It was a quiet overnight in foreign exchange trading. Trading ranges were contained as the USD weakened slightly against the commodity currencies early in Asian trading as well as the majors, as a result of the record move in the DOW. While equity investors were keen to add risk yesterday, the normal follow through in the FX market did not materialize.
Investor “risk on” sentiment is being credited to the expectation of continued easing by the FED based on comments recently made by FED Chairman Bernanke and Vice Chairman Yellen. But, this risk on sentiment has not translated to currency trading. While the EUR is trading a bit higher in the mid 1.30’s, it did not seems locked in the 1.3000-1.3100 range.
USD/CAD is trading at its overnight high as this report is being written, testing the 1.0280 resistance level. Beyond 1.0280, the next resistance appears at 1.0300 and 1.0320. Support for USD/CAD is at 1.0250, then 1.0220. The Bank of Canada will announce their interest rate this morning, and the central bank is expected to leave rates unchanged at 1.00%. At their last meetings, the statements accompanying the rate announcement have stated the need for a rate hike was “less imminent”. Based on recent economic data, the BOC statement may contain comments that would suggest the tightening bias has shifted. That type of comment would bring about renewed buying of USD/CAD.
The GBP is testing support at 1.5080 ahead of Bank of England’s Mervyn King’s testimony in front of Parliament this morning. With the Bank of England meeting tomorrow, no one is expecting Mr. King to comment on monetary policy, but traders need to occupy themselves, so you might as well “short” the GBP just in case.
The EUR continues to act like an old jalopy trying to head up a hill with an engine almost ready for the scrap heap. Every time it seems to get a head of steam up, it stalls and slides back down to previous levels. Until we break above the 1.3150 level, the technical downtrend remains intact.
More: The key to an ECB rate cut is the unwinding of the LTRO
Traders will be watching the equity market opening in the US this morning. A continued rally in the DOW would aid the EUR and could force it a bit higher, but all eyes are already focused on tomorrow’s ECB meeting. Once again ECB President Draghi is in a unique position. His comments following the rate decision will determine the direction of the single currency. This is a difficult situation for him. The Euro economy is not healthy and if Mr. Draghi is perceived to be too negative in his comments, we could see a big move lower. I suspect that this time, he will temper his remarks and take a “less is more” approach.
For today, I do not see much happening. Liquidity could become an issue later in the trading day as a winter storm is expected to hit the east coast later this afternoon and traders may look to end the trading day early. We will remain in this trading range for at least the next 24 hours. The markets are so caught up with the move on the DOW that no one is talking about the NFP release Friday and sequestration has become a “back-burner” issue.
Unless you are planning to fly, or getting ready for a camping trip, the budget cuts do not seem to be affecting the general public. It’s almost as if the traders are ignoring the President and Congressional leaders on this issue. And maybe that is a good thing. If no is paying attention to their “posturing”, maybe they’ll realize this and put together an agreement and move on.
Further reading: AUD/USD Turns Up from Trading Range Support
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