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Daily Trading Forecast

USD − Much Too Early Inflation Fears

Fri, Mar 20 2009, 11:38 GMT
by Swiss e Trade Strategy Team

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When Americans say something, they mean it. So the world took it for granted, when the Fed's chairman recently said the institution will print money as long as it is necessary, by buying up the long-term bond market. What is surprising though is the frenzied inflation-fear selling of the dollar in reaction to that, because the Fed's intentions were long known after several speeches by its chairman. So if money supply inflation is in the cards once the U.S. economy starts up again, it will affect both sides of the Atlantic. What's more, it is far too early to build in serious inflation worries yet. The central banks will quickly syphon off the surplus money supply on early signs of economic resurrection, and the capacity surpluses, both in material and labor, usually last much longer in the cycle, further depressing the inflation potential. Considering these thoughts, the weakness in the dollar appears to be overdone. Corrections in the EUR / USD are in the cards.

For today's trading, with stock markets and their still strong correlation with the USD, we do not expect much change in the trading ranges established in Asian and early European hours. Below are our projections in the major pairs. There are no market-moving data scheduled for today, except the share options and futures expirations in Germany at 13:00 CET, in the U.S. at 21:15 CET.

Intraday Market Outlook for Day Traders

EUR / USD
The pair is continuing its consolidation at higher levels in European morning trading without much new direction and is currently at 1.3650. We do not see the 1.3700 level being broken today, rather attempts to test the lower support level around 1.3600.

GBP / USD
Trading currently at 1.4520, cable is losing its upward momentum right now, back from an early European trading high at 1.4587. Bumping into heavy resistance around that zone, we doubt that a decisive break of the 1.4600 level will happen today but the chances of testing the 1.4450 support zone are good.

USD / CHF
The dollar just tested the low levels around 1.1170 reached yesterday against the Swiss franc in early European trading, and is currently priced at 1.1195. We expect an upward reaction, to at least the 1.1250 level in today’s trading.

USD / JPY
In low volatility in Asian trading, the dollar is continuing in its narrow trading ranges against the yen and in European morning hours. It is currently at the 94.80 mark, reacting to a slight bid tone. We expect some more of this action in today’s market, testing the 95.50 level.

Published on  Fri, Mar 20 2009, 11:39 GMT