Daily Review

Chris Levinskey | 01:15 | 1/08/12 |

 We have only been talking about European and American central banks this week and maybe this month. Thus, we forgot the Bank of England, which also has an interest rate decision on Thursday. Last week the preliminary British GDP disappointed the markets, showing a higher than expected contraction in the economy. Therefore, the BOE may also act to help the economy. Yesterday the GBP/USD fell, even though the USD was weaker vs. other major currencies. This indicates of the relative weakness of the GBP ahead of BOE decision. Maybe some traders priced in a possibility of a rate cut on Thursday. Resistance for the pair is seen at 1.5741, which is 200 days moving average.

Other pairs traded cautiously ahead of key events later in the week. As concerns to the EUR/USD, the trading was volatile, and the pair even attacked 1.2320 resistance, but failed to break it. AUD/USD traded above 1.0500 for most of the session, setting 1.0536 as a new 4 months high. Looking at the EUR/AUD cross, we have recently been witnessing all time lows broken almost everyday. As long as stock markets are celebrating and Australia has a 3.5% interest rate, this pair may continue its journey south.

As for gold, it traded within its recent range after Draghi’s ignited rally. All pairs and commodities are now waiting for the Fed and the ECB. We have a forecast from UBS in Singapore that if the Fed doesn’t act during next 3 months, gold will fall till $1520 three months from now. The Fed is due to issue its statement today evening, while the ECB must impress tomorrow. Draghi set a high bar with his statement last week, and therefore must not fail to stand up to his words, otherwise the EUR will crush again.
As for the Fed, no change in rate is expected, but some expect some kind of a hint of a QE action later in August or in September. If no hint is given, the market may be frustrated and buy back some dollars.

Plus, don’t forget the Payrolls on Friday. Altogether, we have the Fed today, the ECB and BOE tomorrow and Payrolls on Friday. Stay alert!