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Bond Terminology

September 30, 2012 in Bond, Investing

Now when we have covered the basics i.e. “What are Bonds”, before we move further, let us try to see what are the common Bond terminologies or common terms related to bonds.

Basically if we see the complete cycle it is as follows:

1) Purchase the bonds when those are issued.
2) Get the yearly fixed interest rates.
3) If you wish to resale the bonds before the maturity period then you sale those at the current market value and if not then
4) Wait for the maturity date and trade it back for your initial amount paid.
5) But during this complete cycle you would like to keep an eye on the following:

• How much risk is associate with your bond i.e. risk about getting your initial investment back or who the bonds are rated as far as risk is concerned.
• What are the real returns on your investment. This is true for both cases i.e. whether you had purchased the bond during the initial offering or are going to purchase already issued bonds from the secondary market.

Now more or less we have seen all stages of the life cycle of the bond. The terminology related to bonds will nothing but representing all stages or all entities and are as follows:

Bond Terminology

 Terminology Related to Bonds

  • Issuer: Entity which issues the Bond.
  • Face Value or Par Value: The initial offering price or the price at which bonds are offered at the time of issue.
  • Interest Rate on the Bond: The interest rate committed by the Issuer.
  • Coupon or Coupon Value: The actual amount which you receive as interest. Let us say that the bond face value is USD 5000 and Interest is 10% then the yearly Coupon is USD 500.
  • Maturity: It is the end date of that bond’s life cycle i.e. when the investor gets his initial invested money back.
  • Bond Rating: This is the rating of the issuer to see how safe or risky is the investment. There are major credit rating agencies which evaluate the ratings of the companies or even the governments on regular basis. We will check about these major rating agencies in the later posts. We will check upon the bond ratings in a later post.
  • Yield: As we have seen that the bonds are resalable before their maturity date. Depending on the various economic factors the market price of the bonds can go higher than the initial price or can go low. Yield is nothing but a measure to see the real or net returns on our investment. so yield is returns divided by investment or Coupon Value Divided by The Bond Price at that time. Yield = (Coupon Value)/(Bond Market Price).
  • Junk Bonds: If the credit rating of the issuer goes so low that the risk is considered very high then the status of bonds become Junk bond as your initial investment is in risk. Please note that even such bonds are traded as speculation if the yield on those is very high i.e. the bond market price is very low.
  • Yield to maturity: If you hold the bonds till the maturity date then what are the total returns divided by the bond purchase price is Yield to maturity. In other words your profit amount till maturity date divided by the bond purchase price or total profit till maturity date.

You may also check:

You may also check:

1) What are Bonds?
2) Types of Bonds
3) Bond Yield and Yield to Maturity
4) Bond and Inflation
5) Bond Risks
6) Investment in Bonds

GBP/USD Today – 2012/9/28

September 28, 2012 in Forex Analysis


Today’s outlook for GBP/USD: The currency pair had gone down as low as 1.6137 but found support just above the 22-day EMA (yellow line in the daily chart below). The strong jump from that support took GBP/USD to 1.6258. Please note that the recent high was 1.6309 which was slightly higher than the previous high of April 30th i.e. 1.6301.

GBP/USD Daily Chart:

GBP/USD Today- Daily chart -September 28 2012


1) Some optimism in Euro zone because of slight development in Greece and Spain about the budget cuts. Please check the post EUR/USD Today for the details. Positive sentiments in Euro zone affect GBP/USD also. Please note that though last one year’s average correlation between GBP/USD and EUR/USD has been +0.68 but during last one month the positive correlation became quite strong and the average correlation value of these 2 currency pairs has been 0.97. During past week it dropped down to 0.52. We expect it to normalize soon. And that means either GBP/USD should have some downward consolidation while EUR/USD moves up or vice versa.

2) UK economic releases: No change in year-on-year GDP which remained as -0.5% but quarter on quarter GDP change (-0.4%) was better than the consensus and previous -0.5%. The current account report was quite negative with GBP -20.8B against the consensus of -12.4B and previous -15.4B. The total business investment improved drastically to 3.1% against expected 1.7% and previous 1.9%. Gfk consumer confidence also improved slightly to -28 from previous -29.

