Forex Crunch Forex Daily Outlook – August 10 2010

Forex Daily Outlook – August 10 2010
Weekly Video Outlook – Potential Breakouts, FOMC Meeting and Market Moving Events
Scenarios for Fed Decision

Forex Daily Outlook – August 10 2010

Posted: 09 Aug 2010 02:00 PM PDT

American rate decision the big event this week followed by Preliminary Nonfarm Productivity and Preliminary Unit Labor Costs are among the market moving events. Here is an outlook on today’s major activities.

In the US, Federal Market Committee Interest Rate Announcement is not expected to raise rates. The U.S. Non-Farm Payrolls report showed the economy losing larger-than-expected amount of jobs in July increasing the odds that the Fed could be forced into offering additional monetary policy stimulus keeping Federal Funds Rate at 0.25%.

More in the US, Preliminary Nonfarm Productivity measuring the annualized change in labor efficiency when producing goods and services, excluding the farming industry, expected to rise 0.3% 0.02% more than in the previous quarter.

Finally in the US, Preliminary Unit Labor Costs a leading indicator of consumer inflation predicted to rise 1.4% this quarter following a year of decreases.

In Canada, Housing Starts a leading indicator of economic health rose 193K in the previous month 186K rise is expected now and New Housing Price Index is forecasted the same 0.3% rise as in the previous three months.

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

In Europe, French Industrial Production a leading indicator of economic health is expected 0.1% decrease following 1.7% increase in May.

In Switzerland, State Secretariat for Economic Affairs Consumer Climate index expected to rise again by two points reaching 16 points following the impressive rise in the previous quarter.

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

In Great Britain, Trade Balance deficit was higher than expected for May reaching 8.1B a smaller deficit of 7.7B is expected now.

More in Great Britain, Nationwide Consumer Confidence index based on a survey of about 1,000 consumers which asks respondents to rate the relative level of current and future economic conditions expected to drop 3 points to 60 the lowest since August 2009.

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

In Australia, National Australia Bank Business Confidence index reached 4 points in July a similar figure is expected now.

For more on the Aussie, read the AUD/USD forecast.

In Japan, Bank of Japan Interest Rate Announcement, is likely to remain 0.10% with the Japanese Yen strengthening, exports declining and deflation still not going away.

More in Japan, Core Machinery Orders forecasted 5.6% rise following 9.1% unexpected dip in May which will increase production.
That’s it for today. Happy forex trading!

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Weekly Video Outlook – Potential Breakouts, FOMC Meeting and Market Moving Events

Posted: 09 Aug 2010 12:20 PM PDT

On the weekly interview on Forex TV, I spoke with Julie Sinha about this week’s events, with a focus on the FOMC meeting, that holds high expectations. In addition, I’ve covered potential breakouts in selected pairs. Enjoy!

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Scenarios for Fed Decision

Posted: 09 Aug 2010 06:47 AM PDT

The upcoming FOMC Meeting holds high expectations for easing steps by the Federal Reserve – steps that can help stimulate the economy that has slowed down. Here are possible scenarios for this decision, and possible market reactions.

On Tuesday, August 10th, at 18:15, Ben Bernanke and his team will release the FOMC statement. I’ve already written about how Bernanke can print dollars and weaken the greenback, but as the market already prices in such steps, the impact on the market depends on the details:

Massive Dollar Spilling: The statement consists of a deep concern for a double dip recession and declares a program to buy assets in hundreds of billions of dollars. This is the worst case scenario. Showing worries might send traders away from the dollar. Spilling hundreds of billions of dollars in a new Quantitative Easing program means similar impact as in March 2009 – the dollar lost 600 pips against the Euro. Bernanke wouldn’t want to create panic. Probability: Low.
Renewal of asset buying: The statement shows concern about the slowdown and states that the current asset buying program that was stopped in March 2010 will be temporarily resumed at a moderate scale. Taking careful measures and carefully wording the statements is what the Fed does best. This scenario is bad for the dollar, but as the market already expects this, the dollar will slide down moderately. Probability: High
Change of wording: The statement shows concern about the slowdown, and vows to act if necessary, without any measures taken. Changing the wording of the statement without taking any steps is something that Bernanke mentioned in a recent public appearance. The market is expecting real steps to be taken, especially after the Non-Farm Payrolls, and while option won’t come as a huge surprise, not spilling dollars will boost the dollar, and erase some of the Euro’s recent gains. Probability: Medium.
No change in the statement: This means that the only dovish part in the statement is the pledge to keep interest rates low for “an extended period of time”. This “wait and see” policy, that happened so many times in the past will be a big surprise now, and will turn the recent gains of EUR USD to a case of “Buy by the rumor, sell by the fact”. The dollar will significantly rise. Probability: Low.

The chance of an optimistic statement about the economy is highly unlikely, and needless to say, the chance of a rate hike is zero. Inflation is no threat – the Federal Funds Rate will stay at a maximum rate of 0.25%.

What do think will happen?

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