Classic Range Trading

By Mercaforex

USD

A rollercoaster ride was in store for traders on Tuesday as the USD started off weak, but finished the late sessions showing an ability to fight back. In essence traders got a chance to witness large range trade the past two days. The Federal Reserve surprised no one yesterday when they basically wrote that they remain concerned about high unemployment and that they intend on carrying out their quantitative easing policy even if signs show that the U.S. economy is emerging from its sluggish performance. Retail Sales data was released from the States yesterday and did offer a slightly better outcome than expected, but it remains to be seen how much discounting by retailers has factored into this ‘new’ spending. There will be a flood of releases from the U.S. today with the Empire State Manufacturing Index, TIC Long Term Purchases, and the Industrial Production among others being published. Both the Empire State Manufacturing and Industrial Production reports are expected to show improvements.

Tomorrow the weekly Unemployment Claims numbers, Building Permits, and Housing Starts numbers will come from the States. Friday will be a relatively quiet day of data and this sets a path for today and tomorrow to be the crucial trading days for the USD per economic reports. The question is how much investors will look at pure fundamentals compared to the manner in which they have been generating much of their sentiment the past month due to the shadows being cast by the Federal Reserve and the financial crisis that is lurking in Europe. The USD finds itself at another interesting juncture going into this morning’s session and smack in the middle of what has become a well practiced range against the EUR, GBP, and JPY. For all of the intraday volatility that has encompassed the major currencies the past two months they find themselves in a remarkably stable range when not looking at the daily changes.

EUR
On this note the EUR goes into today’s trading as the ECB continues to hold discussions about the future of their monetary union and how it will be able to safeguard the Single Currency. There is talk about raising the amounts of capital adequacy rules among European nations, but this task is easier spoken about than agreed upon. Germany remains the vital ingredient in the health of the EUR. Yesterday the German ZEW Economic Sentiment Report turned in a better than expected reading which came as a surprise to some investors. On the other hand the broad European Industrial Production came in with a 0.7% gain compared to the anticipated gain of 1.4% showing that pressures still exist. The ECB meetings today and any pronouncements from them will be the straw that turns the drink for the EUR.



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GBP
The Sterling started off stronger on Tuesday, but gave back its gains as the day progressed. The GBP is in the middle of a range and its value appears to still be within a heavily influenced mix depending on what the USD and EUR are doing in regards to sentiment. The U.K. will release Claimant Count Change statistics today, but this number will not have more than a slight affect on the GBP. The real questions for the Sterling remain interlocked with growth, austerity, and the health of its counterparts in Europe and the United States. Tomorrow the Nationwide Consumer Confidence figures will be released which could be worthwhile to watch. But the story for the Sterling remains its relationship to the EUR. Opportunities continue for traders who are able to stomach the GBP range.

JPY & AUD

The JPY and AUD mirrored the other major currencies as they range traded. Both currencies started off Tuesday on a stronger note against the USD, but as the day wore on and the Federal Reserved delivered their anticipated FOMC Statement the currencies swung back to slightly weaker levels against the USD as no surprises emerged from the Fed. Gold also gave back some of its gains yesterday and now finds itself hovering around 1390.00 USD. The precious metal remains a barometer of risk adverse trading versus some of the major currencies.

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