InvestMacro FX

The US Federal Reserve prints it’s FOMC statement tomorrow at 2:15pm EST. After the Fed’s last FOMC announcement, we saw the futures markets price in a much higher expectation of the Fed increasing US short term interest rates by the end of 2009. Without going into the mechanics of futures, US Treasuries and the USD, the result of this move by traders caused he USD to weaken. EUR/USD moved higher by approx 10 big figures in the month that followed; USD/JPY dropped approx 6 big figures in the following three weeks.

However, in the last few weeks that increased expectation of higher interest rates has tailed off. Futures markets show a lower level of participants believe that the Fed will increase rates in 2009. We have seen the USD strengthen, or at least halt its losses in the last two weeks. The market is still positioned slightly in the belief that the US Fed will increase rates this year, though we at Back Bay FX do not believe that to be the case. So tomorrow’s announcement by the US Fed will have a lot of traders worried about their position on US short term interest rates, and therefore the USD. Any hints that the Fed is not going to raise interest rates, potentially in the form of commentary about increasing the Fed’s US Treasury debt buyback program, will cause traders caught the wrong way to cover their positions and this will strengthen the USD.

So the largest of dealing desks know that there is a significant number of market participants who are short USD. What would cause the most amount of transactions (read as “revenues to dealing desks”) to take place? A move higher in USD would cause those who are short to cover their shorts and then create a long position for themselves. Any move lower in USD would not create nearly the amount of trading volume that a higher USD move would create. If USD moves lower, then the majority of market participants (who are short USD) can sit back and count their money. Therefore a move lower in USD would be muted compared to the strength of any move higher in USD.

Our playbook for tomorrow is as follows:

1) Flat positions in USD pairs going into the US Fed announcement

2) Look or comments that imply short term interest rates will remain low. Either directly discussing the economy’s lack of growth or discussing an increase in the Fed’s US Treasury bond and note buyback program. If heard, look to buy USD by shorting GBP/USD and EUR/USD

3) Positive comments on the economy will have less of a market moving impact than negative comments on the economy.

Stay Nimble!

Stephen Leahy
Back Bay FX Services, LLC
www.backbayfx.com

Source: ForexYard

The market is expected to be very volatile today, as the U.S. announces the Federal Funds Rate at 18:15 GMT, which specifies U.S. Interest rates. The other factor that which is set to affect both the USD and Crude Oil is the publication of the U.S. Crude Oil Inventories at 14:30 GMT. In order for traders to start making profits today, it is recommended that they open their USD and Crude Oil positions as the trading day gets under way.

Economic News

USD – USD Under Pressure Ahead of Interest Rate Announcement

The U.S. Dollar went bearish against most major currencies on Tuesday, as uncertainty ahead of today’s Federal Funds Rate announcement put the USD under strong selling pressure. The greenback fell the most in 2 weeks against the EUR as European Central Bank (ECB) council member Axel Weber said policy makers have already used up their room to cut borrowing costs, indicating the Euro-Zone’s Benchmark Rate will stay higher than the equivalent U.S. rate

The Dollar did rise against the Yen, to finish trading at the 95.54 level. This was despite U.S. data showing sales of previously owned homes in the United States rose less than expected in May. However, the Yen’s losses may have been extended in late trading due to mixed data from Japan’s economy.

Today, the Federal Open Market Committee (FOMC) is widely expected to leave its fed funds Rate target in a range of 0% to 0.25%. Investors will be watching to see whether the Federal Reserve unveils any changes to its Treasury and mortgage asset-purchase program to further boost liquidity.

The U.S Dollar has come under pressure in recent weeks as more upbeat U.S. economic data fueled hopes that a global economic recovery was on track. The USD may extend its declines after this week’s Federal policy meeting, according to analysts.

