Forex News and Events:
Reports that the Fed will announce 10 banks are ready to pay back the TARP funds they benefitted from at the height of the crisis has added to the general idea that the larger economies are steering clear of the worst part of this economic crisis – this should amount to $50Bn in funds being returned. This is expected to be a Dollar and Yen bear signal as the haven currencies throughout this crisis decline on receding risk aversion fears.
The are mounting reports and speculation that the FOMC will hike rates in November to counter the escalating treasury yields. The OIS (Overnight Index Swaps) has been pricing in 40bp of tightening by the Fed by the end of the year however pundits warn this can only be possible after hefty liquidity drains. We do however warn readers that we are in the midst of one of the worst financial crisis in decades if not the worst and rate hikes a year after the breakout could be premature to say the least. A move as such would undermine the Fed's credibility on the matter of Price stability and Full employment (their preached mandate).
Furthermore, the US has asked the EU carry out a “stress test” – using theirs as a model – to ensure banks are sufficiently capitalized and able to weather out of this storm. Fed Treasury secretary Geithner is set to announce this in detail at the G8 finance ministers meeting in Rome on the 12th and 13th of June.
In other news the S& P has announced that is has downgraded Ireland's Sovereign rating from AA+ to AA stating the Irish government's substantial commitment to it's weakened banking sector is to blame. Economic news is very thin today, Treasury Secretary Geithner set to speak on department budget at 14:30 GMT. For the time being we see currencies settling into ranges as we take stock of the developing stories and risk sentiment seesaws.
Today's Key Issues (time in GMT):
14:30 USD Treasury Secretary Geithner Testifies On Department Budget
The Risk Today:
EurUsd As stated yesterday floor in at 1.3807 held well as we embark on building the shoulder of the S-H-S formation we started May 21st. For the time being the upside risk is for a resistance at 1.4005 and a crucial pivot at 1.4050. On the downside 1.3907 holds as crucial floor with tentative stops at 1.3865.
GbpUsd Broad move Fibonacci retracement signals we hit the 50.00% level before bouncing back to retrace the broad move retracement. Further dollar weakness has the scope to see 1.6298 with initial resistance at 1.6181. On the downside first crucial level comes in at 1.6008 with a floor in at 1.5807.
UsdJpy Yen acts as a risk barometer which has seen the pair rise in recent sessions following last week's NFP's. The general trend points to further gains, however a 1 year weekly chart shows the range bound nature of the pair – further consolidation would point to a change in sentiment. Initial resistance at 98.89 will set the tone for gains towards 99.56 (crucial level at previous highs). Moves past 97.87 would focus downside risk towards Friday breakout at 96.81 via 97.59.
UsdChf Pair shows signs of waning momentum for the upside but this should be a momentary lapse as we construct the final leg of head and shoulder formation. Initial resistance at 1.0987 (day high) with further gains pointing to a level at 1.1057. For the time being bias is for the downside with initial support at 1.0873.
Resistance and Support:
|S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot|