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20 November Forex daily review

Sergiy Zlyvko
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On Wednesday, the U.S. dollar ended the day on positive territory. The key event of the day was expected FOMC meeting minutes release from October 29 and 30 and the next ECB rumors about the introduction of negative rates on deposits. In European trading AUDUSD, EURUSD and USDCHF currency pairs made a corrective pullback to the morning decline of the dollar, which met our expectations before the release of important events.

Increased demand in the first half of the day was observed on the British pound. EURGBP cross-rate fall pushed the main GBPUSD to 1.6150. British pound reacted with a decrease by 30 points on Bank of England minutes and quickly recovered from the fall, showing session highs.

All nine members of the Committee unanimously voted for an interest rate of 0.5% and a program in the amount of 375 billion pounds. The Bank of England noted sustained economic recovery and the absence of significant inflationary risks. In this regard, the Central Bank expects that in the second half of 2013, UK’s GDP will rise above the forecast of 1.6%. Nevertheless, buyers couldn’t break above 1.6175. Fall of the single currency messed the things.

Eurobulls forced to leave the market before FOMC meeting minutes’ publication. Euro pushed to close long positions by Bloomberg message on the possible reduction of ECB interest rates on deposits to 0.1%. Bloomberg referred to anonymous sources in the bank. Peter Praet informed about the introduction of negative interest rates on deposits. Single currency was subjected to aggressive sales across the market, resulting in a EURUSD rate fell by 80 pips to 1.3455.

After a sharp rise of the dollar against the euro and the Swiss franc, FOMC minutes went to backburner as currency pair reached the limit for intraday fluctuations (daily volatility). After 19:00 GMT the dollar has appreciated by an average of 30 points. As for protocols, we hold the opinion that the protocols are relatively neutral, minimize December folding is possible but March looks more likely.

President of the Federal Reserve Bank of St. Louis James Bullard also said that at December FOMC meeting they will discuss QE3 folding and strong employment report (NFP) for November will increase the chances of QE3 folding start in December. According to a poll conducted by Bloomberg, which was attended by 750 respondents, the majority concurs that the Fed will announce program’s minimize in March or later. Trend lines have punched. Perhaps this is a signal of deeper correction.

Negative rates on deposits subject forced euro bulls to return to the level of 1.34. 1.3520 support was breached, so the main scenario the rollback to 1.3455 in order expect another cut. I think now would be the time to pull till publication of November NFP. 1.34 is a strong support. If sales are the same as yesterday, the closest support level is at 1.3360 level.

After Bloomberg reporting about negative rates, British pound was supported by EURGBP cross-rate. The fall began after the close of the European session. From the maximum of 1.6175 the pair fell to 1.6085. The euro does not feels very good after yesterday’s fall, so this scenario seems logical.

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