EUR – EUR Rises to a 2 Week High vs. the USD

The EUR rose 1.6% against the Dollar to $1.4075 in late afternoon trading yesterday, after hitting a session peak of $1.4109. It was the biggest one-day percentage gain since May 8. The EUR also gained 0.9% against the Japanese Yen to finish trading at the 134.61 level.

Investors were also buying the EUR ahead of the European Central Bank’s (ECB) first-ever one-year refinancing operation on Wednesday, aimed at encouraging banks to lend again. The European currency also rose against the British Pound to 0.8557 yesterday by the most in almost 3 weeks after Bank of England (BoE) Chief Economist Spencer Dale said a weaker currency was a key channel to spur economic growth.

Markets will be watching for the Federal Reserve’s outcome today, as low Interest Rates would hurt the Dollar, and any move to expand the Fed’s $300 billion Treasury buying program to keep long rates low could raise inflation concerns, undermining foreign appetite for U.S. assets.

JPY – Yen Falls against the USD on Economic Concerns

The Japanese currency fell sharply on Tuesday, falling against most of its major currency pairs, tumbling from creeping doubts about the sustainability of any economic recovery. The JPY fell 0.3% vs. the greenback to 95.54 Yen. The JPY also slipped against the EUR by over 250 pips to 134.61 Yen, as investors continued to cut bets on low-yielding assets, and sold-off the Yen against other major currencies.

Traders were also cautious ahead of a U.S. Federal Reserve policy decision on Wednesday, and this week’s record $104 billion sale of U.S. debt. This has meant that renewed concerns about the global economy have actually fed through more into a weaker Yen than a weaker Dollar, analysts said.

Crude Oil – Crude Oil Inventories Data to Drive Oil Trading Today

Crude Oil prices rose nearly 4% on Tuesday to $68.59, as the U.S Dollar weakened and disruptions from OPEC member Nigeria stoked supply concerns. Crude prices also rose on expectations that Crude Oil Inventories in the U.S., the world’s biggest consumer of Oil have fallen. Oil rose yesterday as the U.S. currency slipped the most in 2 weeks against the EUR on speculation that the Federal Reserve will temper expectations of an Interest Rate increase this year.

Inventories expectations and the weak Dollar are helping Crude Oil, analysts said. Commodities’ trading was choppy with all the news ahead, such as inventories and the Federal Reserve’s decision later today. Analysts expect the data to show U.S. commercial Crude stocks dropped 1.2 million barrels, according to a survey of analysts. Traders are also awaiting the Federal Reserve’s statement at the end of its two-day meeting later today.

Technical News

EUR/USD

The pair reached as high as the 1.4100 level today, before dropping down to the 1.4080 level. This recent bullishness may continue according to the weekly chart’s MACD and RSI. However, the chart’s hourly RSI and 4-hour Stochastic Slow signal that the pair may be overbought, and that a bearish correction may be under way anytime soon. It may be wise to enter the pair when the signals are clearer.

GBP/USD

The GBP/USD pair has been very volatile lately. Nonetheless, the current upward trend may be under threat, as the chart’s hourly MACD indicates that the pair is overbought. Additionally, the chart’s hourly and daily RSI support a possible downward trend for today. Going short with tight stops may not be a bad choice at all today.

USD/JPY

The pair’s recent downward trend seems to have reversed since mid-trading yesterday, as the pair now eyes the 96.00 level. The hourly chart supports the pair going higher, as it approaches the upper barrier of the hourly chart’s Bollinger bands. The hourly chart’s MACD also supports further bullishness for the short-term. Going long with tight stops may be a wise choice today.

USD/CHF

The pair’s recent bearishness may be running out of steam, as weekly chart’s Stochastic Slow signals that the pair is in oversold territory. A bullish move is supported by the chart’s hourly RSI and weekly MACD. When the pair breaches the 1.0680 level, going long with tight stops may not be a bad bet at all.

