The U.S. Dollar finished higher against a select few of currency markets in a trading session that was highlighted by volatility and trading surprises.
The EUR USD managed to close higher after several intraday attempts to break it lower throughout the trading session. From the opening the Euro traded lower on poor economic news but erased all losses following a supportive statement from European Central Bank President Trichet. In a speech before the Euro Group, Trichet said it is “extremely important” that the U.S. supports a strong Dollar. This statement was perceived as bullish for the Euro because many traders had gone into the report thinking Trichet would try to “talk down” the Euro.
Without help from the ECB the Euro can continue higher as traders seem unwilling to react to negative news but instead are focused on the prospects of a recovery.
The GBP USD finished the day up sharply following rumors that the Bank of England may end its asset buyback program early. The initial thrust to the upside this morning came following bullish comments from a Bank of England official. He said the BoE asset buyback program was doing what it was expected to do. This most likely led to the rumors. Most of today’s activity may not have been Dollar related selling pressure versus the Pound but rather traders unwinding short British Pound spreads versus other currencies.
The USD CAD posted a dramatic closing price reversal bottom. Short investors were getting nervous about holding positions so close to parity and decided to take profits. Some traders feared the Bank of Canada would step in to stop the rally in the Canadian Dollar following comments earlier this week from Prime Minister Harper. He stated his concern that a high priced Canadian Dollar could have a detrimental effect on Canada’s ability to recover from the recession. The surge above $76.00 in crude oil today helped limit losses. Traders will be looking for a follow-through rally tomorrow to verify the start of a 2 to 3 counter-trend rally.
The USD JPY posed a strong gain today, boosted by comments from Japanese Finance Minister Fujii. He triggered a strong break in the Yen when he restated his position about its value. A couple of weeks ago Fujii said a higher Yen would be good for the economy. Last night he retracted the comment and said he was against volatility in the currency markets and that currencies should be allowed to find value based on economic conditions. He even denied making the statement. This triggered the start of a rally which turned the main trend to up by the end of the day.
The AUD USD and NZD USD rallied on the possibility of interest rate hikes in Australia and New Zealand. Traders are fairly certain that the Reserve Bank of Australia will raise rates in November based on hawkish comments from RBA chief Stephens. Heavy speculation that the Reserve Bank of New Zealand will raise rates sooner than expected helped drive the New Zealand Dollar to a 15-month high.
DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. The value of currencies may fluctuate and investors may lose all or more than their original investments. Risks also include, but are not limited to, the potential for changing political and/or economic conditions that may substantially affect the price and/or liquidity of a currency. The impact of seasonal and geopolitical events is already factored into market prices. Prices in the underlying cash or physical markets do not necessarily move in tandem with futures and options prices. The leveraged nature of FX trading means that any market movement will have an equally proportional effect on your deposited funds and such may work against you as well as for you. In no event should the content of this correspondence be construed as an express or implied promise or guarantee from B.I.G. Forex, LLC and Brewer Investment Group, LLC or its subsidiaries and/or affiliates that you will profit or that losses can or will be limited in any manner whatsoever. Loss-limiting strategies such as stop loss orders may not be effective because market conditions may make it impossible to execute such orders. Likewise, strategies using combinations of positions such as “spread” or “straddle” trades may be just as risky as simple long and short positions. Past results are no indication of future performance. Information contained in this correspondence is intended for informational purposes only and was obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.