3) US economic releases: The reports about durable goods orders came quite weak but the reports about jobless claims were slightly positive.

What to expect from GBP/USD today:

Overall near-term outlook stays bullish but such a strong upward gains should bring some consolidation soon. One of the point to be noted that as mentioned above, the recent high had broken over the previous high of April 30th and though GBP/USD could not sustain above that level but the break of the previous high shows some bullish sentiments. Another supporting factor is that the consolidation from the recent high was not much and the support came from just above 22-day EMA level.

On the other hand even if the recent high was slightly higher than the previous 1.6301 but the difference was just 8 pips and also the currency pair did not sustain there for any considerable period. Considering this a strong break above 1.6309/1.6310 is critical to expect any substantial gains towards the next psychological level of 1.6500. The chances are good for that and that is indicated by the following weekly chart of GBP/USD. The pair is quite close to the mid-term upper trend line resistance and should test that level.

GBP/USD Weekly Chart:

GBP/USD Weekly Chart - Trend lines

But a failure to break over 1.6310 should bring downward consolidation first towards the recent 1.6137 and then possible 1.6000 i.e. towards 55-day EMA support. In fact such a move may take GBP/USD further towards 1.5950/1.5960 i.e. 38.2% retracement zone as shown in the daily chart above.

EUR/USD Today – 2012/9/28

September 27, 2012 in Forex Analysis

EUR/USD Today:

Today’s outlook for EUR/USD: Yesterday was another mixed day for EUR/USD. The pair had gone down to 1.2828 i.e. 2 pips below the first profit target mentioned in our daily technical analysis but then had jumped strongly by 100 pips to 1.2928.

EUR/USD Daily Chart:

EUR/USD Today - Daily Euro - US Dollar Chart


Market Highlights:

1) Greece: Greek Prime Minister could get a nod of agreement from the political coalition partner parties for budget cuts to meet the conditions for receiving the international aid. This was just the first step in the negotiations as it came with the conditions of having the sound growth plans, additional time line of 2 years for the reforms and alternatives for the budget if the economic recovery is faster than expected. While it was the first sign of optimism but it is still only the first sign. We also need to keep the facts at the back of mind that on one side budget cuts would have direct positive impact on the economic reforms but the negative side effects of the cuts in budgets and austerity measures will always be there simultaneously. Money flow is ultimately the measure of the health of an economy. Extremely high unemployment rate of over 25% in Greece also does not offer a positive picture.

2) Spain: A positive step to balance the needs for economic reforms by further austerity measures by cutting the spending under several heads while simultaneously trying to keep the public unrest in control by increase of 1% in pension payments.

3) Euro zone economic releases: German Unemployment Report: The unemployment report from Germany went into the favor of Euro. The report (9K) was better than the consensus of 10K and previously released data of 11K. On the other hand the reports from Euro zone related to business conditions were weak.

4) US economic releases: The reports about durable goods orders came quite weak but the reports about jobless claims were slightly positive.

What to expect from EUR/USD today:

Overall outlook stays bearish but the sentiments driven near-term outlook stays mixed because the sentiments themselves are mixed.
The current resistance is coming near 5day EMA and the price seems to be hesitating there (please check the daily chart of EUR/USD above in which the green line is 5-day EMA, yellow is 22-day and red is 55-day EMA). This itself does not reflect any positive sentiments but in case there is a decisive break of this resistance then some more upward consolidation towards 1.2970/1.2980 cannot be ignored. Around that level the psychological resistance of 1.3000 would come in picture and a break of that is must to expect any substantial near-term gains for EUR/USD.

On the other hand if the resistances hold then further downward move for a retest of first 1.2828 is expected. Any strong break below 1.2820 may take EUR/USD further down towards 1.2740/1.2730 i.e. towards the 55-day EMA support zone. This movement will also represent 38.2% retracement of the recent upward move.


What Are Bonds?