The Wild Card – Crude Oil

The recent downward trend of Crude Oil may have come to an end, as the black gold benefited from the weak USD in the forex market yesterday. The upward trend is supported by the weekly chart’s Stochastic Slow. On the other hand, the chart’s RSI and the daily chart’s MACD indicate that there is much bearishness ahead for Crude. Entering Crude Oil before the downward breach occurs may be a wise choice today.

Forex Market Analysis provided by Forex Yard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

By GCI Fx Research

€

The euro rallied sharply vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4105 level and was supported around the $1.3830 level.  The common currency’s climb was precipitated by increasing speculation the Federal Open Market Committee will try to manage expectations about a possible interest rate increase later this year.  There is a growing market view the Fed’s federal funds target rate will remain between 0% and 0.25% for the remainder of the year.  Some traders believe the Fed will try to signal an eventual end to its quantitative easing policy while others believe the Fed will extend its US$ 300 billion U.S. Treasury purchases program.  Fed funds futures are currently pricing in about a 42% chance the Fed will raise its fed funds target rate to 0.50% by December, down from a 49% chance one week ago.  Data released in the U.S. today saw May existing home sales rise 2.4% to an annualized 4.77 million annual rate from 4.66 million in April.  Other data saw the Richmond Fed’s June manufacturing shipments index decline to +2 from +9 in May while the headline manufacturing index improved to +6 from +4 in May.  In eurozone news, European Central Bank policymaker Weber reported policymakers have already reduced interest rates as much as possible, an indication the ECB is probably more hawkish than the Fed at this time.  Weber also said policymakers would “have to bypass the banking sector” if it is unable to provide the real eurozone economy with ample credit.  This suggests the ECB could extend its plan to purchase up to €60 billion in covered bonds to ease market interest rates.  Weber also said the economic growth forecasts for 2011 are “relatively modest.”  ECB member Nowotny added there is “justified hope that at least the financial markets have the worst behind them.” Similarly, ECB policymaker Quaden said the eurozone’s economy will be “less bad” for the rest of the year and then progressively improve in 2010.  Additionally, ECB policymaker Noyer said the ECB “must stand ready to absorb excess liquidity as soon as necessary. Today, there is no need to start or even prepare for an imminent start.”  Noyer added “Monetary policy must be eased without jeopardizing price stability.  If we had a de-anchoring of inflation expectations, we would have durably slower growth or even economic stagnation.”  Data released in the eurozone today saw the June EMU-16 composite Purchasing Managers Index improve to 44.4 from 44.0 in May, below expectations.  Moreover, the German July GfK consumer confidence index improved to 2.9 from 2.6 in June.  Euro bids are cited around the US$ 1.3435 level.

¥/ CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥94.85 level and was capped around the ¥95.95 level.  Finance minister Yosano reported the government will maintain its pledge to reduce public works spending by 3%.  Also, it was reported the Aso government wants budget ceiling guidelines next week and Aso’s Cabinet approved the fiscal policy outline for next year.  Most traders expect the Bank of Japan will keep the overnight call rate target unchanged at 0.10% for the foreseeable future.  The Nikkei 225 stock index lost 2.82% to close at ¥9,549.61.  U.S. dollar offers are cited around the ¥104.15 level.  The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥134.40 level and was supported the ¥131.40 level.  The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥156.85 level while the Swiss franc moved higher vis-à-vis the yen and tested bids around the ¥89.45 level. In Chinese news, the U.S. dollar came off vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8338 in the over-the-counter market, down from CNY 6.8345.

Daily Market Commentary provided by GCI Financial Ltd.

GCI Financial Ltd (”GCI”) is a regulated securities and commodities trading firm, specializing in online Foreign Exchange (”Forex”) brokerage. GCI executes billions of dollars per month in foreign exchange transactions alone. In addition to Forex, GCI is a primary market maker in Contracts for Difference (”CFDs”) on shares, indices and futures, and offers one of the fastest growing online CFD trading services. GCI has over 10,000 clients worldwide, including individual traders, institutions, and money managers. GCI provides an advanced, secure, and comprehensive online trading system. Client funds are insured and held in a separate customer account. In addition, GCI Financial Ltd maintains Net Capital in excess of minimum regulatory requirements.

