Forex Market Fundamental and Technical Analysis Recap

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Today's Forex Analysis summary

Only two days after the Bank of Canada announced that the economy was contracting by 3% instead of the forecast of 1.2 % in January and after it cut rates to 25 basis points then promised to keep them there for a year, the BoC made no commitment on the use of quantitative easing to stimulate the Canadian economy.

The BoC says it is now willing to wait until June 4 to allow the economy to show signs of recovery. If the economy worsens by then, look for the BoC to get aggressive. The USD CAD is likely to trade sideways-to-lower until the June date but losses may be limited to the downside because there are no indications that a bottom in the Canadian economy has formed yet.

The Euro rallied on Thursday following the release of a better than forecast Index of European Services and Manufacturing Report. This news triggered a strong short-covering rally while sending a signal to the European Central Bank that an interest rate cut to below 1% may not be necessary. The recent weakness in the Euro had been triggered by uncertainty regarding whether interest rates would fall below the 1.0% level. Today’s news seems to clarify things.

News that Credit Suisse posted better than expected earnings supported the Swiss Franc most of the day. The up move was most likely short-covering as investors still believe the Swiss National Bank wants to see a weaker currency while deflation threatens the economy.

The British Pound rallied on Thursday following the previous day’s budget deficit related weakness. Today’s rally was probably related to short-covering and profit-taking as it seems most unlikely that investors would express happiness with the increase in debt announced today and another increase in income taxes.

News of improved credit markets helped support both the AUD USD and NZD USD. Bullish investors are hoping the thawing of the credit markets will help support the Aussie and Kiwi.

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