NEW YORK (Forex News Now) – Daily Market Overview – The U.S. Dollar had a mixed day Thursday, trading lower against the Euro and Sterling and gaining against the Japanese Yen and the commodity currencies. The biggest story in the daily forex news was S&P’s downgrade of Japanese debt for the first time in nine years. Also affecting the forex market on Thursday was the slide in the price of gold to $1,311 from the $1,344 level on Wednesday.
In other developments, the ECB’s Executive Board member Lorenzo Bini Smaghi made hawkish statements in Bologna on Thursday in response to higher German import prices. Bini Smaghi stressed that “A permanent and repeated increase in the prices of imported products will tend to impact on inflation in the advanced countries, including the euro area,” he added that “This phenomenon can no longer be ignored.” His statements were taken as hawkish despite his stressing that they did not represent ECB policy, and affected the EUR/USD rate accordingly.
Economic releases that will have an impact on forex trading later today include the U.S. Advance GDP and the Advance GDP Price Index, the Eurozone M3 Money Supply, the U.S. Employment Cost Index and the Revised University of Michigan Consumer Sentiment survey.
January 27th Important Forex Developments:
- Japanese Yen Sharply Lower on S&P Debt Downgrade – S&P downgraded the sovereign debt rating for Japan one notch to AA- . Japan continues to be mired in debt with a public debt of $11 Trillion, more than twice the size of its economy. The rating agency stated that, “Japan’s government debt ratios — already among the highest for rated sovereigns — will continue to rise further than we envisaged before the global economic recession hit the country and will peak only in the mid-2020s.”
- Trichet Pledges to “do what is necessary” – EUR/USD analysis showed the Euro rallied over two cents against the U.S. Dollar after comments made at the World Economic Forum by ECB Chief Jean Claude Trichet to “do what is necessary” to keep prices stable, which could include hiking interest rates in the Eurozone.
- U.S. Economic Data Shows Continued Weakness – The daily forex news showed U.S. Durable Goods Orders fell -2.5% last month versus an expected increase of +1.6%, while Initial Jobless Claims rose to 454K versus 407K expected. Nevertheless, Pending Home Sales rose +2.0% versus +0.9% expected.
- Australian Dollar Sharply Lower On Lower Gold Price – AUD/USD fell sharply against the U.S. Dollar in currency market trading on Thursday. With the price of gold dipping under the $1,315 level and crude oil breaking $85.50 per barrel, the Aussie was hit hard. Also affecting the Aussie was the government’s announcement of a proposed tax hike to fund rebuilding costs for the recent floods in Queensland. The New Zealand and Canadian Dollar saw little change yesterday despite gold’s slide.
- Sterling Softer after GfK Consumer Confidence – GBP/USD traded lower late Thursday after U.K. GfK Consumer Confidence showed its lowest reading in 22 months and the biggest drop in 20 years to -29, versus a market consensus of -20. Sterling has recovered most of its losses made on Tuesday after a disappointing U.K. GDP number.
January 28th Forex Events for Traders To Watch
- U.S. Advance GDP and Advance GDP Price Index – Two important economic numbers to be released later today that will affect the entire forex market. U.S. Advance GDP is expected to rise by +3.5% for the final quarter of 2010, while the Advance GDP Price Index is expected to come in at +1.7%. This number makes up one of the most important releases for the forex market and can be a source of extreme volatility right after its release.
- World Economic Forum – The final two days of the WEF meetings in Davos, Switzerland may yield some interesting news, which will undoubtedly affect currency market trading.
- The Price of Gold and Oil – The price of gold is currently at the $1,313 per ounce level, if the sell off continues, this could add additional support to the U.S. Dollar and will most certainly adversely affect the Aussie, Kiwi and Loonie. If the market turns around, the next rally could take the precious metal up to new highs.
- Developments in the Eurozone – Any indications of downgrades to sovereign debt for Eurozone countries and whether the ECB gives any more indications of rate increases to battle inflation.
- Revised University of Michigan Consumer Sentiment and Inflation Expectations – Two significant numbers which will affect the U.S. Dollar. The Consumer Sentiment survey is expected to be 73.1, while the Inflation Expectations last print was at 3.3%.