Forex Analysis from Michael Hewson, Market Analyst, CMC Markets
4 October 2010
Euro Hits Resistance on Positive UK Data
This morning’s headline figure from the September construction PMI came in higher than expected at 53.8, against an expectation of 51.4.
As a result, for all last week’s talk about further quantitative easing by monetary policy committee member Adam Posen, this week’s meeting of the Bank of England is unlikely to signal any new quantitative easing in the near term.
The Pound has lost a considerable amount of ground recently to the resurgent Euro on the forex spread trading markets. Despite this, the talk has been for further Sterling weakness as the European Central Bank continues to look at towards its own exit strategy early next year.
This morning’s UK data has had a positive effect on the Sterling spread betting markets, particularly against the single currency where the £0.8740 double resistance level has held on the top side.
This trend line resistance, from the £0.9411 highs in 2009 as well as the 50% retracement of the down move from the same highs to the lows this year at £0.8069, has prompted some profit-taking.
Today’s daily candle, if it closes below the £0.8670 level in New York, would also post a bearish engulfing candle. If this was confirmed on a daily close then it could open up support at the £0.8580 level which is the 38.2% retracement and the 200 day moving average.
However, we need to exercise caution as the daily charts have also posted a bearish engulfing candle which subsequently failed. The key level on a closing basis remains the £0.8740/50 level which if breached could well open up a move to £0.8900.
On the US Dollar spread trading markets, the Pound continues to respect the uptrend from the $1.4350 lows in June with support coming in around the $1.5580 level. A break of $1.5910 is needed to re-test the August highs of $1.6000.
Spread betting, CFDs and FX are leveraged products and carry a high level of risk to your capital. It is possible to lose more than your initial investment. These products may not be suitable for all investors, therefore ensure you understand the risks involved and seek independent advice if necessary.
Article provided / approved by CMC Markets UK plc / CMC Spreadbet plc which are authorised and regulated in the UK by the Financial Services Authority, registration numbers; 173730 and 170627 respectively.
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22 September 2010
FOMC Comments Weaken US Dollar
The Federal Open Market Committee (FOMC) expressed its concern that the level of inflation was getting too low and that they remained ready to act if the need arose. This prompted speculation that the Fed would embark a fresh round of asset purchases in the remaining months of this year.
The immediate effect was a sell-off in the US Dollar with the US Dollar Index posting its lowest levels since March this year at 80.01.
The effect on the single currency was just as significant from a technical perspective with the single currency posting a daily close above its 200 day moving average for the first time since the 18th January this year.
If the market is able to sustain this move on a weekly close and break above the August highs at $1.3335, then the next target for the Euro is the $1.3510/20 level which is the 50% retracement level of the down move from last years highs at $1.5145 to the lows this year at $1.1880.
This bout of Euro strength would only be undermined if the single currency broke below the $1.3000 level and below the trend line linking the lows of the last 3 months around $1.2880.
This bout of US Dollar weakness, if sustained does have other implications especially given the problems within the Eurozone.
A higher Euro will inevitably shift the focus back to the more indebted Eurozone peripheral countries like Portugal, Spain and Greece. Here an overvalued currency would exacerbate the level of their own debt problems and their ability to grow their own economies by way of any type of export growth.
Eurozone chairman Jean-Claude Juncker only last week criticised the Bank of Japan for acting unilaterally to weaken its currency. However, it could well be that he has cause to rue his comments if the Euro continues to push higher on the back of continued US Dollar weakness and thus highlighting the current weaknesses within some Eurozone economies.
Last nights FOMC meeting has already gone some way to undoing the effects of the BoJ intervention last week and already the Bank of Japan governor has stated that they would be prepared to intervene again if they felt the need.
It could well be that they may well have to do so again in the coming weeks and they may not be the last to do so if the US Dollar continues to come under pressure on easing concerns, with all the political tensions that come with that.
Spread betting, CFDs and FX are leveraged products and carry a high level of risk to your capital. It is possible to lose more than your initial investment. These products may not be suitable for all investors, therefore ensure you understand the risks involved and seek independent advice if necessary.
Article provided / approved by CMC Markets UK plc / CMC Spreadbet plc which are authorised and regulated in the UK by the Financial Services Authority, registration numbers; 173730 and 170627 respectively.
CMC Markets >>
"With CMC Markets you get all the normal advantages of Spread Betting plus..." >> read
CMC Markets review.
Spread betting, CFDs and FX are leveraged products and carry a high level of risk to your capital. It is possible to lose more than your initial investment. These products may not be suitable for all investors, therefore ensure you understand the risks involved and seek independent advice if necessary.
Article provided / approved by CMC Markets UK plc / CMC Spreadbet plc which are authorised and regulated in the UK by the Financial Services Authority, registration numbers; 173730 and 170627 respectively.
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'Spread Betting on Forex' edited by DB, updated 04-Oct-10
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