Somebody must have called a “timeout” overnight. The currency markets were rather quiet during Asian and early European trade as dealers seemed to take a break following the FOMC announcement on Wednesday. The 40 point trading range in the EUR showed good selling interest above the 1.3580 level and strong buying interest at 1.3540.
There was no surprise from the FOMC and maybe that is exactly what the market needed. Traders were able to stop, take a breath and decide how the next but of news, the release of US NFP and unemployment will play out on Friday.
To quickly recap, the FED maintained their level of asset purchases at $85 billion and kept interest rates unchanged at 0-0.25%. No surprise there. And they made it clear that the asset purchase program will continue until the unemployment rate eases to 6.5% from the current 7.8%. So that will be with us for quite some time.
Following the announcement, there was no real currency moves and that period of rest has carried into the overnight. The moves in the other currencies were pretty much in line with the EUR. USD/JPY has straddled the 91.00 level, USD/CAD has been around the 1.0025 area, and the AUD is struggling to maintain 1.0420.
Early morning data out of Europe was mixed as Germany had less than expected retail sales, but the unemployment rate improved from 6.9% to 6.8%. Technically, on moving average and Elliott wave analysis, the EUR has reached a strong band of resistance and this could be the reason for the “lack” of trading activity overnight. Failure in the next few days to break through 1.3580 could see “weaker” long positions bail out and the EUR could move lower. However, it would take a break of the 1.3410 level to reverse the uptrend and that is quite a ways away at the moment.
There is a growing confidence emerging regarding the EUR as investors are returning to the Euro Zone bond markets since they feel with ECB backing these investments are safer than USD backed portfolios. Think back to last year when Spanish and Italian bond yields were jumping off the charts. Thanks to ECB involvement, these yields have fallen to much more manageable levels.
It will be interesting to see if this market timeout extends into the North American trading session. No doubt the “talking heads of the news media” will attempt to take apart the FOMC statement. To me it seemed rather simple. The economy still has a long way to go and so does the improvement of the unemployment level. But we all know things are never that simple.
Expect someone to test the topside today in EUR. If that fails, a move towards 13520 could occur. We shall see.
Further reading: Hold tight for month end
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