IG Markets - Forex Focus September 21, 2010

IG Markets - Forex Focus

September 21, 2010

EUR/USD

Details

Prev close 1.3050 52 week high 1.5144
Last trade 1.3056 52 week low 1.1877
High 1.3121 Low 1.3029

Bloomberg Median Forecasts

Q1 2010 1.39 Q3 2010 1.25
Q2 2010 1.25 Q4 2010 1.27

Commentary

As we start this week, the price action in the currency markets seems to be indicating some uncertainty on the part of investors. Following Friday’s steep decline in the euro, risk appetite—helped by a very positive outlook from Reserve Bank of Australia’s Governor Glenn Stevens—pushed the common currency higher. After regaining almost 75% of Friday’s losses though, the sentiment turned and with it the EUR/USD pair fell back to the previous support zone near 1.3030. There is still a lot of concern ahead of Irish and Portuguese debt auctions this week. While it is likely that the theme of strong demand, assisted by the European Central Bank (ECB), will continue in these auction results, investors are somewhat fearful of what yield this debt will have to be auctioned. While the markets have been somewhat calmed by the ECB’s actions since the start of the summer, unlike the Federal Reserve’s bond purchases which drove US yields down on a combination of safe haven purchasing and additional demand, the ECB has been successful in creating demand—but at very high premiums. If they decide to scale back purchases or leave the market all together, which at some point they will have to, how sustainable will this debt be for the issuing countries? Without the ECB, it would only take one failed auction to see fear grip the markets again. Dan Cook, Chicago

GBP/USD

Bloomberg Median Forecasts
Q1 2010 1.60 Q3 2010 1.52
Q2 2010 1.47 Q4 2010 1.53

Commentary
After a brief rise to start the week, sterling continued on the downward path started this past Friday. Some of the slip today was based on the macroeconomic reports. Preliminary Mortgage Approvals in the UK was slightly less than expected, totaling 45K in August. This was released in unison with a Bank of England report which showed the preliminary figures for the M4 money supply had fallen by 0.2%. As the UK economy faces tough measures and a tentative recovery, pound bulls would have really liked to have seen this number grow by the expected 0.3%. In all though, I don’t think we have seen a widespread shift in sentiment toward the UK currency. While it has fallen off a bit over the last couple of sessions, this slight drop has followed three sessions which saw a climb of almost 400 pips. Considering the rapid climb through the middle of last week, the only surprise would to have not seen a little softness in the sterling trade. For the time being, short-term support could come into play between 1.5540 and 1.5550. However, tomorrow is the release of the FOMC interest rate and monetary policy decision and so no matter how good either support or resistance for this pair looks, traders will want to remain cautious ahead of the announcement. Dan Cook, Chicago

USD/CAD

Bloomberg Median Forecasts
Q1 2010 1.05 Q3 2010 1.04
Q2 2010 1.01 Q4 2010 1.05

Commentary
The battle of the North American dollars continues today with the Canadian currency being the beneficiary of modest strength. Since the markets reopened following the weekend break, this pair has found a short-term ceiling near 1.0345 and a short-term floor near 1.0285. The data out of Canada was not overly positive with Foreign Securities Purchases missing expectations by a wide margin and coming in at only C$5.48 billion and Wholesale Sales falling by 0.1%. The negative reports out of Canada though, could only give the USD a temporary boost and as the price of crude oil had spiked higher this morning, so has the loonie. Definitely all eyes will be on the FOMC decision tomorrow. Prior to that, investors in this pair will be focused on CPI data coming out of Canada and Building Permits/Housing Starts from the US. Dan Cook, Chicago

Notes: Bloomberg Median Forecasts are produced by Bloomberg by taking the median level from rates forecast by a number of contributors. These contributors consist of leading banks and security firms.
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