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21 January Forex daily review

Sergiy Zlyvko
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On Tuesday morning events in the currency market evolved in line with our expectations. The EURUSD on mixed ZEW index data decreased to the level of 1.3515 (35 pips fell short of the target). GBPUSD dropped to 1.6400. After unsuccessful attempts to break through the 1.3510 and 1.6400 closer to the publication of the IMF Economic Outlook (14.30 GMT) major traders began to sell the U.S. dollar. Against the closure of long dollar positions British pound has appreciated against the U.S. dollar by 50 basis points to 1.6485. EURUSD rose to 1.3545.

The IMF raised its forecast for global growth in 2014 from 3.6% to 3.7%. According to the survey, forecasts of GDP growth were increased for U.S., China, Eurozone, Germany, Spain, UK and Japan. The IMF raised its forecast for GDP growth in the UK in 2014 to 2.4% from 1.8%. In the morning review, we warned that rumored expected forecast revision to 2.4%. After the release of the review of the IMF, GBPUSD rate moved to lateral movement, EURUSD and AUDUSD pairs rose before a recovery in the cross rates. Only USDCHF rate reached the calculated target on the main scenario and the close of trading in Europe has blocked all of the daily growth.

Given yesterday’s refloated rollback of USDCHF to 0.9155 maximum and morning rise of AUDUSD by 70 points – up to 0.8870, we conclude that the U.S. dollar will stay another day today in a correctional phase. Australian dollar strengthened after the publication of the inflation report in Australia and may follow other currencies.

At 9.30 GMT data on the unemployment rate in the UK in November was published, economists and analysts expected the decline in unemployment to 0.1% (up by 7.3%) and a reduction in applications for unemployment benefits. Together with the labor market report Bank of England publishes the minutes of the last meeting. It turns out that in European trading market will set the direction of the pound after the news and the evening will set the direction of the Canadian dollar. At 15.00 GMT Bank of Canada will announce the decision on interest rates, and at 16.15 GMT the head of the Bank of England has a press conference. Relevant data for the United States is absent today, so today the Bank of England and the Bank of Canada will provide the impact on currency market. In the first half of the day we expect a rising of the dollar, this is the second reduction.

On Tuesday the drop of AUDUSD stopped at around 0.8850 mark. Retreat from 0.8775 was 75 points. In the morning on the inflation data in Australia AUDUSD exchange rate rose to 0.8870. According to the latest quotes intraday high fixed also at 0.8870. Growth slowed at about 0.8870 and now all attention is focused on news from Britain. Break of 0.8860 is bad for sellers. This indicates that the pair can develop a deeper correction to 0.8935.

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