DISCLAIMER: GCI’s Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be U.S.ed as investment advice. GCI assumes no responsibility or liability from gains or losses incurred by the information herein contained.

By Fast Brokers – Gold is fighting back from Monday lows, which almost saw a retest of the psychological $900/oz level.  However, volume to the upside has been weak, indicating bulls don’t feel too confident about the near-term future of the precious metal.  We view yesterday’s pullback as a significant movement since it occurred at the collision point of two important uptrend lines.  Therefore, it seems a retest of $900/oz is imminent.  Investors should keep an eye on U.S. equities.  Gold may take its cue from the behavior of the S&P futures since the precious metal is heading towards a highly psychological zone.  If the S&P futures can’t hold onto their own psychological 900 level, then gold may find the momentum to head south of $900/oz due to their positive correlation.  Encouragingly, the Dollar is depreciating across the board right now, which is normally positive for gold.  We maintain our negative near-term outlook on gold due to the aforementioned analysis.

Present Price: $922.40/oz

Resistances: $923.96/oz, $927.40/oz, $931.41/oz, $935.62/oz, $939.82/oz

Supports: $920.95/oz, $917.49/oz, $914.99/oz, $911.14/oz, $908.25/oz

Psychological: $950/oz, $900/oz

Market Commentary provided by Fast Brokers.

Disclaimer: FastBrokers’ market commentary is provided for information purposes only and under no circumstances should be regardedneither as an investment advice nor as a solicitation or an offer to sell/buy any financial product. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained.

Risk Disclosure: There is a substantial risk of loss in trading futures and foreign exchange. Please carefully review all risk disclosure documents before opening an account as these financial instruments are not appropriate for all investors.

By Fast Brokers – The USD/JPY is clawing back towards our 2nd tier uptrend line after dipping below for the 4th time in the past month.  However, volume cooled to the downside and bulls came to the defense of the currency pair.  Even though volume didn’t match the potential significance of the movement, this contraction below our 2nd tier was still larger than the previous three.  Therefore, we’ll keep a close eye on volume and price over the next 24 hours, especially since we have several trend lines approaching their respective inflection points.  In the mean time, Japan will release two more data points, including its corporate service price index and the nation’s trade balance.  Analysts are expected Japan’s trade balance to turn into a surplus for the first time since August 2008.  It will be interesting to see how exports fared since Japan’s economy is highly reliant on its manufacturing base.  Regardless, the USD/JPY has been trading at an abnormally low level, and the Yen’s strength is certainly taking its toll on Japan’s economy.

We maintain our negative outlook on the USD/JPY since it is positively correlated with U.S. equities and we spot trouble ahead for the S&P.  If the USD/JPY’s 2nd tier uptrend line doesn’t hold, we could witness a near-term pullback towards our 1st tier uptrend line, which is quite a ways off.  The USD/JPY has been stable for a while now, and any contraction beneath May lows would certainly be noteworthy.  The battle between the uptrend and the downtrend ensues as investors slug it out over a trend.  Therefore, investors should keep a close eye on the ability of the S&P futures to remain relatively close to their highly psychological 900 level.
Present Price: 95.70

Resistances: 95.82, 96.33, 96.90, 97.45, 97.58

Supports: 95.20, 94.45, 93.76, 93.32, 92.69

Psychological: 95, 100

Market Commentary provided by Fast Brokers.

Disclaimer: FastBrokers’ market commentary is provided for information purposes only and under no circumstances should be regardedneither as an investment advice nor as a solicitation or an offer to sell/buy any financial product. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained.

Risk Disclosure: There is a substantial risk of loss in trading futures and foreign exchange. Please carefully review all risk disclosure documents before opening an account as these financial instruments are not appropriate for all investors.

