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Fed Meeting Looms Large Over Currency Markets

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-- Dollar recovers slightly against the yen ahead of Wednesday's FOMC meeting

-- Czech koruna resilient to PM resignation

-- SNB policy decision and Europe's PMIs coming up later in the week

 
   by Chiara Albanese 
 

The dollar recovered a little ground against the yen Monday, while most other major currencies were becalmed, in a quiet trading session ahead of the much-anticipated Federal Reserve meeting on Wednesday.

The Fed's rate announcement Wednesday and Chairman Ben Bernanke's press conference at 1830 GMT are the most important market drivers for the week.

Mr. Bernanke is expected to shed light on his current thinking about how and when the Fed might scale back the bond-buying program it has pursued to try and support the U.S. economy. Since early May, the dollar has been supported against a range of currencies, and emerging-market currencies have been under heavy selling pressure, amid expectations that this easing program might soon come to an end. Volatility across the market has been abnormally high.

Now, Mr. Bernanke's signals on what might prompt such a move, and when it might happen, are widely seen as crucial to determining where the currency markets head next.

"All eyes are on the FOMC meeting and accompanying press conference," said Kit Juckes, a macro strategist at Societe Generale. Broadly, markets expect the Fed chairman to signal he's in no hurry to tighten monetary conditions. "Still, the case for beginning the process of letting some air out of the monetary bubble is pretty clear and surely the Fed will be wary of backing down too easily," he added.

In the runup, with the stakes high and nuances of Mr. Bernanke's speech of large importance to the whole market, the market showed little appetite for placing significant currency-market bets. Most major currencies were stuck in tight ranges, but the greenback nudged above the Y95 mark against the yen in early European trading hours, reaching a high of Y95.125.

The day's main focus is the beginning of the G-8 summit in Ireland. International trade is likely to be the key issue on the agenda with European leaders expected to launch negotiations for a trade agreement with the U.S.

Elsewhere, the impact on the currency of the resignation of Czech prime minister Petr Necas, involved in a bribery and abuse-of-power investigation, was limited. The koruna was resilient against the euro, trading at CZK25.74 against the euro, in line with Friday's closing.

"Market-wise, the political news should have only a minor and short-lasting effect," said Michal Dybula, economist at BNP Paribas, adding that this is usually the case in the Czech Republic, which is well-known for its slow-moving currency.

The Turkish lira came under pressure at market opening after a new wave of protests over the weekend, with the dollar reaching a high of TRY1.8786 in early trading.

Looking ahead, key points of interest in Europe include the Swiss National Bank's policy decision for the second quarter on June 20, which comes in the context of a strengthening franc.

Strategists agree that despite the strengthening pattern of the currency, mainly driven by safe-haven inflows, it might too early to expect policy changes. The SNB is expected to keep the official 1.20 floor against the euro in place and rates unchanged.

Meanwhile, European data should continue to improve. Germany's ZEW Indicator of Economic Sentiment on Tuesday and European Purchasing Managers Index on Thursday are expected to confirm the mild improvement seen recently.

At 1105 GMT, the euro was trading at $1.3339 against the dollar, compared with $1.3314 late Friday in New York, according to trading system EBS.

The dollar was at Y94.86 against the yen, compared with Y94.10, but the greenback nudged above the Y95 mark in early European trading hours, reaching a high of Y95.125.

The euro was at Y129.86 compared with Y125.72. The pound was trading at $1.5762 against the dollar, compared with $1.5709 late Friday in New York.

The Wall Street Journal Dollar Index, which tracks the dollar against a basket of currencies, was trading at 72.55, compared with 72.431 late Friday in New York.

Write to Chiara Albanese at chiara.albanese@dowjones.com

A summary of key levels for chart-watching technical strategists is below:

 

LONDON (Dow Jones)--Rolling 24-hour chart levels:

 
Forex spot:       EUR/USD    USD/JPY    GBP/USD    USD/CHF 
 
Spot 1045 GMT     1.3338     94.77      1.5707     0.9233 
3 Day Trend       Range      Bearish    Range      Range 
Weekly Trend      Bullish    Bearish    Bullish    Bearish 
200 day ma        1.3045     91.73      1.5556     0.9385 
3rd Resistance    1.3434     95.80      1.5845     0.9343 
2nd Resistance    1.3390     95.33      1.5782     0.9287 
1st Resistance    1.3358     95.12      1.5736     0.9270 
Pivot*            1.3340     94.63      1.5681     0.9225 
1st Support       1.3318     93.98      1.5675     0.9197 
2nd Support       1.3288     93.75      1.5650     0.9164 
3rd Support       1.3265     93.33      1.5614     0.9129 
 
 
Forex spot:       NZD/USD 
 
Spot 1045 GMT     0.8079 
3 Day Trend       Bullish 
Weekly Trend      Bullish 
200 day ma        0.8242 
3rd Resistance    0.8163 
2nd Resistance    0.8139 
1st Resistance    0.8101 
Pivot*            0.8075 
1st Support       0.8049 
2nd Support       0.8035 
3rd Support       0.8000 
 

(Francis Bray contributed to this article.)

 

(END) Dow Jones Newswires

June 17, 2013 09:30 ET (13:30 GMT)

Copyright (c) 2013 Dow Jones & Company, Inc.

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