CMS Forex Blog

The Dow broke a 3-day winning streak today as investors and traders sold stock in an effort to decrease risk. The flight to safety caused the price of US treasuries and in turn the USD to rise. This pushed the EURUSD to erase all of its intra day gains and a good portion of yesterdays gains as well.

USDJPY put on a little end of day rally as the close of the US equity markets inched closer and appeared to be headed for 77 until it sold off on profit taking and fell back down to 76.50. However it definitely has some bullish momentum right now and should be interesting to watch over the next couple of sessions.

USDCHF which has been struggling to break 90 all day has just finally climbed above the resistance and is now trading at .9004.

Following the sell off in commodities the AUDUSD which has taken a huge hit due to the gold sell off continued to struggle today as it fell 100 pips in the last 24 hours giving back all of Tuesdays gains.

At today’s FOMC meeting, Operation Twist was introduced and implemented. Operation Twist is a US Government strategy with the intention of lowering long term interest rates by selling short term bonds and using the funds to purchase the same amount of long term bonds. It is a way for the Fed to increase its stimulus policy without any additional spending – technically.  The announcement of “Twist” sent the USD soaring against almost all currencies, most notably the AUD/USD and EUR/USD. Both moved approximately 200 pips.

The JPY fell versus the USD but held its own and even rose against some of its European rivals. The Sterling hit its lowest level since January as the Greenback continued to gain on the Pound, boosted by the FOMC unveiling of Operation Twist.

Gold fell today and the US equity markets tanked towards the end of the day as traders and investors cashed out of stocks.

Today’s trading session started with the euro noticeably stronger, the aftermath of a phone call between the Chancellor and PMs of Germany, France, and Greece.  The public outcome of this call was a joint statement from Merkel and Sarkozy, that Greece’s standing within the EU is solid, that there is no risk of them being removed or leaving the Union, and that they are confident Greece will see through on its austerity pledges.  The market liked this statement, and the shared currency rallied.

It is worth noting however that nothing material has changed regarding the ominous European crisis, and there is no reason for any sunnier of a disposition towards the currency.  If we look specifically at the EUR/USD pair, we see an almost 150 pip swing to the upside today, as the amount of dollars needed to buy 1 euro increased markedly.  In addition to the sentiment following yesterday’s EU conference call, the euro strengthened relative to the dollar partly as a result of negative news from the U.S. as well.  Unemployment claims unexpectedly jumped to 428K, significantly higher than the 417K we saw last month, and higher still than the 410K which economists forecast to see today.

Later in the day, the Philly Fed Manufacturing Index also came in noticeably weaker than expected, reading -17.5, well below the forecast of -14.7.  The barrage of bad news hurt the dollar across the board.

The last thing we will note today was the nice technical setup on the EUR/JPY.  As “good” news for the euro pushed the number of yen needed to buy one euro higher, the 105.60 level that represented the top band of an ascending triangle was broken.  The pattern, which has been in formation since the start of this week was broken.  The EUR/JPY quickly shot through the top of the triangle and reached a high of 106.97.  A potentially significant retracement on the long term move that took the EUR/JPY from a high of 123.26 in mid April to a low of 103.88 just a couple of days ago should be paid close attention to, with the first significant long term retracement level at 108.45, still a considerable distance away.

The VT Trader charts below shows a 1 hour chart where the broken triangle is clear to see, and a longer term daily chart, where the potential bottom and corresponding retracement is also clear.

Talk about the EU launching Euro Bonds to raise capital in the wake of Europe’s sovereign debt crisis helped lift European stocks today and the uptrend continued in the currency markets as the EUR/USD hit session highs after the France/Germany conference call.

The USD sold off across the board today as European nations vowed to stand by Greece throughout the debt crisis. Of course, if Greece reneges on its promises then all deals are off.

The USD/CHF and the USD/JPY both were under selling pressure, however one bright spot for the greenback was the AUD/USD. The dollar continued its recent run versus the commodity currency as the Aussie hit fresh recent lows.

The Reserve Bank Of New Zealand (RBNZ) announced today that they are keeping rates unchanged at 2.5 percent. While many traders on the street expected and anticipated this move the Kiwi still experienced a mild sell off to the downside.

Going into to this trading week, markets where shaky about EU debt and the possibility of a Greek default looking more like something that is coming sooner than later. Throughout the Asian and European sessions equity prices were sent lower as more fears added to a possible downgrade from Greek debt by Moody’s. The USD saw some strength but the market remained sideways. This was adding more fuel to the fire as traders prepared for a bearish day for the US session but in late equity trading, sentiment became bullish on news from China.

The Financial Times reported that China is in talks of purchasing bonds from Italy.

The EUR/USD pair Ranged from 1.3693 to 1.3500. The Dow Jones Industrial average and S&P 500 closed higher as markets rallied back from down over 1% to close at +63.99 and +8.07 respectively. Gold prices lost some of its luster closing lower $39.10 (-2.1%) to settle at $1,820.40 a troy ounce.

Crude oil contracts ended higher up at $1.49 a barrel to settle at $88.73.

This week look out for: On the European front, any more news regarding any steps French and German banks take in relation to Greek debt.

On the US front, on Wednesday Producer Price Index and Retail sales at 8:30am (EST). What we may anticipate is not too much growth in PPI for August though Retail Sales can be higher from effects of Hurricane Irene on the East Coast where many consumers bought supplies. For a busy Thursday, Consumer Price Index data and Jobless Claim numbers at 8:30am(EST) followed by industrial production at 9:15(EST) and Philadelphia Fed Survey data at 10am(EST). CPI was strong in July and expectations are that there will be some growth in August. Jobless Claim data can be at a standstill where we had consecutive weeks of claims falling, but now looks like it’s over the 400k level. Industrial Production has been on the rise for the past couple of months but might be weaker in August. Finally, Philadelphia Fed Survey data might be weaker as July numbers where grim and might be in the same trend for August.