Daily FX Summary: October 20

Courtesy of Talking Forex

After major gains were seen in the USD on Tuesday following the surprise decision by the PBOC to hike rates the greenback staged a swift reversal and retraced nearly the entire move as investor focus returned to the potential for the Fed to embark on additional quantitative easing (QE). Sources indicated on Wednesday that a major US think-tank believes the Fed maybe be siding on the opinion of purchasing USD 500bln of treasuries over the next 3 to 6 months with the possibility of extending the program over the next 12 to 18 months depending on economic data. Although the analysis would be logical in its proposed method it will likely fuel expectations in the near-term that the Fed will pull the 'QE trigger' in November so the weakening trend looks set to continue. In sympathy with the USD move the commodity linked currencies such as the AUD and CAD have also staged an impressive rebound with AUD/USD reclaiming the 98.00 handle midway through the US trading day, a gain of over 100 pips on the session.
 
EUR/USD
 
EUR/USD gained on Wednesday underpinned by the weakness in the USD which saw the pair test the 1.4000 handle. The gains on Wednesday have prompted various officials to comment with the IMF foreseeing the EUR's gains as approaching on near over valued levels with the German DIHK institute forecasting an exchange range of between 1.4000 to 1.5000 in the near-term. Still, despite the persistent strength in the EUR the peripheral fundamentals in Europe still appear worryingly fragile having seen the Irish 10yr bond yield spread over bunds widen significantly the last two days over continued concerns on the health of the domestic economy which has prompted the finance minister Lenihan to concede that growth in 2011 will be lower than previously forecasted. Separately, uncertainty in when the final date for Portugal's delayed budget will be submitted and a potential delay in the deficit revision figures from the EU on Greece may well keep EUR gains limited on the upside. In terms of technical levels, an intraday option is due to expire at NY cut on Thursday at 1.4050, while resistance levels are seen at 1.4070/90 and then at 1.4110. On the other hand, should the USD rebound the selling pressure will likely be contained by 1.3900 level, while below supports are seen at 1.3880/50 levels.
 
GBP/USD
 
In spite of dovish minutes by the BoE, as well as worse than expected public finances data, GBP posted solid gains against the USD on Wednesday which reversed a sharp upward move on Tuesday amid renewed speculation that the Fed will introduce another round of QE. The upward price action pushed the pair back towards the 61.8% Fibonacci retracement level at 1.5867, which should the USD weakness persist would enable the pair to make a test on 1.5900. However given the expectation that the BoE will likely follow the Fed and announce its own version of QE v2.0 implies that future price action is plagued with uncertainty and gains will likely prove hard to come by, especially against the EUR which continues to outperform on the back of anti-easing stance by the ECB. Still, the bullish pattern stands and the pair is expected make another attempt at breaking above the 1.6000 level before the bear prompted correction pushes the pair back towards 1.5500 level. In terms of near-side resistance levels, 1.5910/30 and 1.5960 are expected to slow the advance. While, 1.5800 and 1.5770 are seen as adjacent support levels.
 
USD/JPY
 
Sharp move lower by the USD put renewed pressure on JPY on Wednesday, which as a result printed a fresh 15y low against the greenback. Going forward, future price action is highly uncertain but unless the USD index stages a rebound, the price action is unlikely to reverse and the pair will edge further towards the 80.00 level. Also, given that intervention by the BoJ remains a near-term possibility, makes technical levels somewhat redundant. However worth noting that a historic low level stands at 79.75, which once breached will likely see an aggressive selling of the JPY by the central bank. Also worth noting that 1bln in options expires at 80.00 on Thursday at the 10am NY cut.

Comments

[Bankster T Cubed]

the system is a fucking joke

the people running it are criminal scum

that's all we need to know anymore

[mark456]

Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic.
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