Typically, Mondays are light news days as there are few monthly economic releases that occur on a Monday. Lately though, that has changed, as weekend news developments (mostly from announcements from EU leaders) has given Forex traders lots to react to on Mondays. Yesterday, the dollar benefitted from further EU related chaos as a conflicting opionions on how to solve the debt crisis sent funds back to the greenback. Currently, the question for the remainder of the week is whether trading will continue to be dictated by political arm wrestling or will economic results return to the forefront.
Currently, the Forex markets appear to focusing on the latter as US Preliminary GDP figures were revised dwon from 2.4% to 2.0%. Usually, these second and third GDP readings rarely move more than 0.2% from the Advanced (first reading). As such, today’s news has hit Forex traders by surprise, as most of them were looking past the GDP to the FOMC Minutes release.
With economic fundamentals back in play, today’s FOMC Minutes as Forex traders will be focusing on the FED’s forecasts for employment and the US economy. Since the summer, the FED has shifted between stances of stating “US conditions are slowly improving” to gloomy reports to support their monetary policies. Therefore, it will be interesting to see what they say today.
After showing relative strength in mid day trading yesterday, the EURUSD fell back below the 1.3500 figure to close the US session (see chart). We have been seesawing through the 1.3500 mark today, as the EURUSD fell to a low of 1.3475 following the GDP data, before jumping back above 1.3500. Looking ahead, the key for the EURUSD is whether it can close the US session above 1.3500, thus showing steady demand is growing.
Rumors hit the market yesterday that the Euro’s strength was due to some central banks across the globe buying EU sovereign debt which in turn has created demand for Euros. If true, this could mean that any rallies in the EURUSD will be short lived. As a result if the pair once again fails to hold above 1.3500 it could relate that there are few serious Forex traders out there looking to accumulate Euros and the EURUSD would be vulnerable to fall back to 1.3400. On the other hand, a close above 1.3500 will do good to generate bullish interest in the pair.
After falling hard yesterday with the overall market, the GBPUSD has built a solid short term base just above 1.5600. It did briefly trade below following the US GDP figures but has since bounced back above. With the FOMC Minutes soon to hit the market, Forex traders will be watching the support base again. As mentioned above, the GDP news caught traders off guard, and any moves were erased as the day went on. A second drop below the 1.5600 base though could trigger more aggressive selling with a possible move to 1.5520. On the other hand, if 1.5600 holds, the GBPUSD could be a retracement candidate and trade back towards 1.5690.
Intraday Support/Resistance 1.5575,1.5605/1.5690,1.5730
The pair was one of the big losers yesterday as it fell nearly 200 pips. As we have mentioned earlier, our question is whether the fall is primarily related to risk selling, or are we seeing the beginning of a longer term rotation out of the AUDUSD. Over the past two plus years the main demand driver for the AUD has been the carry trade, however, Forex traders may be searching for safer alternatives as volatility risk in the currency has risen. On the short term, the AUDUSD is trading just around its 61.8 fibo retracement level of its September lows to October highs. The pair initially found support at the 50.0 level, therefore we will be watching if a repeat performance occurs again.
Intraday Support/Resistance 0.9805/0.9910
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.