As we have been reporting on, it has been a rollercoaster for the euro over the last month. The elections in Greece had everyone worried about the outcome, and the Spanish and Italian economy is adding stress to the market. Although, starting on Tuesday, the U.S. dollar took a dive against the euro, causing the euro to rebound by Wednesday. Now, traders are eagerly awaiting for the Federal committee meeting to end, so they can better predict moves in the upcoming weeks.
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WORLD FOREX: Euro Steady, Pound Rebounds As FOMC Casts Shadow
- Dollar under pressure ahead of Federal Reserve monetary policy decision
- Sterling sinks on dovish BOE June minutes but dollar selling, M&A talk help it rebound
- Norges Bank in focus, no change to Norway’s key interest rate expected
By Jessica Mead
An urge to sell dollars ahead of the Federal Reserve monetary policy decision later Wednesday allowed the pound to rebound against the buck during European hours after sharp selloff in the wake of the Bank of England minutes earlier in the session.
The Federal Open Market Committee decision, due at 1630 GMT and followed by a press conference by chairman Ben Bernanke at 1815 GMT, cast a long shadow over the European trading session Wednesday with some in the market hoping for another round of quantitative easing.
“QE3 seemed almost completely off the agenda just a few weeks ago but many now believe that the Fed might announce further measures as early as this evening. This is putting increasing pressure on the dollar,” said Lutz Karpowitz, chief currency strategist at Commerzbank in Frankfurt.
The pound, which was the biggest mover among the major currencies Wednesday, had dropped sharply against both the dollar and the euro Wednesday after minutes from the Bank of England’s June MPC meeting showed a narrow vote in favor of keeping its asset purchase program unchanged, raising the probability of additional easing in July.
Yet sterling snapped back against the dollar to above $1.57, having traded at the day’s low of $1.5654. It also regained some lost ground against the euro, which fell back from the day’s highs. Strategists attributed this rebound partly to bets made by investors ahead of the FOMC.
“With people thinking we might see some [more quantitative easing] from the Fed tonight, they have taken advantage of the fall in the pound to jump in,” said Sara Yates, currency strategist at Barclays in London. She added that there was a lot of retail demand to buy the pound around the day’s lows.
The prospect of more QE in the U.K. might also help sterling in the long-run, said Daragh Maher, senior currency strategist at HSBC in London. “The initial reaction on the suggestion that more QE is coming is to sell sterling, but actually QE is about supporting growth, so longer term, it should be sterling-supportive, and I think that’s why it has bounced back,” he explained.
With currency traders broadly biased towards selling dollars, the euro and the Australian dollar were also able to notch up some moderate gains against the greenback. The common currency traded back above $1.27 against the dollar but was unable to sustain this level.
In Europe’s emerging markets, the overall brighter tone provided early support. The Turkish lira also benefited from the one-notch upgrade of its sovereign debt rating by Moody’s Investor Services to Ba1–just below investment grade.
Coming up in the session ahead besides the FOMC is Norway’s monetary policy decision at 1200 GMT. The Norges Bank is expected to leave its key rate unchanged at 1.5% but strategists note the central bank has surprised in the past and as recently as March. Danske Bank expects the new monetary policy report to signal a smaller upward adjustment in the interest rate path by 10-30 basis points in 2012 and 2013, indicating an almost 50% chance of a rate rise before the end of 2012.
At 1034 GMT, the euro was trading at $1.2687 against the dollar, compared with $1.2684 late Tuesday in New York, according to trading system EBS. The dollar was at Y78.96 against the yen, compared with Y78.94, while the euro was at Y100.17 compared with Y100.14. Meanwhile, the pound was trading at $1.5716 against the dollar, compared with $1.5724 late Tuesday in New York.
The ICE Dollar Index, which tracks the greenback against a basket of currencies, was at 81.403 compared with 81.394 late Tuesday in New York.
A summary of key levels for chart-watching technical strategists is below:
Forex spot: EUR/USD USD/JPY GBP/USD USD/CHF
Spot 1024 GMT 1.2686 78.97 1.5723 0.9465
3 Day Trend Range Bearish Bullish Range
Weekly Trend Bearish Range Range Range
200 day ma 1.3178 79.61 1.5822 0.9202
3rd Resistance 1.2825 79.31 1.5803 0.9565
2nd Resistance 1.2748 79.13 1.5785 0.9520
1st Resistance 1.2730 79.05 1.5756 0.9485
Pivot* 1.2661 78.98 1.5699 0.9485
1st Support 1.2652 78.79 1.5654 0.9433
2nd Support 1.2631 78.61 1.5615 0.9420
3rd Support 1.2575 78.38 1.5599 0.9367
Forex spot: AUD/USD
Spot 1024 GMT 1.0190
3 Day Trend Bullish
Weekly Trend Bullish
200 day ma 1.0246
3rd Resistance 1.0274
2nd Resistance 1.0247
1st Resistance 1.0225
Pivot* 1.0166
1st Support 1.0167
2nd Support 1.0104
3rd Support 1.0057
The two day meeting of the Federal Open Market Committee is making everyone eerie about the decision. At the end of the meeting, the committee will announce their conclusion, which will also be followed by a press conference- the results will undoubtedly have a profound impact on the short term future of American markets. An urge to sell the dollar ahead of the outcome of the meeting opened the door for the euro to make an even bigger rebound than yesterday. Many traders in the market are hoping for another round of quantitative easing.
The decision from the Fed is putting an immense amount of stress on the dollar and the increasing pressure may cause it to dip even further throughout the day.
On the other hand, the pound was a big mover, the biggest of all of the currencies on Wednesday. This trend didn’t last as it dropped sharply against the dollar and euro right after the news out of the Bank of England that showed a narrow vote in favor of maintaining its assets purchase program- leaving the possibility open for additional easing in July.
Sterling snapped back against the dollar, rising to $1.57, and also regained lost ground against the euro. Australian’s common currency traded at $1.27 against the dollar at its highest, but was unable to keep at this level.
What do you think the Fed will announce?
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