By Fast Brokers – The Cable declined on climbing volume earlier today, yet has balanced on our 1.6210 support once again.  The GBP/USD is rising back towards our 3rd tier downtrend line as investors hold onto their hope of a global economic stabilization.  We notice considerable strength in the EUR/USD today, indicating investors are supporting a near-term depreciation of the Dollar.  However, as with the EUR/USD, the GBP/USD has an important downtrend line bearing down on price.  Therefore, a near-term downward pressure remains while crude futures and U.S. equities struggle.  Regardless, today’s defense of the GBP/USD and EUR/USD is encouraging since the respective currency pairs are at a critical juncture as far as patterns are concerned.  With the global economic stabilization at a crossroads, investors are waiting to see if the optimistic signs grow into more substantial results, or at least begin to approach pre-crisis levels.  The markets are indicating investor hesitation, represented in the Cable by sideways movement over the past 10 sessions.

Meanwhile, the Pound remains in an advantageous position globally since its economic data continues to outperform.  Britain’s BBA mortgage approvals came in above expectations, supporting the rise in British home prices we’ve seen recently.  Additionally, unemployment is declining and the British manufacturing and service sectors are rebounding.  Hence, even though there have been a couple hiccups in Britain’s economic data, the Pound maintains its comparative strength globally.  Favoritism of the Pound is exemplified by the repeated defense of our 1.6210 support while ignoring near-term weakness in U.S. equities and crude.  Regardless, should U.S. equities stumble into a more protracted decline the Cable would unwillingly follow suit due to their positive correlation.  A weak U.S. economy implies a decrease in demand for British goods and services, causing further troubles for Britain’s economy due to economic coupling.  Since U.S. equities seem overpriced and a global economic recovery isn’t written in stone, we maintain our negative outlook on the GBP/USD trend-wise.  However, even if the Cable should struggle in the near-term, the currency pair’s medium-term uptrend is well intact with several technical and psychological supports in place.

Present Price: 1.6349

Resistances: 1.6371, 1.6412, 1.6498, 1.6574, 1.6624

Supports: 1.6315 1.6263, 1.6210, 1.6151, 1.6102

Psychological: 1.65, 1.60

Market Commentary provided by Fast Brokers.

Disclaimer: FastBrokers’ market commentary is provided for information purposes only and under no circumstances should be regardedneither as an investment advice nor as a solicitation or an offer to sell/buy any financial product. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained.

Risk Disclosure: There is a substantial risk of loss in trading futures and foreign exchange. Please carefully review all risk disclosure documents before opening an account as these financial instruments are not appropriate for all investors.

By Fast Brokers – The EUR/USD has taken a step up from the inflection point of our 2nd tier uptrend and downtrend lines despite unexciting economic data.  Most of the PMI numbers from the EU today came in at or below analyst expectations while Germany’s consumer confidence surprised to the upside.  The EU’s manufacturing and service sectors are still contracting since global demand has yet to pick up to pre-crisis levels.  Overall, the data over the past 48 hours hasn’t been encouraging, yet the Euro is outperforming across the board.  Therefore, the Euro’s appreciation may be a result of oversold conditions.  It seems the EUR/USD may fluctuate between our 2nd tier uptrend and 3rd tier downtrend lines in a sign that investors aren’t willing to give up yet on the currency pair’s medium-term uptrend.  This is good news for the bulls and the prospect of a global economic recovery since the EUR/USD managed to ignore a pullback in gold and equities while avoiding a technical downturn of its own.  However, the EUR/USD finds itself facing the psychological 1.40 level once again, and our 3rd tier downtrend line could prove to be a worthy foe should it be tested.  Hence, a near-term downtrend force remains despite the encouraging pop taking place.  Investors should keep track of volume to see if the EUR/USD can register volume of 6000+ on a 4-hour up-bar.  High volume to the upside could be an indicator of a changing tide in market sentiment from negative to positive.

