Posted: 23 Jun 2010 01:33 AM PDT

This rate decision was different in Britain – one member, Andrew Sentance, wants to address the rising inflation and to raise the rates. This is the first signal. GBP/USD reacts with a rise and aims to reach 1.50.

Andrew Sentance doesn’t disregard inflation like his boss Mervyn King. King, the governor of the Bank of England, blamed fuel prices for the rise of inflation above the 1-3% target. But Sentance wants a rate hike – the MPC Meeting Minutes revealed that he wants to lift the benchmark interest rate from 0.5% to 0.75%.

Sentance might be reacting to the call by the new Prime Minister. David Cameron called the central bank to tackle the rising inflation, and to get the CPI back to normal. Also George Osborne, his Chancellor of the Exchequer, reiterated the inflation.

Currently, Sentance is the only one. All the other members voted to leave the rates unchanged. But his vote made it clear that something was moving. A rate hike will boost the Pound, and even the initial talks about it already push it higher.

GBP/USD moved from 1.4850 to 1.4915 and the move continues. It’s getting close to this week’s high at 1.4937, which is the highest level in 6 weeks. The next minor line is the round number of 1.50, and it’s followed by a more serious resistance line at 1.5050.

A drop will be met by 1.4780, which turned from a strong resistance line to a support line, and its followed by 1.4610.

More lines + a chart can be seen in the British Pound forecast.

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Forex Daily Outlook – June 23 2010

Posted: 22 Jun 2010 02:00 PM PDT

Today’s highlight is the FOMC statement that accompanies the American rate decision, followed by GfK German Consumer Climate in Europe and more exciting news. Let’s see what awaits us today.

In the US, New Home Sales expected to drop 69K this month reaching 435K after the sharp rise in May’s report.

More in the US, Federal Open Market Committee statement is issued providing data on monetary policy.

Finally in the US, Federal Funds Rate measuring interest rate at which banks lend balances held at the Federal Reserve to other banks overnight is expected to remain 0.25% and Crude Oil Inventories expected to remain 1.7M as last week.

In Canada, Following the rise in May, Core Retail Sales are likely to remain unchanged this month reaching 1.7% the same as Retail Sales is expected to remain around 2.1%.

For more on USD/CAD, read the Canadian dollar forecast.

In Europe, French Flash Manufacturing PMI expected to drop from 55.8 to 55.5 and French Flash Services PMI is also expected a slight decrease of 0.2 points.

More in Europe, GfK German Consumer Climate is foreseen a drop of 0.2 points but all in all it is pretty steady in the last few months, German Flash Manufacturing PMI is also expected to descend from 55.8 to 55.3 and German Flash Services PMI assumed to decrease by 0.3 points since previous month.

Also in Europe, Belgium National Bank of Belgium (NBB) Business Climate, rising up from -4.9 to -5.1 on a survey that measures the Level of a composite index based on surveyed manufacturers, builders, services and trade-related firms of about 6,000 businesses which asks respondents to rate the relative level of current business conditions and expectations for the next 6 months.

Finally in Europe, Flash Manufacturing PMI is expected to drop points reaching 55.5 and Flash Services PMI is likely to stabilize on 56.2 as in May.

For more on the Euro, read the EUR/USD forecast and Casey Stubbs' latest analysis.

In Great Britain, Bank of England Monetary Policy Committee has once again decided to maintain rates at 0.50%.

More in Great Britain, BBA Mortgage Approvals are expected to continue their growth from 35.7K to 37.3K bringing optimism to the housing market.

Later in Great Britain, CBI Realized Sales is expected to go up by 1 point reaching -17 following the steep fall from May.

Read more about the Pound in the GBP/USD forecast.

Moving to New Zealand, Current Account that is that is released quarterly and measures the difference in value between imported and exported goods; is about to rise up from -3.75 Billion on the previous quarterly to -0.30 Billion.

In Japan, Bank of Japan (BOJ) Governor Masaaki Shirakawa, speaks at the Annual General Meeting of the Credit Cooperatives, in Tokyo; as head of the central bank, affects the controls short term interest rates.

More in Japan, Trade Balance drop down from 0.73 T to 0.64 T, Released monthly and measures the difference in value between imported and exported goods during the reported month.

That’s it for today. Happy forex trading!

