment-currency will follow. That said, it will be interesting to note the differences in performance between this high-yield currency and the Aussie dollar. If pure investment flows pour into or out of the Aussie crosses more aggressively than the kiwi crosses; it could denote a semi-permanent shift in roles.

Published in Forex News

Contributed By: DailyFx

USD_Graphic_Rewind_Dollar_Tumbles_on_Election_Day_Traders_Await_FOMC

The index suffered another day of losses Tuesday as traders continue to shun the dollar in anticipation of further easing by the Fed later today. Losses however, were capped by support at 76.50 which is the recent range low suggesting that traders are happy to sell the dollar in intraday trade but since there remains an air of uncertainty ahead of the FOMC, traders not wanting to be wrong-footed are not taking large short dollar positions. Global equities have rallied on the back of expectations of further easing and as the Republican’s made significant gains in the Senate and retook the House in mid-term elections. Investors normally view the GOP as better for Wall St since they are less likely to impose suffocating regulations on institutions. As we can see in the above chart trade quietened significantly after the US close and the dollar has hardly moved in the over-night session as focus rests on mid-term election results and the FOMC.

Looking ahead, the announcement that everyone is waiting for, arguably the most important FOMC in decades, is due at 18:15GMT and trade is likely to remain range bound as investors await the Fed’s decision. While the docket in Europe is very quiet there is some important data out in the US session but this is likely to be brushed aside ahead of the Fed.

Published in Forex News
Wednesday, 03 November 2010 12:50

Looking to Buy USD/JPY

Contributed By: DailyFx

No specific recomendation here, but we really like the idea of buying once the market finally takes out the record lows at 79.75 from 1995. Today's FOMC event risk could be the very catalyst to spark the final drop to 79.75, and we will be watching closely to see if the market can finally take out this level. Once broken, the greater risk is for a sizable corrective bounce at a minimum, which we contend will develop into a more significant longer-term base.

Published in Forex News
Wednesday, 03 November 2010 12:50

Be prepared to close positions on FOMC Decision

Contributed By: DailyFx

I remain short EURUSD from 1.39 and 1.3950 against the high at 1.4080, as I expect the pair may have made an important reversal. So far it hasn't worked out as well as I had hoped, but I'm hanging on by a string and haven't been stopped out yet.

Regardless, traders should be very careful with leverage through this afternoon as the Fed is due to announce its monetary policy decision at 18:15 GMT. Be prepared to close the position on any especially dollar-bearish outcomes.

Published in Forex News
Wednesday, 03 November 2010 09:09

UFXBank Forex Outlook: GBP Down vs USD on PMI Data

USD Dollar (USD) – The Dollar traded mixed against the major currencies in Forex trading today. Investors are still waiting for the Interest Rate Decision today in the U.S, which is expected unchanged. The momentum is still bearish for the Dollar against most of the major currencies .The Stock Markets in the U.S. closed with the Dow Jones rising by 0.58% and the NASDAQ advancing by 1.14%. Crude Oil advanced by 1.2% against the dollar and closed at $83.90 a barrel, breaking a 6 month high. Gold (XAU) rose by 0.2% and closed at $1353.20 an ounce. Today, the Interest Rate Decision is expected unchanged at 0.25%, the ADP Nonfarm Employment Change (MoM) is expected at 25.00K vs. -39.00k previously, and the FOMC Statement is expected today.

Euro (EUR) – The Euro strengthened against the green back today after the German Manufacturing PMI came out at 56.60, better than the expected 56.10, and the Manufacturing PMI (MoM) came out at 54.60, better than the expected 54.10. Holding above the support level of 1.4000 will keep the momentum positive for the pair. Overall, EUR/USD traded with a low of 1.3881 and with a high of 1.4058. Today, no economic data is expected for the Euro.

EUR/USD – Last: 1.4010

Resistance

1.4050

1.4100


Support

1.3989

1.3938

1.3883

British Pound (GBP) – The Pound fell against the dollar after the Construction PMI came out at 51.60, worse than the expected 53.00, which means that construction growth slowed more than forecast in October. Holding the rate above 1.6000 will keep the momentum bullish for the pound. Overall, GBP/USD traded with a low of 1.5961 and with a high of 1.6080. Today, the Halifax House Price Index (MoM) is expected at 0.40% vs. -3.60% last time.

GBP/USD - Last: 1.6036

Resistance

1.6074


Support

1.5969

1.5885

1.5749

Japanese Yen (JPY) – The Japanese Yen fell against the Dollar and almost reached the 81.00 resistance level.  Traders may use the combination of the American vote and the holiday in Japan in order to push the pair below 80.00 Yen per Dollar. Overall, USD/JPY traded with a low of 80.46 and with a high of 80.96. No economic data is expected today.