Meanwhile, investors will be interested in the housing and durable goods data coming in from the U.S. over the next two trading sessions.  Should the numbers disappoint, the Dollar may experience a rapid near-term appreciation across the board.  Furthermore, markets will be paying close attention to the results of the Fed meeting ending on Wednesday.  Investors will be interested in language from the Fed concerning its quantitative easing program and outlook for inflation.  However, we don’t expect the Fed to make any surprise moves, and will likely state that inflation isn’t a worry at present due to rising unemployment and weak CPI data.  On the other hand, we expect Bernanke & Co. reassure the market that the Fed will unwind its liquidity policies when the economy is stable enough to handle rising interest rates.  However, if the Fed does suggest a rate hike in the near future and/or another form of liquidity constraint, the Dollar would likely appreciate rapidly.

Regardless of the outcome of the Fed meeting and upcoming economic data, we maintain our negative near-term outlook on the EUR/USD trend-wise due to the discouraging economic data from the EU today.  Furthermore, U.S. equities are under selling pressure and are trading below the psychological 900 level.  Additionally, we believe gold me an important downward movement technically during yesterday’s session.  Hence, there remains a negative tone in the market and the EUR/USD should exercise its positive correlation with U.S. equities.  Meanwhile, a medium-term uptrend is at play, meaning there are several reliable defenses on the way down should the EUR/USD reverse course.

Present Price: 1.3989

Resistances: 1.4019, 1.4052, 1.4112, 1.4147, 1.4198

Supports: 1.3947, 1.3847, 1.3807, 1.3759

Psychological: 1.40, 1.35

Market Commentary provided by Fast Brokers.

Disclaimer: FastBrokers’ market commentary is provided for information purposes only and under no circumstances should be regardedneither as an investment advice nor as a solicitation or an offer to sell/buy any financial product. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained.

Risk Disclosure: There is a substantial risk of loss in trading futures and foreign exchange. Please carefully review all risk disclosure documents before opening an account as these financial instruments are not appropriate for all investors.

By CountingPips.com

U.S. Existing Homes sales increased for the second month in a row in May according to the monthly report produced by the National Association of Realtors. The NAR report showed that existing-home sales including single family homes, co-ops and townhouses increased 2.4 percent in May to a seasonally adjusted annual rate of 4.77 million units. Today’s data follows a revised 2.4 percent gain in April and marks the first consecutive monthly increase since September 2005.

Economic forecasts were predicting an increase of 3.0 percent to a 4.82 million unit sales pace for the month. On an annual basis, May’s existing-homes sales are 3.6 percent lower than the May 2008 sales pace of 4.95 million units. The median sales price for existing homes was $173,000 in May while total housing inventory showed a decrease of 3.5 percent in the month to a total of 3.80 million homes available.

NAR chief economist Lawrence Yun commented on May’s increase saying, “Historically low mortgage interest rates clearly drew buyers into the market, and housing remains very affordable even with a recent uptick in rates.” Yun furthered, “First-time buyers also are being drawn off the sidelines by the $8,000 tax credit, which is helping to absorb inventory.”

US Dollar mixed in Forex Trading today.

The U.S. dollar has been mixed today in forex trading against the other major currencies since the start of the day at 00:00GMT. The American currency has been trading lower versus most of the major currencies but is paring losses in the morning of the U.S. trading session.

The euro had advanced sharply this morning versus the dollar before cooling off some as the EUR/USD has gained from its 1.3862 opening at 00:00 GMT to trading at 1.3995 in the U.S. trading session at 10:46am EST according to currency data from Oanda.

The British pound has declined against the USD as the GBP/USD has fallen from its 1.6322 opening exchange rate to trading at 1.6289 usd per gbp. The dollar has advanced slightly versus the Japanese yen and trades at 95.34 after opening at the day at the 95.26 exchange rate.

