Questions Before The Weekend

The major currencies had another day of range trading and the USD still has not been able to muster enough strength to remove itself from the weaker side of its trend. The Federal Reserve’s FOMC Statement continues to have ramifications as it has set off a wave of debate regarding the manner in which the Fed will combat any further weakening in the U.S. economy. This has set off divergent movement as Wall Street has struggled the last two days, but the greenback has not followed this up with its usual safe haven trading – in other words Wall Street’s lackluster results have not set off USD gains. Weekly Unemployment Claims were released from the States yesterday and they managed to disappoint market participants with a number of 465k compared to the anticipated figure of 451k, showing the jobless situation remains bleak.

The U.S. also released Exiting Homes Sales totals yesterday and although they beat expectations the outcome remained extremely weak when compared to years past. Today the U.S. will release New Home Sales and Core Durable Goods Orders numbers and both sets of data are expected to do better than their previous reports.

The EUR and GBP have both managed to hold onto their gains this week even as economic data from both the E.U. and the U.K. have been less than promising. PMI data from Germany and France missed their marks almost in total on Thursday. The BBA Mortgage Approvals from the U.K. also turned in disappointing results. Today the German Ifo Business Climate reading is on the schedule and the estimated number is 106.3, which is below the previous month’s outcome. The U.K. will be quiet with data today. The EUR and GBP have shown the ability to gain in value the past two weeks even as poor economic numbers continue to come from their collective spheres. Both currencies are being helped by the questions surrounding the USD and the shadow from the Federal Reserve regarding the potential for additional quantitative easing. The question is when ‘fair value’ will begin to be looked at and weighed against economic issues in Europe and the U.K. which have not gone away.

The JPY has traded to the weaker side of its range and this has occurred as Asian bourses have begun to mirror their international counterparts taking a cue from a cautious Wall Street. The BoJ intervention is still very much on the minds of investors who may seek Japanese bonds as a safe haven, which typically adds to the strength of the JPY. Traders seeking opportunities in the JPY could find an interesting day ahead before going into the weekend particularly with the overhang of the BoJ perhaps waiting to act if they feel the Japanese currency is being pressured too much.

The AUD and the price of Gold make for an interesting correlation as both hover near their highs and are clearly finding backing for a variety of reasons. The question is how long can both sustain their positive movements and what would occur if risk appetite from a speculative sense were to vanish.  Gold’s push upwards is also due to so many questions being factored into the major currencies and their troubled economies. The fact that the Australian economy has managed its way through the mire well compared to the U.S., Europe, the U.K., and Japan are also making the AUD some new friends.

Written by: Robert Petrucci
Bforex Chief Commodity Expert and Forex Analyst
Robert@BForex.com Please contact Robert Petrucci directly with any questions or comments you may have about the analysis.
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