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Fundamental Overview – Market Movers This Week – 6/21/2010

Posted: 22 Jun 2010 08:59 AM PDT

Guest post by ForexTraders.com

The U.S. Dollar gave even more of its recent gains last week after the Spanish bond auction eased market debt fears in the Eurozone and China announced its shift to a new exchange rate policy with greater flexibility.

Also, European exchange rates traded correctively higher after much of the bad news for those currencies already seemed to be out. As a result, the British Pound Sterling was up 1.8% and the Euro rose 2.2% on the week.

Nevertheless, the appreciation in the commodities currencies was the highlight of the week, as the forex market's main movers were led by the Australian and New Zealand Dollars which each gained 2.4% versus the Greenback over the week.

This strength came on the back of the Chinese move, as well as on gains in the price of crude oil and gold making another all time record high of $1,263.70 an ounce on Friday. The usually more stable Canadian Dollar was not left too far behind, and USDCAD fell 1% over the week as the Loonie also strengthened.

Chinese Shift on the Remnimbi to Greater Flexibility

The U.S. Dollar continues under pressure with the latest blow to its value provided by China, which announced its intention this past Saturday to allow the Yuan to float more flexibly in the foreign exchange market against a basket of currencies. This new policy will significantly reduce the Chinese currency's former peg to the U.S. Dollar.

The People's Bank of China or PBOC released the announcement over the weekend in a published statement entitled, "Further Reform the RMB Exchange Rate Regime and Enhance the RMB Exchange Rate Flexibility." The RMB is the ISO 4217 currency code that refers to the Yuan, which is also known as the Remnimbi.

The somewhat unexpected move by China comes just ahead of next week's G-20 summit meeting to be held on June 26^th and 27^th in Toronto. On the positive side, the shift represents the start of a new era for the growing Asian economies and makes a trade war between China and the United States seem less likely.

Stocks in Asia were up over 2% at the Monday opening on the news, while the U.S. Dollar gapped lower against all the major currencies, but most notably against the Australian and New Zealand dollars that have substantial commerce with China. Commodities were also higher, with crude oil moving above $78 per barrel and gold posting yet another new record high of $1,265.05 an ounce.

The Yuan's peg to the U.S. Dollar has remained at 6.83 for the last 23 months, and the Yuan strengthened to 6.7976 on the news, as the PBOC stepped aside from intervening in the currency market on Monday.

The U.S. Dollar's Eventual Devaluation

Perhaps the most compelling question facing the forex market this week will be how the new flexibility in the Chinese currency's exchange rate will affect other currencies, and most importantly the Greenback, against which the Yuan was formerly pegged.

The former peg that was previously staunchly defended by the PBOC has provided one of the more compelling reasons that China is the number one foreign holder of U.S. Treasury Securities. The U.S. Treasury notes that China holds over $900.2 billion of U.S. Treasury debt as of April of 2010.

Furthermore, with the world now awash in U.S. Dollars as a result of recent excessive stimulus spending due to the U.S. Government's bailout fiasco, it seems that only the market's risk aversion has been supporting the Greenback and then largely due to its status as a reserve currency.

Accordingly, the eventual devaluation of the Greenback seems like it will only be a matter of time, and the formerly almighty Dollar's loss of value has already begun to show up, perhaps most notably against the price of gold which has recently made a string of all time highs.

When investors engage in a flight to quality that does not mean to low quality and the U.S. Dollar seems to be approaching its day of reckoning. With the U.S. government running up enormous budget deficits and the U.S. economy teetering on the brink of a possible double dip recession, printing more bailout and stimulus money will not get the U.S. economy out of the proverbial woods.

After the Euro debacle, and with the U.S. Dollar also looking less attractive, the central banks of the world are actively searching for a new reserve currency. China has suggested using the SDRs or Special Drawing Rights used by the IMF that are based on a basket of major currencies. Also, Russian President Medvedev even proposed using the Ruble as a reserve currency last week.

Overall, the dynamics of the currency market are undergoing a major transformation as the previous dominance of the U.S. Dollar as a reserve currency is being challenged, and the European Union continues suffering from internal turmoil. As always, new opportunities will arise for those willing to assume the risk.

A Two-Tier Euro?

