Pressure Continues Despite Brief Respite in Gold
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Pressure Continues Despite Brief Respite in Gold

The markets were a combined “mixed bag” overnight as risk markets calmed a bit as the DOW recovered to finish up 157 points, EUR remained strong, but commodity currencies remained under pressure despite a brief respite in the price of gold. The precious metal tested the $1400 level after falling as low as $1320 earlier in the day.

As we head into the European trading day, the EUR remains well supported in the mid 1.31’s, after testing 1.3200 yesterday. The continued strength in the EUR has surprised many, especially with European economic releases not necessarily supporting such a move.

Some traders pointed to the fact that ECB President Draghi spoke yesterday and it seems whenever he does the EUR strengthens. Other analysts point to the natural retracement of technical trading and now look at the 1.3225 level as a significant resistance area. A break there would see more longer term “short” positions closed and a further move higher towards 1.3300. Yesterday we briefly touched 1.3200, but moved no higher.

Further reading:  Forex Analysis: EUR/USD Advances to Key Resistance

USD/JPY has moved a bit higher, trying to hold the 98 level, as traders now expect that the G20 meeting later this week will not be as “difficult” for the Japanese delegation as first suspected. Resistance for USD/JPY now is at 98.40, followed by 98.65. Support for the USD/JPY is at 97.80. Most predictions for the USD/JPY still expect a test of the 105.00 level by mid-summer as “Abenomics” continues in Japan.

With the pressure in gold and crude oil the Australian and Canadian Dollars remained under pressure. AUD/USD was unable to regain the 1.0400 level as not only gold, but concerns over Chinese recovery keep pressure on that currency. A break of the 1.0340 level could see renewed selling and test 1.0315. Resistance is at 1.0380. USD/CAD is trading in the mid 1.02 area, and a break of 1.0250 resistance could see a move towards 1.0300.

Yesterday, the IMF issued a report that lowered their global growth forecast to 3.3%, down from the January prediction of 3.5%. They left growth for 2014 unchanged at 4%. The report included the comment that “global prospects have improved but the road to recovery in the advanced economies will remain bumpy”. The also urged policy makers not to “relax their efforts”. US growth for 2013 was revised to 1.9%, down from 2.1%. The US is still expected to grow 3% in 2014. The Eurozone economy is expected to contract -0.3% this year, but recover to grow 1.1% in 2014.

The Bank of England just released their minutes for the April meeting. UK MPC voted 9-0 to keep rates on hold at 0.5%, while the vote to keep QE at GBP 375 billion was closer at 6-3, with three governors voting to add an extra GBP 25 billion of QE. EUR/GBP has moved higher following this news release, helping the EUR/USD move towards the 1.3190 area.

Later this afternoon the FED releases their Beige Book which will give traders a look at the US economy.


Matthew Lifson

Matthew Lifson

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