Forex Market Commentary
USDX retreats to the 96 level unable to sustain it's current attempt to take a look at the 100 mark. Firstly the EUR/USD is on the bounce at the 1.11 region 
but is running into severe resistance at the 1.1180 (Fibonacci 23.6% expansion) to 1.1210 (61.8% retracement) marks and of the 29 June high for technicians. The bounce can be attributed to a moment of optimism over the forthcoming Euro-Zone 2Q Gross Domestic Product (GDP) report which is expected to increase an annualized 1.3% following the 1.0% of the Q1 expansion 2015. However traders deal in real time and economic data is historic and therefore a crucial time-lag exists between the past and the present.
but is running into severe resistance at the 1.1180 (Fibonacci 23.6% expansion) to 1.1210 (61.8% retracement) marks and of the 29 June high for technicians. The bounce can be attributed to a moment of optimism over the forthcoming Euro-Zone 2Q Gross Domestic Product (GDP) report which is expected to increase an annualized 1.3% following the 1.0% of the Q1 expansion 2015. However traders deal in real time and economic data is historic and therefore a crucial time-lag exists between the past and the present.
Economics: So what is the fundamental economics going on here in the currency markets? Let's just get back to some basic Economics 101 for the moment.
It is very important for small traders to understand this very important concept in trading markets especially the currency markets which are so hyper sensitivity to news releases around the globe. The currency markets at any moment today will always reflect past opinions and past data that can only provide us with assumptions of the future at the present moment; and those assumptions can turn extremely rapidly; therein the opportunity for trading on the basis of volatility. We all know that in the long run the policy divergence of central banks like the US Fed and the ECB and PBOC draws out fundamental capital inflow and outflow directions. But it is within that framework of general direction that anything literally can happen. hence the EUR/ USD bounce form 1.08 last week to 1.11 today in a 300 pip range which runs contrary to the fundamental long term outlook of the US Fed geared to raising interest rates and the ECB and PBOC geared to lowering interest rates. Essentially we are dealing with 3 economies at 3 different stages of economic cycle; The USA at the well into the stage of an upswing of economic expansion marked by successive stages of incremental GDP expansion over the last 2 years; Europe still at the bottom of the economic curve within the trough and fundamental structural problems with nations like Ireland, Portugal, Italy and Greece only just clearing itself up allbeit with lots more work to do before the Euro Zone can truly commence its upswing in the curve of economic activity; and China, now fully confirmed in a downswing of economic activity with its stock market recently plunging and economic growth hampered by rising domestic wages and loss of competitiveness and poor consumer demand on the home front. Within such context in summary try to imagine 3 runners where USA is in jogging mode, Europe is walking and China is stuttering to a halt. Therein lies the fundamental differentials of interest rate directions and the respective valuations of currencies per se.
On the equities front the SSE, Hang Seng and Nikkei are still grappling with the fall out from the PBOC devaluation of the Yuan with the Hang Seng as we speak right now some 580 points down or 2% in the morning session already. In Europe the CAC was down 173 points DAX down 369 points, SSMI down 220 points and EuroSTOXX50 down 70 points to close at 3534.00. The Dow flat at 17402.51.
USDX is now sitting on it's 50 day m.a and technically looking weak for further slide to the 95. EUR/ USD has risen above it's 50 day m.a at 1.10 but how long can this be sustained? May and June saw 2 months of price action above the 50 day m.a. Crude oil is well below the 50 day m.a. at 53 mark. Gold has surged ahead rising 13 points yesterday with all the chaos caused by the PBOC with investors looking for quality. Current price action sees gold stabilizing under the 50 day m.a. at 1140.
On the news front Bloomberg carries a poignant article today about how China's devaluation is really going to cut the fed's manoeuvreability in the future:
and as we write on USA close and China open the PBOC cut the Yuan reference rate for the 3rd day in a row with the fixing dropping to 6.401 to the Dollar after cuts of 1.9% Tuesday and 1.6% Wednesday. This makes remarkable news especially sicne the PBOC swore that the first cut was the first and a "ONE OFF"!!! Thus blowing all credibility in front of the IMF and any chance of helping the Yuan becoming a currency of reserve. The debate is now over; PBOc has lost all credibility if it can say one thing and act another.
Alwarys look to support and resistance band lines as the key to understanding in the long and short term where prices are converging. Professional technical traders use 50 day and 200 day medium and slow moving averages as fundamental cornerstones for interpreting the direction of price action.
USDX
US Dollar
96.357 +0.065 +0.08%
Support 95.830 Resistance 98.530
96.357 +0.065 +0.08%
Support 95.830 Resistance 98.530
EUR/USD
1.11555 +0.01030 +0.93%
Support 1.08123 Resistance 1.12003
1.11555 +0.01030 +0.93%
Support 1.08123 Resistance 1.12003
Crude Oil
44.00 -0.01 -0.02%
Support 44.56 Resistance 48.40
Gold
1124.65 +13.55 +1.22%
Pieter Bergli - DeLoren Trust Holdings
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