Month: August 2011

The Bank of Japan made a ¥10 trillion splash in the markets to prevent speculators from driving the value of the Japanese currency higher. Most likely the BoJ was forced to act following yesterday’s quasi-quantitative easing by the SNB to weaken the CHF.

The Asian forex trading session was more volatile than normal with the yen soaring as high as 80.22 from 78.30 at 02:00 GMT when the selling began. In addition to the intervention in the forex trading markets the BoJ also committed to increasing its asset purchase fund and additional fixed rate loans. Both of these programs will be worth ¥5 trillion each.

At first glance the BoJ looks to have succeeded in weakening the yen. Early gains are impressive with the major pairs triggering stops and inflicting pain on both hedge funds and retail forex traders that have been long the JPY. To keep the pressure on those that seek the JPY as a safe-haven currency the BoJ has been selling yen intermittently throughout the day. While not exposing the entirety of the intervention program the BoJ will keep the markets on their toes with the chance the BoJ could begin selling the JPY again to keep speculators at bay.

The technicals show a bleaker picture for the BoJ, particularly in the EUR/JPY which rose as high as 114.16, a level that has significant technical implications. This price close to the pair’s 200-day moving average (113.91), the bottom line of a previous bearish flag pattern stemming from the mid-July low (114.05,) and the 38% Fibonacci retracement (114.25) from the April high to this week’s low. The falling trend line from the April and July highs will likely find willing JPY buyers at the 115.50 level if the pair manages to move higher. To the downside the EUR/JPY may find support at 112.20.

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Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.

The Central Bank of Russia held its benchmark refinancing rate unchanged at 8.25% and the overnight auction-based repurchase rate at 5.50%, while also leaving reserve requirements unchanged, and the fixed overnight deposit rate at 3.50%.  The Bank said: “The decision was supported by the assessment of inflation risks and risks to the sustainability of economic growth, including those associated with the uncertainty of the global economic conditions.” And also noted: “considering current domestic and external economic conditions and the effect of the monetary policy measures, implemented in recent months, the Bank of Russia judged that the current level of money market interest rates was appropriate to maintain the balance between inflation risks and risks to economic activity in the coming months”.

 The Bank last raised the fixed overnight deposit rate by 25bps to 3.50% in May, and the benchmark refinancing rate by 25 basis points to 8.25% in April this year.  Russia reported annual inflation of 9% in July, down slightly from 9.4% in June, meanwhile Bank Chairman Sergey Ignatiev is trying to keep inflation between 6% and 7%.  Deputy Economy Minister, Andrei Klepach, said full-year inflation may be towards the lower end of the government’s 6.5-7.5% forecast.  Russian economic growth slowed to 4.1% in the first quarter of 2011, down from 4.5% in the December quarter of 2010; the IMF is expecting 4.5% growth for the full year.

www.CentralBankNews.info

By ForexYard

Economic news this week has pushed traders into a position of market pessimism; though trading yesterday was acting as though no safe-haven could be found. Little news has emerged which put a dent in the amount of pessimism surrounding the forex market. Traders are now eyeing the finer details of the US debt ceiling plan to determine when, or if, a return to risk appetite is expected.

Economic News

USD – USD Sideways as Sentiment Bearish Across the Board

The US dollar (USD) was seen trading sideways at yesterday’s close after a day of mixed news from the global economy. The value of safe-haven assets has been dampened by an interest rate decrease in Switzerland and poor fundamentals in Japan. Even the USD, which was expected to receive a boost no matter how the debt talks ended, appears to have succumbed to mixed sentiment regarding global outlook.

Economic news this week has pushed traders into a position of market pessimism; though trading yesterday was acting as though no safe-haven could be found. Little news has emerged which put a dent in the amount of pessimism surrounding the forex market, traders are now eyeing the finer details of the US debt ceiling plan to determine when, or if, a return to risk appetite is expected.

