Forex Major Currencies Outlook (July 18, 2013)

At first, the transcript of his speech was interpreted by some market watchers to say that the Fed’s stimulus taper plan by the end of the year is still uncertain. However, when the press conference took place and Bernanke was able to clarify some remarks, the markets realized that the central bank is still on track to reduce bond purchases by Q4, as long as inflation and employment continue to improve. As for data, building permits and housing starts both disappointed. For today, initial jobless claims and the Philly Fed index are due. 

EUR 

The euro consolidated against the dollar for most of the day then encountered additional volatility during the New York session. In the euro zone, the Bank of Italy reduced its growth forecasts for the year, adding to selling pressure on the euro. Only the current account balance release and the Spanish bond auction are scheduled for the euro zone today. 

GBP 

The pound managed to score huge gains in yesterday’s trading sessions as the MPC vote turned out better than expected. Apparently, MPC members voted unanimously to keep interest rates and asset purchases unchanged, different from the expected 2-0-7 vote or the previous 3-0-6 vote. It appears that the improvements in the UK economy have convinced some dovish members to decide that the current level of monetary policy is appropriate. Claimant count change figures also came in better than expected and showed a larger decrease in claimants for June. UK retail sales are up for release today and a 0.2% uptick is expected. 

CHF 

The franc was unable to hold on to most of its gains against the dollar, as USD/CHF landed back above the .9400 handle. Swiss ZEW economic expectations improved from 2.2 to 4.8 but Bernanke’s speech had a bigger impact on the pair’s movement. For today, Swiss trade balance is up for release and it isn’t likely to have a strong effect on the franc’s direction. 

JPY 

The yen lost ground to its counterparts when the BOJ minutes revealed that policymakers are in disagreement when it comes to retaining long-term bond purchases as part of their stimulus efforts. For some, this is necessary in controlling volatility in Japanese markets but others cautioned that it could lead to a spike in borrowing costs later on. No other reports are due from Japan today. 

Commodity Currencies (AUD, NZD, CAD) 

The comdolls lost ground to the dollar in yesterday’s trading, as Bernanke confirmed that the Fed is still on track to reduce bond purchases. The Australian dollar got a heavier blow earlier today when the NAB quarterly business confidence figure sank from 2 to -1. As for Canada, the BOC kept monetary policy unchanged although Poloz did alter some of the lines in the previous statements. In addition, he adopted forward guidance by giving the markets some clues as to when they could start normalizing interest rates. There are no other reports due from the comdoll economies for the rest of the day. 

By Kate Curtis from Trader's Way