The BOE will take center stage as the British central bank is expected to hold interest rates steady. The market has priced in a 1 in 5 chance of a surprise interest rate increase at today’s meeting.
Forex Market Trends
| EUR/USD | GBP/USD | USD/JPY | USD/CHF | AUD/USD | EUR/GBP | |
| Daily Trend |  |
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| Weekly Trend | |
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| Resistance | 1.3955 | 1.6245 | 83.65 | 0.9395 | 1.0130 | 0.8660 |
| 1.3935 | 1.6225 | 83.45 | 0.9375 | 1.0110 | 0.8640 | |
| 1.3905 | 1.6195 | 83.15 | 0.9345 | 1.0080 | 0.8610 | |
| Support | 1.3845 | 1.6135 | 82.55 | 0.9285 | 1.0020 | 0.8550 |
| 1.3815 | 1.6105 | 82.25 | 0.9255 | 0.9990 | 0.8520 | |
| 1.3795 | 1.6085 | 82.05 | 0.9235 | 0.9970 | 0.8500 |
Economic News
USD – Two Day Dollar Rally Stalls
A lack of economic data kept the dollar in check yesterday as traders took a pause in this week’s dollar buying. However, the Canadian dollar reached its strongest level versus the US dollar since November 2007.
Before the opening of the US trading session the EUR/USD reached a high of 1.3940. However, the pair finished the day up only slightly at 1.3904. Traders sent the pair lower early in European trading pushing the price to a new weekly low but were unable to drive the pair much lower than the 1.3860 level. The failure of the pair to close below this support level does not bode well for the greenback. As such, the recent pullback may be assumed to be technical in nature and further gains for the pair may be recorded. Resistance for the EUR/USD come in at Monday’s high of 1.4035 and the November high at 1.4280.
The Canadian dollar has put in a strong performance with the recent surge in oil prices. Yesterday the pair fell below the psychological 0.9700 support level and currently stands at its lowest level since November 2007. A lack of support on the charts is apparent and thus the pair and could continue its decent lower, targeting the November 2007 low at 0.9054.
Today traders will be focusing on US weekly unemployment numbers which should continue to show improving data as last month’s jobs report displayed positive attributes of a recovering, albeit slow US unemployment picture. Also trade balance data will be released from both the US and Canada.
EUR – British Interest Rates Due Up
Traders are anticipating today’s Official Bank Rate announcement from the Bank of England which should be the highlight of the trading day. Expectations are for the BOE to hold interest rates steady at the current level of 0.50% with no adjustment to the 200B Asset Purchase Facility.
Inflation continues to rise above forecasted levels of the BOE as the central bank attempts to balance the inflationary risks versus a rising interest rate environment that could hurt British economic growth rates. GDP rates are expected to be on the light side, especially with a round of belt tightening to come as the British government attempts to reign in government spending and rising deficits.
As such, economists are forecasting rising British interest rates with expectations of a 1 in 5 chance of the BOE surprising the market today with an interest rate hike.
Currently the GBP/USD is trading near the 1.6200 level. Resistance is located at last week’s high of 1.6340. Support for the pair is found at the rising trend line off of the mid-February low which comes in today at 1.6090. A breach of this level could spur further losses to the 1.5960 support.
JPY – New Zealand Cuts Interest Rate; Japanese GDP Contracts
Yesterday the Reserve Bank of New Zealand slashed interest rates by 50 bp to bring the new rate lower to 2.5% from 3.00%. The move comes as the government tries to spur growth following 2 earthquakes, the most recent damaged New Zealand’s second largest city. The RBNZ stated the loose monetary policy will remain in place until the rebuilding phase has passed.
In response, the New Zealand dollar lost further ground versus both the US dollar and Aussie dollar with the NZD/USD falling to its lowest level since December. The pair is currently testing the 0.7340 support level. A break below this price may trigger further technical selling of the pair with a target at the August 2010 high at 0.7200.
The Japanese economy shrank in Q4 with the decline more than economic forecasts. Japanese GDP contracted at an annualized rate of 1.3%. The previously reported number showed the Japanese economy contracted by 1.1%. However, a bright spot accompanied the report as machine orders rose in January by 4.2% which was well above market expectations.
The USD/JPY looks to be holding below the 83.00 level and could turn lower with support coming in at 82.50, a level that coincides with the 55-day moving average. A move below this level would target 82.20 followed by 81.50.
Crude oil – US Crude Stocks Rise More than Expected
Spot crude oil prices were on the rise with renewed fighting in Libya. US crude oil inventories showed higher than expected levels but did not sink crude oil prices.
At the end of the trading day, spot crude oil prices were trading slightly higher at $104.80 after opening the day at $104.24. Price volatility was on the low side as recent trading has been volatile in the commodity after prices pushed to a new yearly high at $107 on Monday.
Continued attacks by forces of Col. Qaddafi in Libya have kept crude oil markets on edge with no end in sight for the violence. Rebel groups vow to continue the fighting despite attacks by the Libyan air force and heavy armor.
US crude oil supplies showed crude oil stocks were at higher than expected. The weekly US crude oil inventory report released numbers positing a 2.5M barrel rise in US stocks. Forecasts were for a rise of only 0.8M barrels.
Despite the higher than expected inventory levels, crude oil prices still managed to close with small gains. Further price increases in the commodity should be expected given the continued violence in the Libya and the threat of unrest spreading to additional oil producing nations. A short term target of $107 is currently being eyed by traders.
Technical News
EUR/USD
The trend remains robust as a failure of the pair to close below the support line at 1.3860 suggests the recent dip may be technical in nature. Rising moving averages point to further gains in the pair with a first target at this week’s high of 1.4035, followed by the November high at 1.4280. A move below the 1.3860 could spur selling to the 1.3740 support.
GBP/USD
The pair looks to be losing momentum as the daily chart is beginning to show divergence between the price and the momentum (14). The failure of the pair to move above the 1.6400 level twice also does not bode well for the uptrend. Traders may want to begin moving stops higher in case of breakdown in the price. Support is found at 1.6025 and 1.5960.
USD/JPY
The pair appears to be range bound with few signals being offered. As such, better entry opportunities may be found elsewhere. Support comes in the 55-day moving average at 82.50. Resistance is located at 83.00.
USD/CHF
The pair is trading in a bearish flag pattern with the price moving between defined levels at 0.9370 and 0.9200. We may expect a breach lower with an estimated move of the flag pattern coming in at 290 pips. The first test will be at 0.9200. After the swing low on the daily chart, support is absent on both the daily and weekly charts.
The Wild Card
USD/CAD
Yesterday the pair fell below the psychological 0.9700 support level and currently stands at its lowest level since November 2007. A lack of support on the charts is apparent and thus the pair and could continue its decent. Forex traders should be targeting the November 2007 low at 0.9054.
Written by Forexyard.com