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Fed Chair Significantly Downplays Prospects for Additional Easing
Written by article default Friday, 15 July 2011 08:19
- Thursday price action fails to inspire any real directional bias
- USD recovers after Bernanke dismisses possibility for QE3
- S&P jumps into mix and also warns of potential US ratings downgrade
- Eurozone trade balance only key release in European session
All things considered, Thursday’s session of trade was relatively uneventful from a price action standpoint, with markets in the end, closing near their daily opening levels. The Greenback had initially been weighed down across the board on concerns over a potential downgrade to US credit ratings, but managed to fight its way back in the latter half of the day, with US economic data coming in as expected and more importantly, Fed Chair Bernanke throwing cold water on any real hopes for further accommodation from the Fed.
When asked if the Fed would consider additional accommodation, the Fed Chair said that the central bank was not considering this as an option at the present time. The US dollar was very well bid as a result with market participants also retracing some of their moves from the previous day’s testimony when it seemed as the door was open for potential QE3 measures. However, ongoing concern over the US debt ceiling also would not completely go away, with S&P joining into the mix and also warning of some form of a downgrade to US ratings over the coming days even in a situation where the ceiling were raised. Specifically, the S&P analyst said that the chances for a sovereign rating downgrade in the next 90 days had risen considerably
Looking ahead, the European economic calendar is extremely quiet, with the only key release coming in the form of the Eurozone trade balance. But as was the case on Thursday, the quiet economic calendar for the session should be a welcome development as broader global macro forces are at play. US equity futures and oil prices consolidate their latest declines, while gold sits on the opposite end of the spectrum and consolidates gains by record highs.
ECONOMIC CALENDAR
TECHNICAL OUTLOOK
EUR/USD: Overall, price action remains quite bearish and we continue to like the idea of selling into rallies in anticipation of a more sizeable pullback below the 200-Day SMA. The longer-term moving average resides by the 1.3900 figure and a clear break below will open the door for a test of next key support in the 1.3750. In the interim, look for the formation of a fresh lower top somewhere ahead of 1.4400. Thursday’s topside failure by a convergence of moving averages just under 1.4300 could very well offer itself as a strong candidate for this next lower top.
USD/JPY: The latest daily close below 79.50 certainly compromises our constructive outlook with the market breaking down below some solid multi-day range support in the 80.00 area and dropping into the 78.00’s thus far. This now puts the pressure back on the downside and opens the door for a retest and potential break below the record lows from March by 76.30. At this point, a daily close back above 80.00 would be required at minimum to relieve downside pressures.
GBP/USD: We classify the latest price action as some consolidation ahead of the next major downside extension with the market now looking to establish back below the 200-Day SMA and extend declines through next key support at 1.5750 further down. In the interim, look for any rallies to be well capped ahead below 1.6250 on a daily close basis. Back under 1.6000 helps to confirm and should accelerate.
USD/CHF: Despite the intense downtrend resulting in recently established fresh record lows below 0.8100, short/medium/longer-term technical studies are looking quite stretched to us, and we continue to like the idea of taking shots at buying in anticipation of a major base. Aggressive bulls may want to look to establish fresh long positions ahead of 0.8000, while conservative counter-trenders will want to wait for a daily close back above 0.8200 at a minimum.
Written by Joel Kruger, Technical Currency Strategist
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