The dollar has gained versus the Canadian loonie as the USD/CAD trades at the exchange rate of 1.1559 after opening the day at 1.1537.

The dollar has declined against the Swiss franc as the USD/CHF trades at 1.0737 after opening at 1.0860 today while the dollar has also been weaker against the Australian dollar and New Zealand dollar. The AUD/USD trades at 0.7860 after a 0.7843 opening while the NZD/USD trades at 0.6328 today after opening at the exchange rate of 0.6279.

EUR/USD Chart – The Euro advancing sharply today versus the US dollar in forex trading and increased for eight straight hourly periods before slowing down.

Source: ForexYard

The US Dollar has made some solid gains this week following news from the World Bank (WB) that economic forecasts for growth in 2009 are showing a 2.9% contraction, as opposed to the previous forecasts of 1.7%. As political turmoil in Iran and the show-down with North Korea continue, investors have felt a slight drop in confidence in markets lately and pulled their investments back into safe-havens such as the USD and JPY, which explains their sudden rise in value yesterday. This move back to less risky investments appears to be continuing today.

Economic News

USD – USD Gains on Return to Risk Aversion

The U.S. Dollar gained against its riskier counterparts Monday after the World Bank issued a poor forecast for 2009. Renewed concerns over the state of the global economic recovery combined with unfolding instability in Iran and North Korea brought back an air of pessimism pushing investors to safer currencies. The Dollar was at $1.3856 per EUR following a 0.5% gain since Friday and at 95.99 Yen down from 96.23.

The World Bank predicted Monday that the global economy will shrink 2.9% in 2009, much deeper than the previous estimate of 1.7%. Doubts were also raised that developing countries will be able to spur global economic recovery as their GDP is expected to grow only 1.2% in 2009. The prospect for world economic recovery is expected to be slow and shallow. The report led to a decline in equity markets and commodities which further helped strengthen the Dollar.

The biggest risk to the Dollar this week is the highly anticipated Federal Open Market Committee (FOMC) meeting that is set to begin today and concludes Wednesday with a policy statement. Existing Home Sales are set to be released at 2:00 GMT; however, most of the focus will still be on the outcome of the FOMC meeting as investors await announcements regarding the Fed’s Treasury buying program and direction of interest rates.

EUR – EUR Loses against Most Currency Pairs

The EUR lost against its major currency pairs Monday as investors returned to risk aversion after a disappointing report from the World Bank. The EUR traded at $1.3856 Monday down from $1.3948 and at 133.05 Yen down from 134.22 Friday.

Additional pressure to the EUR came after European Central Bank (ECB) President Jean-Claude Trichet stated that he has no intention of offering stimuli to the Euro-Zone economy. A slightly stronger than expected rise in the German Ifo Business Climate had a very short and mild effect on the EUR considering Germany’s budget deficit shortfalls made this boost in optimism appear muted.

Despite some interesting economic data set to be released today, including the German Flash Manufacturing PMI and the German Flash Services PMI, both to be released at 7:30 GMT, the markets are awaiting the FOMC meeting statement and ECB’s one-year refinancing operation, both due on Wednesday.

JPY – Political Turmoil Benefits JPY

The Japanese Yen gained against most major currencies Monday as risk aversion returned amid political unrest in Iran and a gloomy report from the World Bank regarding expected global recovery. The report stated that the recession will be deeper than previously forecasted, pushing investors to safer currencies, such as the Dollar and Yen.

The Yen traded at 132.87 per EUR following a 0.9% increase yesterday and was at 95.86 per Dollar, after rising 0.4%. Economic data released earlier showed an improvement in the business sentiment index as well as an improvement in the services sector, providing a brighter outlook for Japan’s economic state. As the world turmoil continues, it is likely the Yen will extend its gains during today’s session as well.

Crude Oil – Crude Oil Drops below $67 a Barrel

The price of Crude Oil dropped more than $2 a barrel yesterday after the World Bank estimated the world economy will contract 2.9% in 2009. A rebounding Dollar also put pressure on Oil as investors moved away from riskier assets and into safe-haven currencies.