With a moderate news day expected from Europe and Great Britain, traders will be witnessing the release of this week’s unemployment claims report from the US. Following yesterday’s optimistic data from ADP’s Non-Farm Employment Change report on the private sector, today’s unemployment claims will offer another piece of info regarding the employment sector of the US economy. Should it also support optimism, traders may return mildly to riskier assets and away from the USD.

EUR – EUR Mixed as Data Confounds

The euro (EUR) was seen trading with largely mixed results yesterday as traders moved into and away from riskier assets across the region. Against the US dollar (USD) the euro was seen trading sideways in late trading as shifts away from the greenback, due to uncertainty about the US debt ceiling plan, caused several market participants to opt for other stores of value.

The largely bullish reports out of Europe yesterday have appeared to confound traders who were anticipating a string of bearish results. Though debt concerns still loom in the region, optimistic data has had the impact of muting the EUR’s losses against its primary basket of currencies. With an interest rate announcement expected today, traders should see some added volatility in today’s EUR market.

On tap today, traders will witness the release of a highly significant report on the region’s Minimum Bid Rate. Should the rate statement come out with hawkish commentary, we could see heftier shifts to riskier assets in the days and weeks ahead. This would likely push the value of the EUR higher over the long-haul as traders temporarily cease to flee risk.

AUD – Australian Data Bearish; Weighs on AUD

The Australian dollar (AUD) was weighed down yesterday, as market reports showed contraction across the boards. Piling atop recent reports on Australia’s shrinking housing sector, yesterday’s publication of Australian retail sales and its national trade balance show a broadening contraction striking several sectors of Australia’s economy. The retail sales figure, perhaps most shocking, witnessed contraction in June.

Expectations for the retail sales report was for a modest growth of 0.4% from last month’s contraction of 0.6%. The actual report of 0.1% shrinkage has led many investors to pull away from the Australian dollar (AUD) in recent trading. The nation’s trade balance also revealed sluggish growth of only A$2.05B as opposed to the expected A$2.22B, down from last month’s A$2.70B. This data, combined with dismal HPI and new home sales reports, has so far dragged the Aussie lower and looks to continue doing so this week.

Oil – Crude Prices Lower as Ratings Downgrades Dampen Demand

Crude Oil prices fell mildly lower Wednesday as warnings of a downgrade of US debt by Moody’s Investors Service pulled demand for oil significantly lower. Data releases out of Europe and the US last week are also driving many investors back into safe-haven assets as many reports suggested a surprise downtick in growth among global industrial output and consumer spending.

The impact has been a decline in oil values from over $100 a barrel last week to a current price near $93. An expected jump in dollar values due to this week’s risk averse environment has helped many investors ram up their short-taking positions on physical assets, but with the USD’s gains not materializing, sentiment appears to have the price of crude oil holding steady, with gradual losses priced in. Should Crude Oil sentiment continue to flatten this week, oil prices may reach a decision point which forces a wide swing by week’s end.

Technical News

EUR/USD

The weekly chart shows a bullish engulfing pattern was followed by a false breakout above the trend line falling off of the May and July highs. A pullback from this resistance line formed a doji reversal candlestick which hints at declines in the EUR/USD. The 200-week moving average looks to be the first support at 1.4025 followed by the 200-day moving average at 1.3930. The rising trend line from the May low could also be supportive at 1.3830. To the upside 1.4580 will need to hold to maintain the bearish technical picture. A close above this level could go on to test 1.4700 and this year’s high of 1.4940.

GBP/USD

Three weeks of consistent gains for cable are beginning to shift the technical picture from bearish to bullish. Sterling has moved above resistance levels that otherwise would have contained the pair. The first break occurred above the neckline of the head and shoulders pattern at 1.6185 and the second major break occurred at 1.6370 above the previous trend line rising from the May 2010 low. Initial resistance will be the May 31st high at 1.6550 followed by the April high at 1.6745. A move lower for the GBP/USD will likely test the base at 1.6260 followed by the previously broken trend line off of the April high at 1.6140. A breach of 1.6000 could have scope towards 1.5780.

