Forex Traders await European Central Bank Policy Decision

The EUR USD is trading flat as Forex traders await this month’s European Central Bank policy decision. Investors are looking for the ECB to leave interest rates at the historically low 1% level.

The EUR USD is trading flat as Forex traders await this month’s European Central Bank policy decision. Investors are looking for the ECB to leave interest rates at the historically low 1% level. At the same time, the market will be looking for comments on the debt problems in Greece, Portugal and Spain. Expect the language of the report to be dovish in tone.

After the release of the ECB policy statement, central bank President Trichet is expected to comment on the European Union debt issues, the European banking system and the sluggishness of credit in the Euro Zone region. Trichet’s comments are likely to be market moving especially if he comes down hard on the countries experiencing debt problems.

Technically, the Euro is trading in a range. The main trend is down, but this market still has the potential to rally to 1.4680, to complete a major 50% retracement. On the downside, 1.4386 remains a short-term target.

The AUD USD is trading better this morning. Investors bought the Aussie and shorts covered positions following the release of a robust Australian jobs report. The Australian jobless rate eased in December while the economy added close to three times as many jobs as initially forecast.

The size of the rise in the number of jobs has increased the chances that the Reserve Bank of Australia will raise interest rates at its next meeting on February 2nd. Some economists are forecasting a 5.50% rate by December 2010. Gains could be limited by traders who believe a tighter monetary policy in Australia and an end to China’s stimulus measures will dampen Australian exports.

Technically, upside momentum could continue to drive the AUD USD into the November 16th top at .9405. At this time, the Aussie is walking up an uptrending Gann angle at .9294. To remain bullish, this market has to cleanly regain this level and begin to establish support on it.

The bullish action in the Australian Dollar is spreading to the NZD USD. The Kiwi is trading in a range overnight, but .7523 remains the next possible upside target. Momentum seems to be slowing as traders may be concerned that a higher priced currency may curtail demand for New Zealand exports. The chart indicates that any shift in sentiment may drop this market to an uptrending Gann angle at .7250 over the near-term.

Demand for riskier assets is helping to give the USD JPY a boost. With risk sentiment back on, the Yen has room to fall. Traders are shifting once again to a risk demand environment because the stock market continues to remain strong and the prospects for a rate hike by the Fed diminished.

Overnight reports, which led to the drop in the Japanese Yen, highlight the country’s reliance on exports. Last night’s reports showed that producer prices fell for the 12th straight month and machine orders unexpectedly dropped. These reports indicate that the government is likely to take more action to combat deflation in an attempt to revive economic growth. Look for the Japanese government to implement more monetary easing and fiscal policies to fight deflation. This means that it would be in the country’s best interest to promote a softer Yen at this time.

Technically, a short-term range has been created at 93.77 to 90.72. Watch for a retracement to 92.24 today.

The fear of an intervention by the Swiss National Bank and less demand for lower risk assets are the conflicting stories keeping the USD CHF inside of a tight trading range. For the third straight day, the currency is ping-ponging inside a 50% price at 1.0212 and a .618 price at 1.0143. Technical factors are building which suggest that traders are likely to “go the way of the move”. This means a break-out to the upside is likely to trigger a rally to 1.0327 and an acceleration to the downside could drive this market to 1.0083.

The USD CAD is trading flat overnight. Greater demand for gold, copper and natural gas, three commodities which provide almost half of Canada’s export revenue are helping to support the Canadian Dollar. Look for this currency to remain strong as long as there is demand for raw materials.

The inability of the USD CAD to break further is a direct result of the comments from Canadian Prime Minister Harper who earlier in the week said he was concerned about the rise in the Canadian Dollar and its negative effects on the economy. Traders seem reluctant to challenge the PM at this time out of fear of possible intervention by the Bank of Canada.

Technically, the USD CAD is in a downtrend with the October bottom at 1.0205 a potential target. On the upside, a downtrending Gann angle at 1.0385 remains the strongest resistance.

The GBP USD is trading flat to lower ahead of the New York opening. The British Pound turned the main trend to up on the daily chart earlier in the week when it crossed a main top at 1.6240. This move was primarily driven by a Bank of England member’s call for higher interest rates later in the year. Furthermore, traders are beginning to believe that the need for further stimulus has dissipated. The first upside objective is a 50% level at 1.6355, followed by 1.6478. A weaker market today could trigger a short-term retracement to 1.6104.

In addition to this morning’s ECB statement, traders will have the chance to react to the U.S. Retail Sales Report. Based on previously released new motor vehicles sales and December Chain-Store Sales, traders should expect a healthy report. Look for retail sales to grow by 0.4% and retail sales less autos to increase by 0.2%. Today’s jobless claims report should show an increase of 3K with a range of 400K to 450K.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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