The EUR/USD extended its losses today after the U.S. announced a PPI figure 10 basis points better than analyst expectations. The Euro's weakness probably stems from a weaker than expected headline ZEW Economic Sentiment number. Based on this argument we can see why the Euro is taking massive hits against the dollar while the Pound holds its ground for the time being. In addition to today's U.S. PPI release, the US also announced a set of mixed data points. The Empire Index and TIC numbers both came in far below expectations while Industrial Production and the Capacity Utilization Rate were relatively strongly. The mixed data points could help the EUR/USD and GBP/USD stabilize since the results don't broadly support tighter monetary policy from the Fed.
However, amid continued signs of the US economy gaining strength against its counterparts in the euro zone and with the solid expectation of a hawkish speech coming from the FED later this afternoon, the EUR/USD pair will likely continue its process of consolidation that began about 8 weeks ago. Investors will be paying close attention to Bernanke's language, expecting a more hawkish tone in reaction to recent improvements in employment and consumption data. In the short term, before the FED's speech, the pair may try and bounce off of current oversold levels however the upside will remain limited by the 1.4580/1.4620 resistance area. When the FED announces the details of its outlook, GoForex traders should be cautious at the 1.4510 support level. If that floor is breached, traders can expect a further extension down toward the 1.4460 area. Lastly, the EU will release some key data tomorrow, including a wave of Flash PMIs along CPI data so GoForex traders should be aware that volatility could remain at a heightened state for the next 24-48 hours.
The GBP/USD pair has continued to be confined to a 200 pip range since last week, with no clear definitions at this point, but with the Pound holding some strength after higher than expected inflation reports early Tuesday. The pair needs to break above 1.6330 past Mondays' high to extend the upside, while confirmations under 1.6200 likely support short term weakness.
USD/CHF's uptrend extends further to as high as 1.0428 but now the pair is facing the upper border of the rising price channel on the daily chart. GoForex traders should expect a minor consolidation within the next couple of days to place the price at the lower price trend channel line. As long as the channel support holds, we here at GoForex would expect the uptrend to resume with further rallying towards the 1.0500 area.
Stock Index Futures: Consolidation Before Fed Statement
Ahead of tomorrow's Federal Reserve Open Market Committee meeting, stock markets registered swift losses in a bid to consolidate gains. Traders have been reluctant to chase stocks higher this week despite better than expected economic news which showed the U.S. economy is improving. With the Indices at breakout levels, it will take a bit of pushing to get them to breach their ceilings and garner a further rally north. It seems traders are nervous that the Fed may put out a more hawkish comment tomorrow which may move up the date of the first rate hike in years. Today's better than expected U.S. producer prices and industrial output reports helped trigger a hard intra-day break in both markets.
Today's Big News:
US Core CPI (MoM) @ 13:30 GMT
US CPI (MoM) @ 13:30 GMT
US Interest Rate Decision @ 19:15 GMT