The dollar was gaining versus the majors as Europe absorbed Ben Bernanke’s comments from yesterday. The Aussie dollar is the weakest against the USD with sterling not too far behind. A lack of data releases on the economic calendar today will have traders keying in on the upcoming central bank meetings, the most heavily scrutinized will be that of the ECB.
Sterling was down on the day against the dollar after the wires showed a Moody’s official saying Britain’s top credit rating could come under review if economic growth continues to deteriorate and if the fiscal program goals fall short. While this isn’t much different from the rating agency’s previous stance that was proclaimed in March, the sharp drop in cable shows how sensitive the forex trading market has become to the rating agencies moves. More weakness could be in store for cable as a break of the rising support line at 1.6350 could spur losses to the June low at 1.6280.
The Australian dollar is weaker across the board a day after the Reserve Bank of Australia held its base interest rate at the current level and appeared less hawkish than expected. AUD/USD support is seen at 1.0585 with the potential for further declines back to the May low at 1.0440.
Intervention talk is floating through the wires as the USD/JPY made its way below the 80 yen mark in overnight trade. The pair is trading at its lowest level since early May but volatility versus both the dollar and in the crosses is far from its pre-intervention levels since mid-March.
The euro is off both against the dollar and in the crosses. German economic data was not supportive with a smaller than expected trade balance and weaker than forecasted industrial production numbers. Euro pairs may see a bit more volatility as tomorrow’s ECB meeting nears. Market expectations are for Trichet to chime in with the phrase, “strong vigilance”, the market’s code for an expected rate hike in the July ECB meeting. Odds are in favor of this happening, though there will be plenty of contrarians out there should Trichet leave those key words out of his speech tomorrow. While market positioning is not as stretched in favor of the euro as it was in May, a slide in the EUR/USD could extend to 1.4410-20, a 38% retracement from the May to June move higher. The 50-day moving average also hovers in this area.
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