Declining expectations of a recovery in U.S summer gasoline demand along with reports of sharp increases in inventories snapped Crude’s recent rally. Gasoline demand usually peaks during the summer in the U.S, but in light of the continuing recession and growing unemployment there are less commuters and fewer vacation plans. Furthermore, since refiners are operating at roughly 86% of capacity, even with a sharp increase in demand, gasoline supplies are unlikely to tighten further. There is expectation that the U.S. gasoline inventories will keep rising.

Although some correction is expected, investors are awaiting the release of the U.S Crude Oil Inventories on Wednesday at 14:30 GMT and the FOMC statement to be released 18:15 GMT.

Technical News

EUR/USD

This pair appears to be consolidating towards the price of 1.3875 with what appears to be an impending volatile movement. The MACD on the hourly and 4-hour charts indicate bullish crosses, which support the price moving towards the convergence point and the Bollinger Bands on the hourly chart appear to be tightening, which indicates imminent volatility. Waiting for the breach and then riding the wave may be a wise choice today.

GBP/USD

This pair may be poised for an upward movement today. The MACD on the hourly chart is showing an imminent bullish cross. The Slow Stochastic on the 4-hour chart also shows a fresh bullish cross that has just formed. These two together support the notion of an impending upward movement. Going long may be a wise choice today.

USD/JPY

This pair’s recent downward movement has pushed many of the indicators on all charts into the over-sold territory, as well as generating a number of bullish crosses. The pair is currently testing the solid support level of 95.30. If a breach occurs, the downward movement may continue despite technical indicators. However, if the price fails to breach, there may likely be an upward correction throughout the day.

USD/CHF

This appear has been consolidating over the past few days towards the price level of 1.0850. As the MACD on the hourly chart shows a clear bearish cross, and the Bollinger Bands are tightening on the hourly chart, this pair could experience a sharp volatile movement after the impending downward move. Waiting for the breach and then riding the wave may be a solid strategy.

The Wild Card – EUR/NOK

The sustained upward movement for this pair has pushed many indicators into the over-bought territory and created bearish crosses across the board. However, the Parabolic SAR on all charts is still signaling for forex traders to buy. Without a clear downward correction today, this pair will likely continue upwards as the NOK loses value to the EUR. Today will either be the day this pair reverses, or continues to climb to record highs. Choosing the right one will earn big bucks today.

Forex Market Analysis provided by Forex Yard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

After yesterdays relatively calm trading session, today the economic calendar is filled with high impact data that threatens to sow large volatility into the market. From the wide range of news reports, ForexYard advises its traders to pay special attention to the U.S Existing Home Sales and Europe Flash Manufacturing PMI.

8:00 GMT: European Flash Manufacturing PMI

· This indicator reflects the level of a diffusion index based on surveyed purchasing managers in the manufacturing industry.

· This indicator is very important as it is likely to impact the EUR

· The survey expects to show a significant improvement from the previous month, thereby boosting hopes that the rate of decline in the Euro-Zone economy is now moderating.

· The reduced contraction in manufacturing activity in June will suggest that the sector is starting to benefit from the massive de-stocking that has taken place.

14:00 GMT: U.S Existing Home Sales

· This indicator reflects the annualized number of residential buildings that were sold during the previous month, excluding new construction.

· The release of the survey typically creates a volatile trading environment.

· A survey with a result greater than the forecasted value of 4.82 could send the EUR/USD below the 1.3750 mark.

Tips on Crude Oil

· Oil dropped off nearly 4% yesterday as renewed worries over the uncertain outlook for major economies sparked a sell-off across global equity markets.

· A rebounding Dollar also put pressure on Oil as investors moved away from riskier assets and into safe-haven currencies.

· Oil will probably range between $65 and $70 for the next few days.