USD/JPY

Yen strength has returned with a vengeance. Last week’s candlestick closed with a shaved bottom indicating momentum is to the downside. This week’s opening gapped higher but the price managed to hold below the current short term trend line from the July 20th high which comes in at 78.05. Additional resistance may be 79.60 and the 55-day moving average at 80.15 but the downside is calling. Support is found at 76.70 from last week’s low followed by the all-time low from March at 76.11. A break here and we move into uncharted territory where the psychological support at 75.00 and 70.00 come into play.

USD/CHF

The Swiss franc is in a similar position as the yen as the USD/CHF moves into uncharted territory. Bias remains to be short but Monday’s opening gap higher could create a Harami reversal pattern which may lead to slight gains for the pair. A daily close will be needed for confirmation. Resistance is found at 0.8080 and 0.8275. A move higher to these levels would provide for potential short entries back into the long term downtrend with targets at the big round number at 0.7800.

The Wild Card

USD/JPY

Following this morning’s intervention by the Japanese Ministry of Finance MOF the yen is considerably weaker versus the US dollar and in the crosses. Forex traders should look to the previous intervention in March for reference. In the last attempt to weaken the yen the USD/JPY continued to rise for the next two weeks after the initial yen selling by the MOF before the JPY resumed its long term downtrend. The next resistance for the USD/JPY stands at the May low of 79.60 followed by the June high of 81.50 and finally the long term downward sloping trend line from the beginning in mid-2007 which comes in at 82.20.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

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The Banca Nationala a Romaniei held its key monetary policy interest rate steady at 6.25%.  The Bank said it would “maintain the existing levels of minimum reserve requirement ratios on both leu-denominated and foreign currency-denominated liabilities of credit institutions”.  The Bank also noted: “In the medium-term, upside risks to inflation remain significant, coming mainly from the timing and magnitude of administered price adjustments, the volatility of capital flows amid developments in the sovereign debt crisis in the European Union and the United States, as well as uncertainties regarding the evolution of global commodity prices.”

The Bank of Japan held its uncollateralized overnight call rate unchanged at a range of 0 to 0.1% by a unanimous vote.  However the BOJ did decide “to enhance monetary easing by increasing the total size of the Asset Purchase Program by about 10 trillion yen from about 40 trillion yen to about 50 trillion yen”.   The Bank said it “deemed it necessary to further enhance monetary easing, thereby ensuring a successful transition from the recovery phase following the earthquake disaster to a sustainable growth path with price stability,”.

The Bank of Japan also held its monetary policy interest rate unchanged in July this year.  The Bank last changed its asset purchase program in March this year, when it added a further 5 trillion yen to its target.  Japan reported annual headline consumer price inflation of 0.2% in June, and 0.3% in both May and April, meanwhile core inflation rose 0.6% in April, as Japan finally begins to see some positive inflation figures.  The Bank is forecasting real GDP growth of 0.2-0.6% in fiscal 2011, and 2.5-3.0% in fiscal 2012.

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.

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Two headline events are causing a tumultuous push and pull effect on the Russian ruble (RUS) this week. First and foremost is the rumor that Prime Minister Vladimir Putin may run for president in next year’s election. Investors have begun to buy up the RUS as a response to the potential run by the sitting PM, citing future strength and continuity as a cause for purchasing domestic assets in Russia.

According to the Russian central bank, an approximate $21.3B net outflow left the country in the first quarter due to uncertainties surrounding the upcoming elections, followed by another exit of $9.9B in Q2. The stability Putin brings to the election circuit has helped stifle much of this revenue outflow, supporting the stability of the RUS despite Putin’s opposition to parts of the West’s global agenda.

The second factor pulling on RUS values is a lowering in price of oil due to recent warnings about ratings downgrades. Moody’s Investors Service hinted that US debt may receive a ratings downgrade should indecision result from the debates taking place in Congress over a lifting of the debt ceiling.

The impact has been a decline in oil values from over $100 a barrel to a current price near $93, which is weighing on the ruble in this week’s trading. The RUS still appears to be inching higher against its primary euro-dollar currency basket, but dips caused by lower oil prices may slow this growth and generate temporary downturns.