Tuesday, August 9, 2011

Focus on Dollar and Federal Reserve Interest Rate Decision

Previous session overview
Global market sentiment deteriorated further during European trading hours, forcing the safe-haven Swiss franc to new record highs against the dollar and euro, as European shares tumbled.

The dollar traded as low as CHF0.7416 while the euro plunged to CHF1.0470, as investors sought the relative safety of the Swiss currency and despite the growing possibility of an intervention by the Swiss National Bank.

The Swiss currency's relentless rise and the dollar's dip below JPY77 against the yen have raised fears that the both the SNB and the Bank of Japan will intervene in currency markets, possibly with the help of other central banks from developed economies.

The euro was bolstered by renewed bond buying from the European Central Bank, which purchased Spanish and Italian bonds all morning. Analysts say, however, that continued support from bond purchases could soon wane.

The euro was at USD1.4257 from USD1.4180 late Monday. The dollar was at JPY77.04 from JPY77.79, while the euro was at JPY109.91 from JPY110.27. The U.K. pound was at USD1.6363 from USD1.6320. The dollar was at CHF0.7414, after printing a fresh record low at CHF0.7359, from CHF0.7548. The euro was at CHF1.0584, after a fresh record low at CHF1.0475, from CHF1.0706.

The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 74.353 from about 74.852. 

The Canadian dollar briefly slipped to parity against the U.S. dollar but quickly rebounded early Tuesday after the greenback saw heavy selling by Canadian corporates and hedgers. The U.S. dollar was at CAD0.9938 from CAD0.9945 late Monday. Overnight, the Canadian dollar saw big swings overnight, but managed to avoid a big selloff against the backdrop of collapsing equities, oil prices and interest rates.
Market expectation
The focus is now firmly on the dollar and the Federal Reserve's interest rate decision later in the day. The economic rout has raised fears that the Fed will announce further monetary easing measures. There is also the possibility of renewed Fed bond buying so called QE3.

For GBPUSD on the downside, the pair might find support at USD1.6265 (Aug 8 low) and below here USD1.6225 (Aug 4 low) and USD1.6160 (200-MA in 4Hr). On the upside resistance levels lie at USD1.6380/00 (intra-day resistance) and above here USD1.6425 (intra-day resistance) USD1.6480 (Aug 1/8 low).On bigger time frames, the pair remains sideways within the USD1.6200/1.6475 area, say dealers.