Europe has unfortunately followed the United States' unwise example of bailing out its "too big to fail" mega corporations by acting to bail out spendthrift countries like Greece instead of allowing them to fail and default on their excessive debt burdens.

This unnecessary use of financial resources by the less wealthy members of the European Union has made many critics of this policy in the more affluent countries such as Germany and France want to bail out of the Euro entirely.

Furthermore, according to a report in the U.K.'s Daily Telegraph newspaper, Germany and France are now even considering a two-tiered Euro system. This proposed plan would create a "Super Euro" for the more financially sound countries of German, France, Holland, Austria, Denmark and Finland, as well as the regular Euro for the beleaguered indebted countries of the Eurozone like Greece, Spain, Portugal, Italy and Ireland.

In addition, many rumors about Germany returning to the Deutschemark, and even printing up new stores of the former German currency, have been circulating on the Internet and among forex traders. While nothing is yet confirmed on this subject, a growing number of forex market observers would not be too surprised if this talk eventually turns out to be true.

Weekly Recap and Outlook for the U.S. Financial Markets and Dollar – 6/21/2010

The U.S. Dollar continued its consolidation last week falling against all the major world currencies and down especially against the commodities dollars of Australia, New Zealand and Canada.

The risk aversion previously prevalent in the global currency market, which sent the USD and the JPY to new highs at the height of the European sovereign debt debacle, has given way to renewed risk appetite sending the commodities currencies higher. Read full report

Weekly Recap and Outlook for EURUSD – 6/21/2010

EURUSD continued higher last week as positive results from Spanish and other Euro bond markets helped traders set aside concerns over the Spanish sovereign debt situation. The pair started the week by trading off of its weekly low of 1.2108 seen on Monday, continuing higher on Tuesday after a Spanish bond auction raised €5.2B for Spain and despite a considerably lower than expected German ZEW Economic Sentiment Reading which showed a reading of 28.7 versus a consensus of 48.7. Read full report

Weekly Recap and Outlook for GBPUSD – 6/21/2010

GBPUSD continued its corrective rally as the U.S. Dollar declined further last week. The rate began the week by trading off of its weekly low of 1.4521 made on Monday as the Confederation of British Industry raised its estimate for U.K. GDP to 1.3% from 1.0% and the U.K. RICS House Price Balance came out at 22%, better than the expected 16% consensus. Read full report

Weekly Recap and Outlook for AUDUSD – 6/21/2010

AUDUSD continued benefiting from growing risk appetite last week and rallied sharply. Beginning the week with a Bank Holiday in Australia, the RBA released its June monetary policy meeting minutes on Tuesday. In the minutes, the central bank noted that the European situation had "deteriorated significantly" and that it would weigh on world economic growth. Commenting on the seven percent decline in the Australian Dollar recently, the bank seemed rather unconcerned when it noted that, "Taking a longer perspective, the Australian dollar remained well above its post-float average, both against the US dollar and in trade-weighted terms." Read full report

Weekly Recap and Outlook for NZDUSD – 6/21/2010

NZDUSD was also among the biggest gainers last week, with risk appetite propelling the currency higher. The pair began the week trading off of its weekly low of 0.6888 on Monday as New Zealand Retail Sales came out showing a -0.3% decline month on month versus a market consensus of a -0.2% decline. In addition, New Zealand Core Retail Sales were released showing a -0.2% decline month on month, slightly better than the -0.4% consensus. Read full report

Weekly Recap and Outlook for USDJPY – 6/21/2010

USDJPY traded lower last week as the Dollar continued weakening. Trading off of its weekly high of 92.10 seen on Monday, the rate continued lower as the Japanese BSI Manufacturing Index showed a reading of 10.0 versus the 7.8 expected. Also Monday, the Bank of Japan announced it would leave its benchmark Overnight Call Rate unchanged at 0.1%, as was widely expected. Read full report

Weekly Recap and Outlook for USDCAD – 6/21/2010

USDCAD traded lower last week, after risk appetite returned to the markets. The week began with the pair showing some strength on Monday and making its weekly high of 1.0360 on Tuesday, despite positive Canadian economic numbers. Canadian Labor Productivity came out at 0.7% versus a 1.4% expected, and the Canadian Manufacturing Sales number came out at 0.2% versus a 0.3% consensus. Read full report

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