Traders still in cautious mode as bearish sentiment prevails

Mike Paterson’s daily Forex brief

Market jitters continue amidst the tight but volatile ranges of recent days as traders test both sides but currently concede that it’s still a nasty world out there, and that risk-averse sentiment prevails.

Yesterday saw sharp moves up, then down, then up again and overnight we’ve seen EURUSD and GBPUSD trade lower again as talk went round that Belgium was looking to re-negotiate the Dexia bailout with France, and then the release of China’s PMI (Purchasing Managers Index) data which came in at 48% from 51% last month. Any figure below 50 reflects a contraction in industrial production and this has a potentially huge knock-on effect on the region and the world.

This all gave an added bearish tone to the markets and particularly vulnerable local currencies such as the Aussie $ which fell across the board, and in this risk-off scenario we’ve seen EURUSD fall back close to key support areas around 1.3430 and GBPUSD finally break down through the strong technical support around 1.5610. Talk now of bids on both pairs as we dip lower but still plenty of sellers in the rallies winning the day at the moment as I have been mentioning here.

EURGBP seems to have found support around 0.8610 now (GBPEUR resistance 1.1615) but is struggling to break up through 0.8670 (1.1534) ahead of next target of 0.8700 (1.1494), and the Pound overall has had a mixed 24 hours, gaining against the weaker Aussie and Rand but lower versus the Swiss Franc (EURCHF is 100 pips lower as traders give up on any immediate SNB action) and many others (see rate table below).

Daily Forex Brief

This morning sees the release of the Minutes from the last BOE MPC meeting on interest rates. Traders are expecting to see a 9-0 majority on keeping rates and QE on hold but given recent rhetoric from certain members there is a growing feeling that there may be some dissenters in the ranks. Either way we haven’t got long to find out with the release at 09.30 GMT.

Plenty more stories out there about the US debt crisis and I feel sure that this will eventually lead the way, but I also accept that we have the not inconsiderable Eurozone/UK/global problems to evaluate and it’s a massive bun-fight whichever way you choose to look at it with, frankly, no real winners.

Loads more data out today to keep us on our toes and we can again expect some sharp moves in volatile conditions.

Today's Data:

09.00-EU- Eurozone Manufacturing PMI/Eurozone Services PMI

09.30-UK- BOE MPC Minutes

10.00-EU- Eurozone Industrial New Orders

13.30-US- Durable Goods/Personal Income and Expenditure/Weekly Jobless Claims

14.55-US- Michigan Consumer Sentiment Index

Weekly Economic Calendar–HERE

Interbank Rates as of 08:17 BST

Agree or disagree? Then please leave a comment in the box below or contact me by e-mail.

Mike ‘Oscar’ Paterson has been in the Forex trenches for nearly three decades working as a senior Spot trader in London at UBS, Chief Dealer FX at the State Bank of Victoria and in charge of Spot CHF at Credit Suisse with a daily turnover in excess of $1.5 billion. Mike now works as an independent consultant providing a fully bespoke service to the corporate and private sectors in physical FX delivery as well as guiding those who wish to improve their currency trading. Mike also presents seminars and workshops and writes for a number of publications.

To contact Mike please call +0044 (0) 1732 700383 or email mike.paterson@economicvoice.com

The views expressed above are those of the author and should not be taken as investment advice. MSP Foreign Exchange Services will have no liability for, or to, any persons executing trades based on the content above.

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