Mike Paterson’s daily Forex brief

Seems like traders are happy to keep buying a few US Dollars and the markets are currently focussing on US Treasury yields as the main driver.

Treasury prices extended losses yesterday following Tuesday’s FOMC statement, pushing yields to their highest levels since October and breaking a range after the Federal Reserve sounded a bit more comfortable with the economic outlook and most U.S. banks passed their stress tests. Bonds extended losses after the government’s sale of 30-year notes, which came at the highest yield since August and returns on 10-year notes, which move inversely to prices, have been moving steadily higher and the 10 year is presently at 2.3330 just off its overnight highs.

This demand for US bonds naturally increases demand for the US Dollar and we’ve seen EURUSD fall again to test that very strong barrier-option support at 1.3000 and GBPUSD fall to 1.5636. USDJPY broke up through 84.00 and USDCHF has been up to 93.36. All have seen a little correction this morning as US bond yields drift off their highs and profit-takers jump in.

Commodity currencies such as the Aussie $ and Rand came under pressure even further as Gold got slapped down on the USD demand, falling $50 to $1635 after first paying a little respect to the $1650 line I’ve mentioned and which now becomes pivotal. Gold is in the midst of its second consecutive down month (a close below $1696.61 is needed this month) and looks like it wants to test the next major support line at $1601.

And the Pound had a little of its recent gloss knocked off it as ratings agency Fitch kept the AAA status but cut its outlook view to “Negative” saying the downward revision to outlook “reflects the very limited fiscal space to absorb further adverse economic shocks in light of such elevated debt levels and a potentially weaker than currently forecast economic recovery.” A timely warning shot across the bows ahead of next week’s UK Budget.

Forex Update

Forex Update

EURGBP failed to break any lower and has since headed back to 0.8338 (1.1992) while GBPAUD had another look above 1.5000 and GBPZAR above 12.00 before falling back after the Fitch announcement.

News just out from Switzerland has the SNB leaving interest rates on hold and the 1.2000 EURCHF peg where it is.. There had been much speculation over the past few days that they might raise it and we’d seen traders take it up to 1.2141 yesterday but now they’re scrambling out as I type at 1.2090 and USDCHF is also lower at 92.73.

More fun and games to be had today with key US data out this afternoon but before I run out the door to a meeting I must give due mention to Chelsea’s fine Champions League performance last night.. Ok so they could/should have been 2-0 down after the first 15 minutes but hey, mere detail when you run out 4-1 winners and 5-4 on aggregate. I know a few of my good friends out there who will be nursing rather large celebratory hangovers this morning……….!

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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