Applied Trading Analysis

Written by Research | 17 August 2010

The economics reports on CPI (YoY) basis were in line with expectations and market sentiments on the opening week still remains to be quite volatile particular for the USDCHF and the GBPUSD making their mark on both directions. The weakness of the USD as its corrective move from a stronger tone last week is an expected one.

The only remaining report that may still trigger volatility would be the speech that the US Secretary Geithner would be making this week. However, the real market sentiments prevail as the reports of the US deficits weighs heavier specially with a 13.3T national debt and China's recent reduction of 2.7% of US treasuries about $24B. making China now as the 2nd biggest economy for the 2nd qtr. of the year.

The currency majors are spread all over the market place, as investors and traders has been more reluctant to buy USD inspite of the USD strength last week. Some analyst mentioning flight to quality, but the real issue that most major players in the forex market including the central banks have been shifting funds unloading Euros held from the previous European crisis.the presence of the central banks and other institutional players makes the volaitlity of the market ever more dangerous for the specualtors as the market swings wider tend to squeeze and absorb small trades in between market actions.

The extension on prices for EURGBP down to 0.8174 low band average has been teh supportive price where specualtive trades would have thrown in the towel when earleir longs was established. However, maintaining our stance on the EURGBP with an arbitrary hedge with the USDCHF cushionary move and liquidation of some profits when the USD corrective mode was in the making at the earlier opening of the week. These prompted the EURUSD to move higher and the GBPUSD held its prices lower and steadier. The EUrGBP cross rate is currently at 0.8270 and working its way back up to the 0.8350-60 resitance levels that would attempt to break a higher band. Given enough momentum and volumes would trigger the break within the week or best case scenario mid-week of the month. But expect some irregular price movments accross the board as money continues to shift for adjustments among the major players.

With that said, the GBPUSD and Euro have made some recovery from its downtrend as it is at the 1.5655 from a 100pt.low and 1.2827 respectively as of this writing. Although, corrective moves are expected back down just about where it came from at the 1.5480-1.5560 areas of trading ranges. The reluctance of the retail traders that makes a small portion of the forex market compared to USD4T, has been timid because of the volatility that occurred last week may still be in the market. The corrective move on the USD lower reflected more with the USDCHF and the USDJPY heading lower and is now back to its lower band.The same outlook remains until the day comes when US Secretary Geithner makes his speech within the week.

The AUDUSD and NZDUSD has gained some footing as the RBA maintains its stand the rates are now appropriate with savings rates higher and credit rates are lower in spite of the pessimistic outlook for the overall US economy.AUDUSD is at 0.9003 from a low of 0.8855 and 0.7078 for the NZDUSD respectively.

This typical rate and price adjustments made byt the institutions specially the central banks has left some breathing room during the opening of the week as these movments and flow of money around the foreign exchange market has kept even the Bank for International Settlements busy keeping track of the exchanges, turnover, conversion and settlement of major banks even before and after the reports of China unloading part of their US treasury holdings in the market place.