September 27, 2012 in Bond

This question i.e. “What are bonds” started popping up a lot recently from people who have not been exposed to bonds. Who says that crisis situations do not have any positive side? The debt crisis in Greece and Spain etc and ECB’s plans for unlimited bond purchase has been the reason that the otherwise not so exciting term “Bond” started floating everywhere. And suddenly people who have not paid much attention towards the concept, started learning about it.

Let’s try to see what are bonds and not only the concepts but the related terms and how they work.

Concepts of Bond:

Simply speaking bonds are a way to borrow money. Unlike stocks bonds do not make you a shareholder in what operations we do with that money or how we use it.

Now the question would come that why someone would give us money if we want to borrow it? The answer is that there he, she or it will expect some returns for the money lent. The returns offered against the bonds are fixed annual interest. To make the bonds attractive the interest rate would be higher than the normal interest rates offered by banks etc. Because the returns are only interest rate and hence the bonds fall into the category of “Fixed income” investment tools and hence are also called Fixed Income Securities”.

When economies are bullish financial instruments like stocks give much better returns but when risk appetite is low and there is a need for safer investments with surer returns then Bonds are the James Bond.

Bonds Bond

Who Issues the Bonds:

Again simply speaking who wants large amounts of money. But then doesn’t everyone wants it? Well, bonds can be Government Bonds, issued by governments who wish to raise money or Corporate Bonds issued by corporations who wish to raise money for their operations. Corporations can float stocks also but stocks make the investors share holders in the company while bonds do not and unlike stocks, bonds only promise fixed and predefined income i.e. fixed interest.

We have mentioned above that bonds are fixed income securities i.e. pay a fixed income per year by way of interest but we should also add that bonds have a predefined fixed period also. After any money has to be borrowed for certain period of time. So bonds are issued for a certain time with a certain amount of annual returns which are generally paid semi-annually i.e. 2 times a year.

What Happens After the Fixed Period of Bonds is over:

This fixed period is called maturity period. Once this is over then you return the bonds at their initial value to the issuer and get your initial purchase or lent amount back. Your profit was all the interest earned during the purchase period and up to the maturity period.

What If I Need The Money Before The Maturity Period:

You may wish to get rid of the bond because you wish to spend money elsewhere or whatever other reasons. The bonds are always resalable and you can sell those at the current market value. We will touch upon the value part in the later posts.

You may also check:

You may also check:

1) Types of Bonds
2) Bond Terminology
3) Bond Yield and Yield to Maturity
4) Bond and Inflation
4) Bond Risks
6) Investment in Bonds

EUR/JPY Will The Bullish Mood Continue?

September 26, 2012 in Forex Analysis

EUR/JPY – What to Expect

EUR/JPY fell strongly from 103.86. The fall had started before testing the 61.8% retracement of the downward move between April 1st to July 24th.

EUR/JPY Daily Chart 1:

EUR/JPY daily chart 1

The fall also took place before testing the mid-term upper trend line resistance.

EUR/JPY Weekly Chart:

EUR/JPY weekly chart : trend lines

The 5-day EMA has crossed below 22-day EMA to give a bearish signal. 5 day EMA is the green line and 22-day EMA is the yellow line in the following chart.

EUR/JPY Daily chart 2:

EUR/JPY daily chart 2

All the above points add to the overall bearish sentiments even though the short-term trend have been bullish after some optimism came about Greece rescue plans.

The current price is seems to be finding some support at 55-day EMA. Please check  daily chart #2 above in which the red line is 55-day EMA.

What to Expect:

If EUR/JPY breaks below 55-day EMA support then we can expect some more downward move towards first 99.20 and then possibly towards 99.00 which is 38.2% retracement of the recent upward move (daily chart #2 above). Such a move will  neutralize the recent bullish sentiment. A better confirmation will come with any decisive break of 99.00. On the other hand if the support holds and a break over 101.00 takes place then we will expect the recent upward move to continue for a retest of 103.86 first and then possibly towards 105.00 psychological level. Such a move will also test the mentioned trend line resistance.

Please note that even if further upward consolidation take place, till a strong break of 105.00 does not take place, overall we will stay bearish.


