The GBP/USD is trading higher after an early attempt to break it and resume its long-term downtrend failed. The chart pattern suggests that buyers came in slightly above a 50% level at 1.5004.
The trading action was wild earlier in the session after the minutes from the Bank of England’s March policy meeting showed a minority of three members called for expanding the bank’s asset-buying program. Additionally, the minutes showed that central bank officials were concerned about the recent rapid drop in the Sterling and its impact on the BoE’s credibility
The central bank minutes said “Further monetary stimulus might increase that risk. It might also lead to an unwarranted depreciation of sterling if it were misinterpreted as a lack of commitment to maintaining low inflation in the medium term. “This statement triggered a short-covering rally because it clarified the central bank’s position on whether it was going to apply additional stimulus to the economy.
Technically, a shift in momentum to the upside could take out the recent high at 1.5176. This could trigger a further rally to 1.5280. The main trend will remain down until 1.5221 is violated. A change in trend to up could fuel a rally into a major retracement zone at 1.5337 to 1.5457.
The EUR/USD is rebounding after Tuesday’s break to 1.2843 failed to draw the attention of new short-sellers. In doing so, the Forex pair entered a major retracement zone at 1.2876 to 1.2679. Buyers quickly came in, driving the market back above the 50% level at 1.2876.
Fundamentally, the Cyprus government voted to reject the proposal to impose a levy on bank deposits. This encouraged the short-covering and new buying that is driving the market higher this morning.
May crude oil is trading a little better after yesterday’s closing price reversal top on the daily chart. The break started after the market completed a 50% retracement at $94.44. The next likely downside target is a retracement zone at $92.13 to $91.57.
This morning it was reported that U.S. crude oil supplies fell last week. The 1.3 million barrel decrease is helping to support higher prices this morning. Analysts were calling for an increase of 2 million barrels.
With the uncertainty in Cyprus lifted by the rejection of the levy on bank deposits, conditions have calmed enough in the region to warrant profit-taking in the gold market. Despite the recent strength, April gold was unable to change the trend to up which could mean the start of pullback to $1587.00.
A weaker dollar or another crisis in the Euro Zone could drive investors back into gold. The key area to break is $1619.70 to $1620.65. Gold will also need help from the stock market if it wants to rally. As long as the trend is up in the stock market, investment money will continue to flow into equities. Weakness in the stock market could encourage investors to allocate some of their funds into gold.
Traders should watch the Fed statement today as well as the press conference by Fed Chairman Ben Bernanke. The Fed statement could have an impact on the U.S. Dollar which will move the currencies, gold and crude oil. If the Fed or Bernanke talk about ending the stimulus then look for the dollar to rise against other assets. Continuing the program could pressure the Dollar and thus trigger currency and commodity rallies across the board.
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