Forex Market Review After The G-20 Meeting
The dollar weakened early Monday after the Group of 20 industrial and emerging nations struck an agreement at their weekend meeting in South Korea on the need to avoid "competitive devaluation" of their currencies and push toward market-based exchange-rate systems a deal that traders interpreted as positive for risk sentiment.
Analysts expressed surprise that the G-20 meeting reached any kind of agreement on currencies, a factor that should continue to pressure the greenback for the rest of the global day.
Against the yen, the dollar could test its record-low JPY79.75 this week as short-term investors take a cue from the G-20's deal on exchange rates, said traders.
At 0050 EDT, the euro was at USD1.4042, up from USD1.3923 late Friday in New York. The dollar was at JPY81.00, down from JPY81.41, while the euro was at JPY113.73, up from JPY113.46. The U.K. pound rose to USD1.5768 from USD1.5667. The dollar weakened to CHF0.9727 from CHF0.9787. The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 76.914 from 77.494.
The Pound mild selling pressure pushed Cable back to USD1.5650 as traders pick higher yielding pairs such as the Aussie and Euro to express USD weakness. GBPJPY is struggling to find support under JPY130 and is technically weak. Clarification on the UK QE situation will be needed to allow the GBP to regain some strength.
Meanwhile, the Australian dollar gained against the greenback after a gauge of prices in Australia rose more than expected. An index of final Australian producer prices rose 1.3% in the third quarter of 2010 from the second quarter, and rose 2.2% from a year earlier, the Australian Bureau of Statistics said Monday. The rises exceeded the average forecast for a 0.6% rise from the previous quarter, and a 1.4% increase from a year earlier.
Further short-term gains for EURCHF are likely to be capped at around 1.3678, according to analysts. The pair has reached the 50% Fibonacci retracement of the May-to-September decline, say analysts. If EURCHF does breach the level it has upside potential to 1.3819, the July peak, they add. EURCHF trades at 1.3638 from a prior close at 1.3658.
With the G-20 meeting out of the way, the main focus for currency traders is now U.S. third-quarter growth numbers due Friday. These will be critical in the build-up to the Federal Reserve's November policy meeting when it is expected to begin another phase of quantitative easing.
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