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Forex Daily Analysis

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USD rebounding after a long bearish week.

Thu, Mar 22 2007, 09:40 GMT
by Lee More

ForexYard

Economic News
 
USD

Yesterday, the Federal Reserve said that it would keep the federal funds rate unchanged at 5.25%, unchanged since June. The rate decision caught few off-guard, but investors cheered language in the statement suggesting the economy remained on solid footing. Crude inventories rose by four million barrels last week to 329.3 million barrels, well above average for this point in the year, according to a report released Wednesday by the Energy Department which may cause some ease in Crude Oil prices and give a push to the US industry.

Recent indicators have been mixed and the adjustment in the housing sector is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters. Recent readings on core inflation have been somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.

In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Yesterday The USD slumped to a two year low against the EUR following the FOMC statement , which made the greenback fans get rid of the USD, however today we should expect some relief from the bullish trend. 

EUR

The EUR surged to 2 a-year high after the FOMC statement, as mentioned above. The ECB President Trichet gave a testimony to Parliament yesterday, repeating the current ECB line of a strong economy but with upside inflation risks and that wage settlements are key for the immediate future. That said, Euro-zone unemployment is unacceptably high and thus moderate wage settlements are important not only for inflation but for job growth. With the accommodative policy, the implication is still for a hawkish policy on interest rates but his comments perhaps suggest a possible future pausing very much dependent on the development of the balance of growth against inflation pressures. The minutes of the March BoE MPC meeting showed a surprise 8:1 vote, with the dissenter to the on-hold decision, American David Blanchflower, voting for a 0.25% rate cut. UK Chancellor Brown's budget contained some surprises in the detail but the bottom line was neutral, as the headline grabbing measures were all offsetting. Eventually it was the EUR that enjoyed the rally more than any other currency as the market expects more EZ interest rate hikes this year from the current 3.75%. Overall, the EUR traded with a range of a low 1.3291 against the USD and a high of 1.3390 before closing at 1.3383 in the New York session. 

JPY

The Japanese Yen (JPY) was the least volatile currency on the back of the Fed interest rate announcement. Overall the JPY traded with a low of 117.15 and a high of 117.95 before closing at 117.59. Looking ahead the Trade balance out of Japan is scheduled for release today with markets expecting a figure 700 bln. UPDATE: Trade Balance at 979bln. Big Japanese manufacturers were less confident about business conditions in the three months to March, a government survey showed on Thursday, prompting concern about the continuing strength of the current economic recovery. The data suggests the Bank of Japan's closely watched tankan quarterly business sentiment survey, due out on April 2, may show a slight deterioration in large manufacturers' sentiment. But in a positive sign for the corporate sector, Japan's trade surplus unexpectedly rose in February from a year earlier on continued firmness in export growth. Both indicators are unlikely to change the dominant market view that the Bank of Japan will go slow on any future rate hikes, after having raised its key policy rate in February. The business survey index on sentiment at large manufacturers in the January-March quarter fell to plus 0.1 from plus 7.1 in October-December, according to a joint survey by the Ministry of Finance and the Economic and Social Research Institute, an arm of the Cabinet Office. The BOJ kept its key overnight call rate target unchanged at 0.5 percent in a two-day policy meeting that ended on Tuesday, as widely expected by markets. 

Technical News
 
EUR/USD

Technical indicators point that a slight bearish reversal can be expected today, as daily slow stochastic crossed above 80 readings and daily RSI is curving downwards above 80, however the heavy resistance level at 1.3370 has been breached and further highs are expected in the long run. 

GBP/USD

This pair has reached the upper Bollinger band on the daily charts and is trying to reach the next resistance level at 1.9720 to continue with the bullish behavior, slow stochastic is still bullish with a reading high above 80, however daily RSI is curving downwards offering a possible bearish retracement for today. 

USD/JPY

Volatility has dropped tremendously in the last week and range trading between 117.90 to 116.88 has been characterize in the last week, daily RSI is neutral at 58 and slow stochastic is curving downwards just above 60 offering a slight bearish reversal. 

USD/CHF

Heavy support level is set to 1.2050, if the price levels break below that price we will probably see this pair testing the new 3 months low again. Neutral RSI and Momentum on the daily charts offer little room for a definite trend direction and we shall expect range trading today. 

The Wild Card
 
GBPJPY

This forex pair has reached the heavy resistance level at 231.00 and failed to break upwards, it also reached the upper Bollinger band on the daily chart. The major long term trend is still down even though last week came with a rather bullish correction, we are expected to see bearish behavior today. 

Published on  Thu, Mar 22 2007, 09:40 GMT