EUR/USD: What to Expect Today? (EUR/USD Outlook – September 26, 2012)

September 25, 2012 in Forex Analysis

EUR/USD Today’s Outlook:

This post is in continuation of yesterday’s post i.e.

Yesterday (for US it is still today) was a mixed, volatile day for EUR/USD and the currency pair moved like a drunk or a confused person. It stayed in range for some time then jumped up strongly but failed to test the psychological 1.3000 level and then dropped equally strongly but is yet to test the support mentioned in yesterday’s post i.e. 1.2880.

The only thing which had a slight difference in the last daily candle from the previous one was that it tried to break the resistance of 5-day EMA and also the support of 22-day EMA but then till not both of those attempts also failed to sustain.

Fundamentally speaking the uncertainties about Euro zone remains as it is. The unrest in Spain also does not help. But the changes in the sentiments can be quite quick and sudden. The recent IFO reports for Business Confidence from Germany were not good and on the other side recent report about Consumer Confidence from US was quite better than the expectations as well as the previous release (70.3 against the expected 63.0 and previous 61.3). Today the important preliminary Consumer Price Index data is scheduled for release from Euro zone at GMT 00:00. If that comes poor then it will increase the bearish pressure on EUR/USD.

EUR/USD Daily Chart:

EUR/USD daily chart - September 26 2012

What to Expect Today:

Overall the near term outlook remains same as mentioned in yesterday’s post but as the strong upward jump clearly failed to test the 1.3000 level and the subsequent fall took place from much below i.e. 1.2970 (missing even 1.2980), the possibilities of the break of 1.2880 support have increased. We expect this support to be broken today. And if this support breaks then we would expect further downward consolidation first towards 1.2830 and then possibly towards the 38.2% retracement of the recent upward move i.e. towards 1.2740/1.2760.

Please also note that the current 55-day EMA support now is near 1.2712.


EUR/USD Stuck Between Close Resistance and Support Levels

September 25, 2012 in Forex Analysis

EUR/USD is finding resistance exactly at 5-day EMA (green line in the following chart) and support at 22-day EMA (Yellow line). A classical example of supports and resistances.

EUR/USD Daily Chart:

EUR/USD daily chart - September 25 2012


Recent Past:

ECB President Draghi’s rescue plans followed by German Constitutional court’s favorable decision for German standing for the same had boosted the optimisms and had taken EUR/USD above the psychological level of 1.3000 and as high as 1.3172. The pair found strong resistance there, before testing the previous high of May 1st i.e. 1.3284.

What to Expect:

As mentioned above that the currency pair is stuck up between the 22-day EMA support and 5-day EMA resistance, a break of one of these is required to expect further directional movement.

Today the market should be less volatile till the outcomes of ECB President Draghi and German Chancellor Merkel’s meeting about EU situation and then Draghi’s speech at 13:00 GMT. These two events are important and market should be waiting for these two before some  real moves take place.

Overall on one side the recent optimism for the rescue plans for the debt crisis has gone in favor or Euro but on the other side the uncertainties remain about Greece reaching an internal agreement to meet the conditions for the rescue and also because of Spain’s hesitation to come forward with the decision to ask for full rescue.

Yesterday’s reports about German business confidence were also not good and tomorrow (GMT 00:00) we have important Consumer Price Index data coming up from Germany.

Considering all the above during these two days i.e. today and tomorrow the movement of EUR/USD will be mainly dependent on the News from Euro zone as no important data is scheduled to come from US.

Near Term Targets:

If the news from Euro zone about the above mentioned meeting and Draghi’s speech bring pessimism and the current support over 1.2880 breaks then we can expect further consolidation first towards 1.2830 and then possibly towards the 38.2% retracement of the recent upward move i.e. towards 1.2740/1.2760.  Till any strong break below 1.2700 takes place, we would expect the short-term bullish mood to continue. With these supports holding, another break of 1.3000 should take EUR/USD for a test of previous resistance zones of first near 1.3280 and then possibly 1.3380.


