Ranges Are Swift & Strong
13-10-2010
The currency market saw another day of rather accentuated ranges on Tuesday as the USD began the day on a stronger footing but gave back its gains as the day wore on. The EUR and GBP both climbed back from the lower parts of their very recent trends and crept back to near the highs during the night. The FOMC Meeting Minutes showed that the Fed is nearing a date in which it will buy treasuries as it attempts another stimulus for the U.S. economy. Not everyone agreed with the plan as one Fed member stated that he believes the new money will have a rather muted affect. Wall Street turned in mixed results yesterday, starting the day off in negative territory but showing a gain by day’s end. There is no major data scheduled from the States today, but Ben Bernanke, the Federal Reserve Chairman, is due to take part in a discussion group. Tomorrow weekly Unemployment Claims are on schedule.
The EUR and GBP both started yesterday on weaker footing, but both currencies were able to muster support as the day progressed, making particularly strong moves in late trading. While German inflation numbers and the U.K. Trade Balance figures were uninspiring and perhaps even worrisome, both currencies continue to be the recipients of a weak dollar sentiment. Talk has been widespread as of late about currency manipulation as the Americans point fingers at China, but there can be no doubt that what the Federal Reserve has undertaken the past month with its whisper campaign about further quantitative easing is a de facto ‘weak USD’ policy in order to boost its exports.
The effects of the weak USD policy by the Fed has been effective in making the USD lose value, but clearly it has had ‘a negative’ effect on many of the major currencies as they have gained in value in a time when many Central Banks would prefer to see their currencies much more stable. In this light, the JPY continues to stay transfixed to the highest points of its value against the USD. It is important to note, that the U.S. is not the major player however within the stronger JPY move as investors throughout Asia seek ‘the security’ of Japanese treasuries and other players such as China have an interest in having the JPY stronger than their own currency.
The AUD has gone back to its highs also and this is due to a complex brew of a high Gold price, a weaker USD, and an economy that is actually experiencing growth. And like the story with many of the major other currencies the AUD while experiencing higher value may start to raise the eyebrows of not only investors but its own government officials who perceive negative economic possibilities from a currency that may be too strong.
The overall currency market and bourses all remain rather skittish. Rumors persists that the Federal Reserve may choose to act sometime in early November, but that has certainly not been confirmed, and perhaps the reason for this projection date is because that it is shortly before the U.S. elections – for better or worse. With the advent of quarterly earnings beginning to make their way into the news stream and the shadow from the Fed, traders are likely to see the markets test their respective ranges and volatility could continue.