USD/JPY-Last: 80.65

Resistance

80.96

81.35

81.60

Support

80.26

80.00


Canadian dollar (CAD) Canada’s dollar gained for the fourth day against the US Dollar and had the longest stretch for the last 5 months. Trading below 1.0094 will keep the momentum bearish for the pair. Overall, USD/CAD traded with a low of 1.0079 and with a high of 1.0135. Today, no economic data is expected.

USD/CAD - Last: 1.0083

Resistance

1.0121

1.0171

1.0259

Support

1.0000


 

Published in Forex Articles

Contributed By: DailyFx

There are a lot of setups that seem to be in the early stages of a larger development or are just on the verge of breakout/trend. It is tempting to simply dive into these trades now; but I'd probably be setting myself up for slaughter if I blindedly jumped into these positions ahead of the wave of event risk that threatens thsi week. The most threatening release over the coming week is Wednesday's FOMC rate decision. This isn't just a problem for the US dollar (which could be inundated by a wave of stimulus or lifted to a remarkable rally if speculation proves misplaced); it is also a threat to risk appetite itself. And, one thing we have learned is that the influence of investor sentiment spreads far and wide. Therefore, I will keep things light until the big event risk passes. And, it is highly likely that this tremor may actually spark new and meaningful breakouts and trends to take advantage of.

As for my existing mix, I find this morning that the remaining size on both my EURUSD short and EURAUD long were knocked out at breakeven with my trailing stop. This isn't particular surprising, nor am I upset about it, given the gravity of the fundamental threats ahead. That said, I actually jumped back in on a quarter-size EURAUD long at 1.4055 (10 points cheaper than the previous position) with a 60 point stop and first target. This is largely technical and partly in reference to my belief that the RBA will either take a neutral or slightly more dovish tone at its upcoming decision in reference to the CPI data we had last week. That same event risk threatens my AUDCAD and AUDNZD shorts. I don't like to leverage myself into one currency or theme; but my short-Aussie exposure is drawing me pretty close. That said, my EURAUD is quarter size. Also, my AUDNZD short has already hit its first target (1.2850) and the stop on the remaining half has been trailed up to breakeven (1.2975). The AUDCAD may be half size; but it still the most risky holding. RBA rate decision and the heavy threat of risk appetite volatility aside, this looks like a great trend reversal candidate.

For potential trades, the field is wide open. However, we need to be careful with getting to specific on drafting scenarios; because things can play out very differently from how we would expect them to. That said, I think the best opportunities out there is the pent-up anti-dollar pressure on USDJPY and USDCHF. The yen is far from a safe haven in the realm of reality; and to suggest it is being any less devalued through monetary policy than the dollar is delusional. Eventually the speculative bid under the yen will fail; and the opportunity will be seen across the board - but it is pariticularly pressurized with USDJPY. As for USDCHF, it is usually tightely correlated to EURUSD; but the pair has deviated as the franc has played an imaginary role as optimimal safe haven (much like the yen). Here too, reality will be restored; and I'll look at parity as a catalyst for that. Other opportunities include EURUSD in a 'diamond' congestion pattern for a break in either direeciton and GBPUSD is in a possible drive through 1.61 and subsequent reversal

Published in Forex News
Tuesday, 02 November 2010 13:28

AUD/USD Classical 02/11/2010

Contributed By: DailyFx

AUDUSD_Classical_02112010

AUD/USD: The market is not yet ready to abandon the strong uptrend, with the latest dips once again very well supported ahead of a surge back to parity. From here, the risks are for a break to fresh post-float record highs beyond 1.0000, but any additional strength is seen limited with medium-term studies looking stretched and continuing to warn of near-term exhaustion. Aggressive players can look to sell above 1.0000, while conservative bears may want to wait for confirmation and a break back below 0.9800 to look to get involved.

Published in Forex News
Tuesday, 02 November 2010 13:28

EUR/CHF Classical 02/11/2010

Contributed By: DailyFx

EURCHF_Classical_02112010_copy

EUR/CHF: The market could finally have found a major base by the recently set record lows at 1.2765, with weekly and monthly studies starting to correct. The cross has finally managed a close back above some major falling trend-line resistance from May to further encourage the prospects for a shift in the trend and additional recovery over the coming weeks. Next key resistance comes in by 1.3925, while setbacks should be very well supported in the 1.3500 area.

Published in Forex News
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