Recorded LIVE May 18 2012 – Join our next forex trading session for FREE
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Live forex commentary, technical analysis, and real-time trade planning
at the open of the American foreign currency trading session.
On the chart to the left, the first half of each month is shaded in light green. The US dollar index has been up during the first half of the past seven months, and down during the second half of the past four months.
(Click The Image To Expand)
On the chart to the left, the first half of each month is shaded in light green. The US dollar index has been up during the first half of the past seven months, and down during the second half of the past four months.
(Click The Image To Expand)
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Wednesday’s New York morning session news schedule features ADP’s National Employment Report, due out at 8:15am ET (12:15 GMT). The consensus forecast derived from a Bloomberg News survey calls for an estimated 170,000 workers added by US companies in April. The previous report showed that the private workforce grew by 209,000 in March.
The prior four ADP releases have had no lasting impact on the price of the EUR/USD or EUR/JPY currency pairs. During the 15 to 30 minutes following those news events, the euro was virtually unchanged, while the euro yen was usually confined to a 20-pip trading range. The last viable post-ADP scalp trade was a EUR/JPY long after the release of the November report.
Although responses to most recent US economic reports have been rather muted, some significant moves have materialized following notably strong or weak US figures. The euro rose sharply following the February US CPI report, as discussed in this post. A solid ISM manufacturing PMI report released Tuesday sparked a US dollar rally which dragged the EUR/USD lower by nearly 70 pips in 30 minutes.
Join me in the FX Bootcamp News Room as we cover the ADP news. I will start coverage fifteen minutes before the release of the report.
Curt Wehrley
Twitter: @fxcoachcurt
Currency Coach & Quantitative Analyst
FX Bootcamp
The Board of the Reserve Bank of Australia (RBA) is scheduled to announce its latest policy decision and statement on Tuesday, 1 May at 12:30am New York time (04:30 GMT). Since the Australian central bank cut its benchmark interest rate by 25 basis points at each of its final two meetings of 2011, debate has centered on whether or not the RBA would cut rates again.
Of the 29 economists surveyed recently by Bloomberg News, two have predicted a 50bp rate cut, while the other 27 see the central bank reducing its cash rate target by 0.25 percent. Odds of a rate cut rose materially following the 3 April statement by Governor Glenn Stevens, who implied that a shift toward more accommodative policy would hinge on the March CPI report:
The Board’s view…were demand conditions to weaken materially, the inflation outlook would provide scope for easier monetary policy. At [the 3 April] meeting, the Board…thought it prudent to see forthcoming key data on prices to reassess its outlook for inflation, before considering a further step to ease monetary policy.
Australian data released 24 April showed that the change in underlying inflation over the year ended March 2012 slowed to its lowest level since 1999.
Ongoing weakness in the demand picture was highlighted by results of a survey of the country’s 100 largest dwelling builders released on Monday. The HIA – JELD-WEN report showed that seasonally adjusted new home sales declined sharply in March to the lowest level in more than a decade. The Housing Industry Association’s Chief Economist has called for the RBA to “act boldly [on 1 May] and cut the official cash rate by 50 basis points.”
As I mentioned in this post, a surprise move by the bank’s Board is rare. Over the prior 25 RBA meetings, the consensus forecast has failed to matched the RBA’s announced cash rate target on just four occasions. The debt markets have certainly priced in a rate cut: Australia’s 10-year government bond yield closed out the month of April just four basis points above its record low established last Friday.
The reaction by the so-called Aussie should depend on the combination of the RBA’s move on interest rates and Stevens’ policy statement. A “one-and-done” strategy, where the RBA cuts by 25bp and describes a wait-and-see approach in the statement, could actually give the Australian dollar a lift. Given the demand and inflation picture in Australia, it’s reasonable to conclude that there is a non-trivial chance of a 50bp rate cut.
Join me in the FX Bootcamp News Room as we cover the release of the RBA policy decision and statement. I will discuss ways in which traders might trade this report starting 15 minutes before the news, due out at 12:30am New York time (04:30 GMT).
Related posts:
Preview of 6 March RBA Rate Decision & Policy Statement
Preview of 3 April RBA Rate Decision & Policy Statement
Preview of 24 April CPI report
Curt Wehrley
Twitter: @fxcoachcurt
Currency Coach & Quantitative Analyst
FX Bootcamp
Currency Correlation Matrix
Chart Key:
– strong positive correlation
– moderate positive correlation
– negligible correlation
– moderate negative correlation
- strong negative correlation
The correlation matrix shown above is based on correlation coefficients derived from 15-minute chart closing prices on GFT’s DealBook 360 platform, from April 2 through 27, 2012.
Curt Wehrley
Twitter: @fxcoachcurt
Currency Coach & Quantitative Analyst
FX Bootcamp
Recent trade of the week (TOTW) posts have featured one currency pair stuck in a trading range (EUR/USD) and another pair which showed potential to establish a new trend (USD/JPY). This week’s selection is a pair that’s been trending for some time.
The EUR/GBP currency pair has been moving from the upper left to the lower right of the weekly chart over the past several months. On 18 April, the minutes of the 4 & 5 April Bank of England (BOE) Monetary Policy Committee (MPC) meeting showed that über-dove Adam Posen refrained from voting in favor of further boosting the central bank’s asset purchase programme, leaving just one Committee member (David Miles) seeking more quantitative easing . The British pound reached a new 20-month low against Europe’s common currency the following day. Below is a weekly chart for the pair as it looked at last Friday’s close.
As I stated in this preview of the UK GDP report, “It is not uncommon for sterling’s post-release move to defy the logic suggested by comparison of the GDP headline number to the consensus forecast.” During Wednesday’s London session, that report showed the UK economy had entered recession, and the subsequent British pound sell-off lifted the euro pound to a key level.
I discussed in the FX Bootcamp News Room, and have illustrated on the chart below, the technical case for buying the pound against the euro at or just below 0.8220.
In addition to a retest of the red trendline — defined by the 28 March and 3 April highs — as well as the 9 January and 16 April lows, traders who employed the Fibonacci tool saw a 61.8% Fib retracement level of the drop from high #1 to low #2 parked a smidge below the horizontal blue line. The EUR/GBP touched the 0.8220 level on two occasions, once about 30 minute after the GDP release, a second time about 90 minutes after news. Although closing the short trade at about 5:00 pm London time on Wednesday was a viable exit strategy, it wasn’t unreasonable to let this one run.
Why would traders seek to buy the pound? It’s not as if economic fundamentals in the UK are unusually strong. The key is understanding that currencies are relative. Sterling likely benefits by comparison to other options. The eurozone’s woes are well-documented, and yields in peripheral European government bond markets remain uncomfortably high; Britain, meanwhile, has a head start on mainland Europe in reducing its government debt, and yields on UK 10-year Gilts remain near all-time intra-day lows established earlier this year.
The European Central Bank (ECB) recently distributed more than €1 trillion in cheap funds to euro zone banks via two long-term refinancing operations, while the odds of more easing by the BOE are diminishing as UK inflation begins to appear stickier. While unemployment remains high in much of mainland Europe — particularly among young adults — the Diamond Jubilee and the Olympic Games should give the UK economy a boost in summer.
Got your own pick for TOTW? Post it in the comment section!
Curt Wehrley
Twitter: @fxcoachcurt
Currency Coach & Quantitative Analyst
FX Bootcamp
Related posts:
April 16-20 Trade of the Week
April 9-13 Trade of the Week
April 2-6 Trade of the Week
March 26-30 Trade of the Week
March 19-23 Trade of the Week
March 12-16 Trade of the Week
