Friday, September 19, 2014
Today's price action in the spot market was primarily driven by headlines coming out of Europe & cross currency flows in the Pound (GBP) and greenback. The Scots have voted to remain part of the U.K., with a 55 to 45 outcome. This news created early demand for the sterling, as well as for British equities up until the late Asian Trading Session, with GBP/USD rising to a 2 week high at 1.6525, and EUR/GBP falling to a 2-year low of 0.7810. However, sentiment shifted during the European Session as a "buy the rumor, sell the news" response caused investors to take profit on their long GBP positions. Capital flows in EUR/GBP helped to initiate the slide in EUR/USD.
Since the uncertainty concerning the FOMC statement and Scottish vote is now removed, the market continued to focus on the Fed rate hike projections, which resulted in a combination of euro weakness with demand for the greenback, that caused EUR/USD to fall 101 pips from the session high at 1.2929 to the session low at 1.2828. The common currency closed the week with a Bearish Engulfing Candle, which signals the likelihood of more downside pressure in fibre for the following trading week.
In today's V.I.P. trading webinar, we discussed price action in EUR/USD, as well as candlestick patterns and their usefulness in determining support & resistance.
Tuesday, September 16, 2014
During today's trading session, the EUR/USD exchange rate was well supported & firm ahead of Wednesday's much anticipated FOMC statement from the Federal Reserve Bank, since the asset traded within a 73 pip range, from the session low of 1.2922 to the session high of 1.2995. During a huge portion of the trading session, the single currency showed very little reaction towards any news coming out of both the Eurozone & US economy, and held to a rangebound/sideways consolidation pattern of only 45 pips. However, we saw a slightly different response in pound.
UK inflation data for the month of August fell to 1.5%, from 1.6% in July, which marks the lowest reading in five(5) years and also highlights eight consecutive months of inflation values below the BOE's target of 2.00%. This low inflation reading, along with uncertainty over the outcome of Scotland's Independance Referendum, put pressure on the sterling and impacted most Pound Crosses.
The ZEW numbers, which are a measure of investor confidence for both the Eurozone and Germany, also fell to new lows for the year. German investor confidence dropped to 6.9 in September versus the 8.6 reading in August, which was a 21 month low, and this was primarily due to increasing political tensions in Europe, Russia, & Ukraine.
US PPI data remained unchanged for the month of August, which is a sign that price pressures still remain tamed in the midst of subdued growth. This lack of inflationary pressure may encourage the FED to hold off on raising interest rates and keep it near zero for a lot longer than expected. Upon the release of this announcement, there was muted price action in USD and we continued to see EUR/USD consolidating some of its weakness ahead of tomorrow's FOMC Meeting.
But, as soon as news broke that the PBOC (People's Bank of China) are planning to lend 500 billion Yuan to their banks as a form of stimulus, and to boost liquidity, we saw a bout of dollar selling across the board and the EUR/USD rallied to today's session high at the 1.2995/3000 psychological zone, where it was briefly rejected and found support around the 200 Hour MA. This news about China's Intervention caused both equities, high yielding assets, and oil to push higher, and we may see a positive handover of this sentiment into the Asian Trading Session.