Technical Analysis Commitment of Traders (COT) Data

September 18, 2012 in Forex Analysis

Commitment of Traders (COT) Data

Speculators’ Short in USD Futures Soar. The aggregate net short positions in the USD soared to 94,712 contracts, up from a nominal short of only 453 contracts in the previous week. Again, the big increase of USD shorts came against buying of the commodity currencies, specifically the Canadian and Australian Dollars.

As we approach expiration of the September futures contracts, we suspect much of the buying of the Canadian and selling the USD has been for hedging purposes. If so, these positions will likely be used for pricing of export contracts of goods and materials, and will be liquidated.

Monday, the long C$ short the USD futures amounted to 129, 911 contracts, and the total OI was very large, 267,371 contracts. Contrast this to the C$ position on July 24th, when the pair traded above 1.02, the OI was a mere 122,423 contracts, and the specs were short 1622 contracts of the C$. Perhaps we are getting close to a sell-off in the C$.

There was also some noticeable selling of the USD versus purchases of the yen and the pound. The pound buying came with a 25% increase in the open interest.

Again we had another week of liquidation of the big short in the euro, and its first cousin, the Swiss franc. This week, the euro short went down from 131.6K to 118.2K. The drop in the SF was from 14.7K to 8.7K. The late-week 300-point rally in the euro probably took out more euro shorts.

[CFTC Commitment of Traders (COT) Data Report – What is this?]

  • US Dollar Index: There was almost a 10% increase in the OI caused mostly by the large specs. They added 7.5K to their longs and 8.3K to their shorts. The large spec remains a 2.9 ratio long the DI. Small specs are not actively involved in the DI.
  • Euro (EUR/USD): Specs continued to reduce their euro short position in an orderly fashion taking the total net spec short down to 118.2K from 131.6K in the prior week. The large spec remained better than a 3 to 1 ratio short. The cut-off day for this report was the Tuesday before the market started a 350 point rally, so the next report should show additional short liquidation. Spreading is over 10% of the total OI which was 373.9K in the euro.
  • British Pound Sterling (GBP/USD): What is going on in the pound? The OI went up 46.6K to 188.7K. Commercials increased their long and short positions and flipped to the short side. Small specs are long the pound by approaching a 2 ratio, while the large specs are small shorts. Since the cut-off date for this report, the market actions have favored the longs. The increase in the commercial activity may represent pricing of export or import contracts in the September contract which expires this week.
  • Japanese Yen (JPY/USD): There was a modest growth in the spec net long positions, as they grew from 18K to 24.8K. Large specs are long the yen and the small specs are short. Large specs are not better than a 2 ratio long.
  • Swiss Franc (CHF/USD): The total spec net short position in the SF dropped to 8654 contracts from 14,722 in the previous period and is down from almost 30K contracts four weeks ago. Large specs are almost a 2 to 1 short, but the small spec has flipped to the long side.
  • Canadian Dollar (CAD/USD): The OI in the C$ soared to 267K in the reporting period, up 78.7K in the week. Large specs are now a 9 ratio long, and the small spec is a timid 2 to 1 long. Most of the surge in the OI was caused by commercial activity, increasing longs by 20.9K and shorts by 74.3K. It is our guess this activity represents pricing of export contracts and will be liquidated with expiration of the Sept contract. Although we do not cover the Mexican peso futures contract, last week the OI surged by 86.5K to 309.2K total. Mexico, as part of NAFTA, probably has some pricing activity also.
  • New Zealand Dollar (NZD/USD): There was a small reduction in the large spec long position but they remain almost a 4 ratio long. Small specs added to their position and are now long better than a 2 to 1 long.
  • Australian Dollar (AUD/USD): Large spec continue to be bullish on the A$ and their net long is almost a 3 ratio. Small specs are long, but quite modestly. The total net spec long increased to 75.5K. The specs reduced both long and short positions while commercial increased longs and shorts in preparation for expiration of the Sept contract.

