Forex Trading Update

Daily Forex Market Commentary from DailyFX

    The EURUSD made another run at 1.3500 on Tuesday amid optimism surrounding the European Central Bank’s second Long Term Refinancing Operation, and currency traders may show a positive response to the outcome as the Governing Council takes additional steps to shore up the ailing economy. Indeed, there’s speculation that the results of the second LTRO will draw less demands compared to the EUR 489B offered back in December, but we may see a sharp reversal in the exchange rate should we see the three-year loan facility exceed market expectations. As commercial banks across Europe try to shore up their balance sheets, financial instructions may horde the cheap cash, and the ECB may have little choice but to expand monetary policy further as the region slips back into recession. In turn, the lack of momentum to clear 1.3500 could pave the way for a short-term reversal in the EURUSD, and the exchange rate may track lower going into March should the fundamental outlook for the euro deteriorate further.

Forex: USD Threatens Upward Trend, Fed Doves to Speak On Economy

    The reserve currency came under pressure on Thursday, with the Dow Jones-FXCM US Dollar Index (Ticker: USDOLLAR) tumbling to a low of 9,815, and the greenback may weaken further over the next 24-hours of trading as market participants ramp up their appetite for risk. As the USDOLLAR threatens the upward trending channel from earlier this month, a break below the 10-Day SMA (9,817) would negate our bullish outlook for the reserve currency, and we may see the index further retrace the rebound from 9,672 as a slew of Fed doves are scheduled to speak on the economy tomorrow. However, as new home sales in the world’s largest economy is expected to increase 2.6% in January, the improvement in the housing market may prop up the greenback as the development dampens the scope for another round of quantitative easing.

Forex: Euro to Threaten Key Resistance As Business Sentiment Improves

     The euro held a narrow range on Wednesday amid the renewed threats of a Greek default, but a rise in German business confidence may prop up the single currency as the data reinforces an improved outlook for the euro-area. Business confidence in Europe’s largest economy is expected to tick higher for the fourth month in February, and the development may spur a bullish reaction in the EURUSD as it raises the prospects for a more robust recovery. However, as the EURUSD remains well capped by the 100-Day SMA at 1.3311, the initial reaction to the release could be short-lived, and broader fundamental themes may continue to dictate price action for the euro-dollar as the ongoing turmoil in Europe drags on investor confidence.

Forex: British Pound to Benefit from Less Dovish BoE Minutes

    The British pound struggled to hold its ground on Tuesday as market participants scaled back their appetite for risk, but the sterling may regain its footing over the next 24-hours of trading should the Bank of England continue to soften its dovish tone for monetary policy. Although the BoE quarter inflation report has taken some steam out of the policy meeting minutes, the statement may instill a bullish outlook for the sterling as central bank officials expect to see a more robust recovery this year. In turn, we may see the Monetary Policy Committee endorse a wait-and-see approach throughout the first-half of the year, and the central bank may see scope to conclude its easing cycle in 2012 as the fundamental outlook for the UK improves. At the same time, members of the MPC may keep the door open to expand the asset purchase program beyond GBP 325B amid the recession in the euro-area, and we may see a growing rift within the BoE as the region continues to face a risk of a double-dip recession.

Forex: US Dollar Weakness to Be Short-Lived On Core Inflation

     The greenback traded heavy during the North American session, with the Dow Jones-FXCM US Dollar index (Ticker: USDOLLAR) slipping to a low of 9,798, but we may see the reserve currency trade higher over the next 24-hours as the stickiness in price growth dampens the prospects for another round of quantitative easing. Although the headline reading for US inflation is expected to expand at a slower pace in January, core consumer prices are anticipated to hold steady at the highest level since October 2008, and the stickiness in underlying inflation could prop up the USD as the development limit’s the Fed’s scope to push through another large-scale asset purchase plan. As the fundamental outlook for the world’s largest economy improves, we should see the Federal Reserve continue to soften its dovish tone for monetary policy, and the central bank may endorse a wait-and-see approach throughout the first-half of 2012 as Fed officials anticipate a more robust recovery for 2012.