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September 18 FOMC causes USD weakness

Wed, Oct 10 2007, 02:08 GMT
by Easy Forex Team

Easy Forex

September 18 FOMC causes USD weakness. UK growth to slow in 2008

CURRENCY TRADING SUMMARY

U.S. Dollar Trading (USD) pared losses against a basket of currencies as the FOMC minutes of the September 18 meeting indicated that policy makers remained concerned about inflationary pressures despite cutting borrowing cost for the first time in 4 years. Fed officials continued to express concerns that inflation was prominent citing rising labor costs and a depreciating dollar. Much of the dollar weakness was attributed to the minutes showing a unanimous decision by all members for a 50 bp cut, although no indication of future policies were addressed stating ”further actions would depend on how economic prospects were affected by evolving market developments and by other factors”. In U.S. share markets the NASDAQ was up 16.54 points (+0.59%) whilst the Dow Jones was also up by 120.80 points (+0.86%). Crude oil rose by US$1.24 a barrel to US$80.26 on the back of a broadly weaker dollar.

The Euro (EUR) gained on Tuesday following the release of the FOMC minutes in which markets reacted to surprisingly. Overall the EURUSD traded with a low of 1.4015 and a high of 1.4115 before closing the day at 1.4102 in the New York session.

The Japanese Yen (JPY) was range bound, pairing it gains following the release on the FOMC minutes, which indicated that policy makers were concerned with the inflation whilst cutting borrowing rates. Overall the USDJPY traded with a low of 116.80 and a high 117.49 before closing the day at 117.19 in the New York session. Looking ahead, focus now shifts to Thursdays BoJ meeting.   

The Sterling (GBP) fell significantly against the Euro in two weeks after Chancellor of the Exchequer Alistair Darling told lawmakers the economy will grow more slowly in 2008 than predicted in March. Darling said in his pre-budget report the economy would grow between 2 percent and 2.5 percent next year, compared with the earlier 2.5 percent to 3 percent forecast, prompting investors to second guess further rate hikes by the BoE by the year end, instead possible rate cuts by March 2008 in light of recent housing downturns. Any further losses on the GBP were capped buoyed by the release of the FOMC minutes. Overall the GBPUSD traded with a range of a low 2.0259 and a high of 2.0376 before closing the day at 2.0353 in the New York session.  

The Australian Dollar (AUD) returned to its 23 year highs above 90 cent level, buoyed by FOMC minutes which indicated a unanimous vote for rate cut on the 18th of September. Overall the AUDUSD traded with a range of a low 0.8914 and a high of 0.8989 before closing the day at 0.8985 in the New York session.

Gold (XAU) rose after crude oil rallied and the dollar weakened against the Euro, boosting the appeal of the precious metals as hedges against inflation. XAU traded with a low of 731.85 and a high of 742.30. 

TECHNICAL COMMENTARY

Euro 1.4105

Initial support at 1.4015 (Oct 9 low) followed by 1.3963 (Sep 20 low). Initial resistance is now located at 1.4160 (Oct 5 high) followed by 1.4200 (61.8% retracement 1.4282 to 1.4068 & Oct 3 high at 1.4201)

Yen 117.25

Initial support is located at 116.28 (Oct 5 low) followed by 115.29 (Oct 2 low). Initial resistance is now at 117.61 (Oct 8 high) followed by 117.88 (50% retracement 124.15 to 111.61 decline).

Pound  2.0385

Initial support at 2.0257 (Oct 9 low) followed by 2.0188 (50% retracement of the 1.9880 to 2.0495 advance). Initial resistance is now at 2.0444 (Oct 3 high) followed by 2.0495 (Oct 1 high)

Australian Dollar  0.8985

Initial support a 0.8914 (Oct 9 low) followed by 0.8866 (Oct 5 low). Initial resistance is now at 0.9034 (Oct 8 trend high) followed by 0.9052 (June 1984 high).

Gold  739.00

Initial support at 727.50 (Oct 5 low) followed by 721.30 (Oct 4 low). Initial resistance is now at 744.07 (Oct 5 high) followed by 747.85 (Oct 1 trend high)

Published on  Wed, Oct 10 2007, 02:09 GMT