Commitment of Traders (COT) Data, 11 September 2012, Cash Back Forex Brokers Online

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September 17, 2012 in Miscellaneous

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EUR/USD – Mid-Term Outlook

September 14, 2012 in Forex Fundamentals and News

Mid-Term Outlook of EUR/USD

Federal Reserve announced buying of Mortgage Securities in yesterday’s policy meeting. This 3rd round of bonds buying is another effort for the quantitative easing to help the job market and hence the economy of U.S.

Though yesterday’s report of “Continuing jobless claims” was better than expected but the Initial Jobless Claims” increased and showed the figure as 380,000 against the previous month’s 367,000.

The monthly budget statement also was bearish with -191 B U.S. Dollars against the last month’s USD -69.6B.

Let’s have a look on some of the fundamental and technical factors to see what is to be expected from EUR/USD in the coming days:

Fundamental/Market Sentiments:

1) ECB’s plans of unlimited bond buying to help debt crisis and German court’s ruling for conditional German stand for the same has boosted up the confidence in Euro at least temporarily. There are still some uncertainties about Greece not reaching agreement for budget/spending cuts to be eligible to receive the rescue funds.

2) The 3rd round of Quantitative Easing measures announced by Fed should keep some bearish pressure on USD. There is generally an inverse relationship in Bonds and interest rates and hence the currency itself.

Technical and Price Action:

1) First time after May 8th the price touched the 1.3000 level. Though it is hesitating to break it decisively after touching 1.3001 but the momentum is expected to take it further up, at least in psychological terms. Not only that but the break of the mid-term channel resistance indicate that further upward move should take place. Please check the weekly EUR/USD chart as follows:

EURUSD break of trend line resistance

2) Technical Indicators:

Weekly Ichimoku Cloud:

Weekly Ichimoku has not yet given a bullish crossover signal but such a strong break of Kijun line resistance after long suggests that the currency pair should try to test the next resistance of the lower edge of the cloud i.e. move towards 1.3140 next.

EUR/USD weekly chart - Ichimoku cloud

Weekly MACD:

Weekly MACD has crossed over the signal line to give a bullish signal.

EUR/USD MACD - Weekly chart

Overall, considering all factors we would expect EUR/USD to have further upward moves towards 1.3140 first and then may be more. While saying this we also expect some sideways moves near/below 1.3000 initially, considering the psychological aspects of this level.

USD/JPY Outlook – September 13, 2012

September 13, 2012 in Forex Analysis

USD/JPY : Today’s Outlook

USD/JPY had ultimately broken below the key support of 77.91. It happened after a long time and strengthened the bearish outlook. But the real test will be the break of 77.64 of June 1st. The current price is hust hesitating around 77.65 or 1 pip above the key support.

Federal Reserve’s policy meeting at GMT 18:15 and anticipation of the announcement of another round of bond purchase and uncertainties about the agreement in Greece for budget/spending cuts which is mandatory to receive the rescue aid are also keeping the market volatility low.

It is expected that the bearish sentiments would prove strong enough to break the key support of 77.64 but till that happens, it is better to wait and watch. A break of 77.64 should make USD/JPY to hit the next target of 77.20 first.

EUR/USD Outlook – September 13, 2012

September 13, 2012 in Forex Analysis

EUR/USD has been moving in very narrow ranges even though the movement is showing signs of bullishness.

The factors which are keeping the move in check are:

1) Psychological resistance of approaching 1.3000 ranges:

Since May 8th, 2012 the pair has been trading below this and even had dropped as low as 1.2042.

2) Questions about the rescue plans in Euro zone:

On one hand the German court ruling was supportive for the rescue plan after the ECB announcement of the readiness for unlimited bond purchase but on other hand the the lack of agreement of spending cuts in Greece are keeping the uncertainties high. This agreement is required to be able to receive the aid.

3) Policy meeting of Federal Reserve:

Speculations that Federal Reserve will announce plan for bond buying in today’s policy meeting. The meeting is scheduled at 18:15 GMT today.

The key support at first 1.2900 and then 1.2860 may prove to be critical and on the other side the resistance of the recent 1.2936 needs to be broken to expect a test of 1.3000. A test of this psychological level should ultimately take place after such a strong upward move but still a close watch for the supports and careful approach is required.