Increased bond yields and higher CDS rates for Spain and Italy are keeping the euro from making any significant inroads versus the USD. Yesterday Italian Prime Minister Silvio Berlusconi attempted to talk up the strength of Italian finances and the economy’s solid fundamentals. Market players continue to trade in a difficult environment after yesterday’s interest rate move by the SNB to lower the value of the CHF and today’s intervention by the BoJ to weaken the yen.
Today’s Key Economic Events:
JPY – BOJ Press Conference – 07:30 GMT
The BoJ began selling yen on the open market overnight with reports of selling up to JPY 900 Bn. The move comes on the heels of the SNB interest rate cut and increased liquidity provisions to weaken the CHF. The BoJ was likely pressured into acting after the Swiss move. This creates a conundrum from traders seeking to shy away from risky assets. What should forex traders buy when moving out of higher yielding assets? US monetary policy is expected to remain ultra-loose and the possibility of QE3 may keep the USD on its back foot while the euro remains fundamentally flawed from the debt crisis. I suspect the one off moves in the JPY and the CHF will be just that and the long term trend of a strengthening yen and Swiss franc will continue.
GBP – Official Bank Rate – 11:00 GMT
Expectations: 0.5%. Previous: 0.5%.
No change is expected to the UK interest rate but there is the potential for a loss of support in the hawkish camp. Additional easing measures could be enacted but unless the MPC acts now which may still be premature, we won’t know the nature of the debate for two weeks when the MPC releases its meeting minutes. Resistance comes in at 1.6475 followed by 1.6550. Support is found at this week’s low of 1.6220.
EUR – Minimum Bid and ECB Press Conference
Expectations: 1.50%. Previous: 1.50%.
ECB rates will be held at their current levels but the risk is for Trichet to downplay additional tightening due to slowing growth in the US and weaker Euro zone PMI surveys. EUR/USD initial support is yesterday’s low of 1.4140 followed by the July low/long term trend line from June 2010 at 1.3840. Resistance is found at the overnight high of 1.4370 and this week’s high at 1.4450.
Read more forex trading news on our forex blog.