Obama’s ‘Sequester’ Order Setup an Interesting Forex Trading Session
By: Lucenzo Neyo
The fiscal cliff debate has been raging in the U.S with the outcome of the ‘sequester’ approval by Barack Obama on Friday 2nd March setting up a particularly interesting Monday forex trading session. The budget cuts, which have been executed at an estimated value of $85 billion this year alone, had the apparent effect of pushing the value of the US Dollar through the psychologically-significant $1.30 level and reinforcing a bearing chart pattern on the EUR/USD. The underlying value of the US Dollar is, according to analysts, more likely to do with the strength in the US dollar in reaction to the past weeks Italian election as well as the fact that any sellers will be looking towards the $1.2880 mark as technically significant. This level is understood at the 50% Fibonacci areal of the gains made by the EUR/USD since the announcement by the ECB that it would do ‘whatever it takes’ to secure the single currency.
The British pound suffered similarly negative trading on Friday as the weekend finished with traders asking themselves if the currency was likely to become a central feature of a potential ‘triple dip’ recession. Despite this, many GBP traders dismiss the recent 150 point devaluation as a more forward-thinking reaction based on the forthcoming Bank of England interest rate decision this week. Many analysts have interpreted the fearful market reaction on Friday as a general anticipation that the Bank of England may extend its ‘stimulus’ program in the coming days with lots of traders wary that the recent UK growth figures may force the bank to try to stabilise the GBP by printing more cash and thus lowering the value of the currency.
For the Australian dollar there may also be a pivotal week ahead. The Reserve Bank of Australia is expected, by many traders, to reduce its interest rate by at least 25bps during 2013; although precisely when this will happen is another matter. This week’s decision is likely to be critical to indicate the Banks perspective on where its currency is heading, with the current 3% rate seemingly untenable throughout 2013. Australia, whose main trading partner is China, are seen as economically strong in terms of their exports within the Eastern markets and therefore may not see any benefit from lowering the current interest rate. However, the prospects for its fourth quarter GDP figures released this week suggest that an increase of 0.6% up to December 2012 may suggest that the economy would benefit from being cooled.
During early trading on Monday the AUD/USD perhaps confirmed that the overall sentiment for the pair was negative with a breakout lower below the 1.0180 level. This has been seen as a key area after a period of consolidation with price ranging before decisively moving higher or lower. Analysts point to the RBA decision this week as a potentially important fundamental influence on the mid-term direction of the Australian dollar. A reduction in the interest rate will almost certainly cause a devaluation of the currency but, with a 17 possibility of this according to traders, it may be an avoided situation this month.