The U.S. Dollar tried to mount a rally throughout the day, but failed at the close and ended up mixed for the day against most major currencies.
The EUR USD finished lower but off its lows. A late session stock market rally helped to boost demand for higher risk assets which buoyed the Euro. Tomorrow the European Central Bank meets to discuss monetary policy. Expectations are for the ECB to leave interest rates unchanged at 1.0% and call for the continuation of its stimulus packages. ECB President Trichet wants to see a solid recovery in the global economy before ending any of its stimulus plans.
Look for the Bank of England to leave its benchmark interest rate unchanged at 0.50%. Weakening fundamentals continue to keep the pressure on the BoE to maintain its low interest rate policy. Traders also expect the BoE to leave its asset-buyback program unchanged.
In August the BoE voted to increase the amount of funding available to purchase government debt. At the time, there was some disagreement among members but a weak economy changed the vote to unanimous in September. BoE Governor King is also on record calling for a weaker Pound to help improve the economy. All of this should be reiterated in tomorrow's policy statement.
The USD JPY had a volatile trading day. After opening weaker, traders became concerned that the Bank of Japan would implement some kind of an intervention to push down the value of the Yen. This triggered a rally in the USD JPY. By the end of the day, however, buyers took over to drive the Yen higher. Demand for higher yielding assets is likely to take the USD JPY through its recent bottom at 88.23. The BoJ will allow this to take place if economic reasons weaken the Dollar and the move is orderly.
The USD CAD remains rangebound as traders cannot make up their minds as to which direction to take this market. Higher equity markets are driving up demand for higher yielding assets, but weak energy markets are limiting gains. The inability of the U.S. economy to mount a robust recovery is also keeping pressure on the Canadian Dollar because the two economies are so closely related. Furthermore, even if the Canadian Dollar did strengthen, investors aren't sure how far it could advance without causing damage to the Canadian export market and causing concerns with the Bank of Canada.
The NZD USD and AUD USD took a breather after strong rallies earlier in the week. Expectations are for these two markets to continue to rise as long as the Australian central bank can back up its recent interest rate hike with sound economic evidence of a recovery. Traders are also expecting to see improvements in the New Zealand economy to support its recent rise. Aussie traders are already talking about another rate hike by December. The Reserve Bank of New Zealand is on record stating that it will keep interest rates low until early 2010. This could change if there is evidence that the New Zealand economy is heating up.
Please do not hesitate to contact us at 1-800-971-2440, with any questions.
DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. The value of currencies may fluctuate and investors may lose all or more than their original investments. Risks also include, but are not limited to, the potential for changing political and/or economic conditions that may substantially affect the price and/or liquidity of a currency. The impact of seasonal and geopolitical events is already factored into market prices. Prices in the underlying cash or physical markets do not necessarily move in tandem with futures and options prices. The leveraged nature of FX trading means that any market movement will have an equally proportional effect on your deposited funds and such may work against you as well as for you. In no event should the content of this correspondence be construed as an express or implied promise or guarantee from Brewer FX, LLC and Brewer Investment Group, LLC or its subsidiaries and/or affiliates that you will profit or that losses can or will be limited in any manner whatsoever. Loss-limiting strategies such as stop loss orders may not be effective because market conditions may make it impossible to execute such orders. Likewise, strategies using combinations of positions such as spread or straddle trades may be just as risky as simple long and short positions. Past results are no indication of future performance. Information contained in this correspondence is intended for informational purposes only and was obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.