Daily Market Commentary – May 21, 2013

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A quiet trading overnight as the major currencies traded in subdued ranges.

The Reserve Bank of Australia released their latest meeting’s minutes, which stated that “conditions in the business sector, as assessed in surveys, generally had remained below average, possibly due to the exchange rate remaining high despite lower export prices and interest rates.” The minutes also stated that “taking all factors into consideration, the Bank decided that there was some scope to ease policy at this meeting.” The AUD quietly traded before and after the release. The currency is currently trading below the .9800 level.

USD/JPY has strengthened overnight and is approaching the overnight high around 102.75-80 as the Bank of Japan starts their two day meeting today. Analysts do not expect any change in policies will be announced at the end of the meeting tomorrow. There has been some talk that the central bank could “front-load” bond purchases or offers funds through market operations that would stop the slide in JGBs. Finance Minister Aso is hoping the central bank will communicate with the bond markets to eliminate the recent volatility. BoJ governor Kuroda did say that if the economic outlook improves, ti would be natural to raise rates gradually, but he didn’t see a surge in long-term interest rates. USD/JPY has remained “better bid” overnight and looks like it make a run at the 103.00 level depending upon the statements made following the meeting.

In other currency action, the EUR had a relatively quiet overnight range, testing the 1.2900 level, but falling back into the 1.2860-70 area and looks ready for another test of the 1.2850 support level. Not much is expected today as traders will listen to FED governors statements but await the “main event” coming tomorrow when FED Chair Bernanke testifies before Congress.

Yesterday Chicago FED President Evans commented yesterday that the FED’s policies are working and that the US economy seems to be performing well. He also said he is optimistic that the unemployment rate will continue to go down. A few more months of data need to be seen before he would expect to see QE adjusted. He also mentioned that at least 200,000 in job growth through the summer would also be needed. Today St. Louis President Bullard and New York President Dudley speak, but they are mainly appetizers ahead of FED Chair Bernanke’s testimony tomorrow. Most analysts do not expect to hear any surprises tomorrow from Mr. Bernanke.

I would not expect much movement today. There should be no shocking announcement later this evening from the BOJ, but expect some move higher in the USD/JPY. There doesn’t seem to be any interest in moving the EUR one way or the other so that should remain range traded as well. USD/CAD also traded quietly overnight as the Canadian market returns after the Victoria Day holiday. There is resistance at 1.0275, and a break there could see another run towards 1.0300.

Further reading: USD Index: Corrective Pull-back To 83.30/83.50 Within Larger Uptrend (Elliott Wave Analysis)

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Matthew Lifson is a Foreign Exchange Trader and a Market Analyst. with Cambridge Mercantile Group.

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