An Interest Rate Decision Day


An Interest Rate Decision Day
Thursday, March 05, 2009
China increased sentiment across the board during yesterday’s trading session, allowing the major indices to close with gains. The Shanghai index closed the session with gains of over 6.1%, encouraging bullish traders grab stocks at low levels. Positive sentiments quickly spread across the globe, allowing the European markets to close with gains and the U.S indices to close their first session this week in green.

Buyers came back into the market as the Chinese government released a statement stating that they intend to engage in another stimulus package to help stabilize their economy. Recent economic data published in China also showed that their economy could be seeing signs of a market bottom. Last week’s manufacturing result showed a less than expected contraction, signaling that demand could be picking up.

In addition, officials in the U.S released comments yesterday stating that they intend to proceed with a package, aimed at helping the housing sector. According to their comments the package is expected to help 9 million home borrowers.

Economic data

Despite official’s positive words from across the globe, economic data continued to paint a gloomy picture, signaling that the current economic slowdown could last longer than expected. ADP employment rattled the intraday session, showing a 697 thousand job contraction. As always, the result was carefully watched by investors knowing that it often hints towards the result of the NFP figure, coming out this Friday.

Forex markets

Forex traders will receive an interesting session today as two central banks intend to release their interest rate decisions. While both banks are expected to reduce their rates this time round, eyes will focus on the ECB, especially as Trichet decided to hold at his last meeting.

To date the ECB is presenting a 2% rate, one much higher than other countries that have been slashing their rates constantly. While some believe that the ECB is lagging behind the curve, sending the economy into a direr situation, Trichet remains reluctant to make any sudden moves, claiming that prior efforts are yet to help the economy.
The EUR/USD and the GBP/USD should both present a volatile session today due to the upcoming data.

EUR/USD- Yesterday’s session managed to find support on 1.2526, as Euro purchasing began at the second half of the session. During Asian hours the Euro lost its strength but has now managed to find support around the 1.26 level. While the Daily chart is still holding above support, yesterday’s candle did present the start of a reversal pattern. One should watch for a break of two critical levels; 1.2526 and 1.27. A clear break of either level will give traders a clearer picture of the upcoming direction.

GBP/USD- The Pound continues to linger around trend line support. After forming a false break the pound managed to climb higher bouncing off the 1.4 level. One shouldn’t be surprised to see Pound strength, especially as the markets are already pricing in a 0.5% rate cut. Key levels to watch out for are; 1.4 to the downside, and 1.4470 to the upside.

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Crude oil presented a magnificent session yesterday, forming another higher-low. The black gold closed the session reaching a high of $45.79. Gold continued to linger around trend line support closing the session just off the $910 level.

Today’s session

Looking forward, interest rate decisions will take center stage today. The ECB and the BOE are both expected to cut their rates, to help their economies. In addition, the U.S will be releasing its unemployment claims and Factory orders, which is expected to show another negative figure of -3.5%.



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