Wednesday April 21, 2010 - 18:09:05 GMT
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Euro Outlook Remains Bearish
The outlook for the Euro remains bearish despite on-going
meetings between Greek officials and the IMF to find a solution to the
sovereign debt problem.
The EUR USD continued to break during the New York trading session after trading lower
overnight. Another indication of lower prices to come was the widening of the Greek
10-year Bond/German Bund Spread to 500 basis points. Investors are continuing
to ask for protection from a potential collapse in the Greek debt market.
Traders are becoming convinced that there is not enough
money available to help out Greece
in the long-run. Hedge funds continue to short the Euro in anticipation of more
borrowing by Greece
and despite another proposal from the EU/IMF to provide additional emergency
funds if necessary.
At the mid-session, talk is circulating that Portugal is close to facing similar problems as Greece. Portugalâ€™s
bonds are also selling off, indicating investor lack of confidence in this
countryâ€™s ability to contain its debt.
The GBP USD is trading higher and holding steady. Government
data released early this morning showed the number of people claiming jobless
benefits fell by 32,900 in March. This was three times more than pre-report
estimates and the sharpest drop since June 1997.
Overnight the Bank of England minutes were released. The data
revealed that the BoE members voted 9-0 to keep interest rates at historically
low levels, but that inflation was a concern. On Tuesday a report was released
showing U.K. CPI had risen to 3.4%. This percentage was almost twice the target
of 2.0%. After providing stimulus for
months in an effort to revive the economy, the BoE will now have to figure out
how to begin removing the stimulus to lower inflation without upsetting the
The upcoming May 6th election remains a concern for U.K. investors
at this time which is helping to limit gains. Traders maintain that the
election is too close to call and that there is still a strong possibility of a
hung parliament. This could mean that without a majority in the parliament, a
plan to slash the U.K.
budget deficit may not be able to be implemented.
The weaker Euro is helping to boost the USD CHF at the
mid-session. Technically, this market is poised to breakout to the upside.
Traders are selling the Swiss Franc in anticipation of further intervention by
the Swiss National Bank.
The weakening U.S. equity markets are helping to
push the USD JPY higher. Early in the trading session, this currency pair was
having trouble with a 50% price level at 93.18. The current break in the stock
market is driving the market through this level as well as a downtrending Gann
angle that has held the market down since the 94.77 top on April 5th. Upside
momentum could take this market to 93.55.
The USD CAD was under pressure early in the session following
Tuesdayâ€™s bearish announcement by the Bank of Canada that it is going to begin
hiking interest rates sooner than expected. The Canadian Dollar rose to a new
22-month high overnight but weakness in the U.S. equity markets and oversold
conditions are helping to push this pair near the positive side of the ledger.
Traders feel this currency will continue to rise as long as
keeps interest rates low and because of the improving Canadian economy. The BoC
wants to act as early as June 1st in order to stem the harmful effects of
inflation. Aside from a few short-covering rallies triggered by the dumping of
higher risk assets, look for traders to continue to press the Dollar/CAD lower.
Short USD CAD traders should watch for a possible closing
price reversal bottom today. This could force a short-covering rally over the
Weaker stock prices, a sign of lower demand for risky
assets, are putting downside pressure on the Australian Dollar. Overnight the
Aussie Dollar tried to breakout to the upside but buying power dried up.
Traders are getting mixed signals. Bearish traders believe that a weak mortgage
demand report from earlier in the month indicates the Reserve Bank of Australia is
unlikely to hike rates in May. Tuesdayâ€™s RBA minutes indicates that
policymakers are concerned about inflation and may consider a rate hike. The
inability to reach a solid conclusion is a contributing factor to todayâ€™s
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