ForexYard's Commentaries - page 17
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Get Prepared For a Rough Ride Ahead of US Non-Farm Payrolls Week.
Economic News
USD - Still Looking For Direction.
The USD had a solid trading session last week, as it appreciated versus all of its major currency rivals. The greenback saw substantial bullishness early in the week as Crude Oil prices continued to fall, and a string of hawkish testimony by US officials infused the growing dollar trend. Crude Oil could be labeled as the major reason for all market movement last week, as it continued into its second week of legitimate bearish trends as it dipped below $125/barrel. By Tuesday, following testimony in front of the Senate Banking Committee, by Treasury Secretary Paulson and FOMC Member Plosser, the dollar gained close to 250 points against the EUR, reaching a two-week high of 1.5627. Ultimately, the greenback range traded for the rest of week and closed last week's trading session at 1.5696 versus its European counterpart.
This week should be highly volatility for the greenback, as many crucial news events are expected to take place. On tap this week, Consumer Confidence, ADP NonFarm Employment Change, Crude Oil Inventories, GDP and Unemployment Claims will highlight the US news before Friday, when we can expect Non Farm Payrolls, the Unemployment Rate and ISM manufacturing figures. With a variety of forecasts expected for this week's news, Forex traders should also pay close attention to the movement of Crude Oil to dictate the pace of the greenback.
Investors should note that a fresh wave of IPO's are set to hit the US stock markets this week, which will likely drive the markets up. The correlation between the major stock markets and the dollar has grown over the last few weeks and could prove to be vital in mapping currency movement for the week.
Today, Federal Reserve Governor Frederic Mishkin is expected to speak in Washington D.C. This will be the sole event from the US for the day, and with little else surrounding it worldwide, expect the market to be calm today.
EUR - Will the European Fundamentals Force ECB to Cut Rates?
The Euro has experienced a big turn-around in the last 2 weeks, after reaching recording highs versus the USD and JPY. The Euro-Zone currency has lost ground since eclipsing record marks and has not been able to reverse trends since. The EUR lost close to 250 points against the USD and approximately 100 points versus the GBP before range trading for the rest of the week. As expected last week, news from the EZ contributed to even more bearish movement in the EUR as the previous week was highlighted by French Consumer Spending, German Ifo Business Expectations Index and Manufacturing PMI. These 2 nations, especially Germany, represent a benchmark for what is to come from the whole of the EZ economy.
This week, news from the European Economic Zone could surprise investors and reverse the current bearish move in the EUR. In a news week dominated by German economic data we will German Consumer Confidence, German Prelim CPI, German Retail Sales and German Unemployment Change. If forecasts stay in line with positive expectations it is hard to see how the Euro can't make up some ground, unless the Crude Oil continues to fall. France and Italy will also release some important material this week that could help solidify European economic news in general.
Today the EUR produced one event on the economic docket. The German Consumer Confidence had fallen this month and printed a lower than expected result of 2.1. In spite of this indicator investors will look toward the equity market and especially the price of Crude Oil since it happened to be the best indication to the direction of the European currency.
JPY - Carry Trades Are Still the Name Of The Game.
The Yen completed last week trading session with mixed results versus the major currencies. The Japanese currency when placed against the USD lost close to 100 points closing last weeks trading session at 107.87. The Yen versus the GBP lost about 110 points as the pair closed at 214.73. Last week, it was forecasted that several indicators including the Tokyo Core CPI, National Core CPI and CSPI would help move the JPY on its own; however a string of unchanged results left the JPY price movement in the hands of outside sources.
This week Japan will provide even more indicators to the economic calendar and will likely contribute to its currency volatility. The Retail Sales, Preliminary Industrial Production and Average Cash Earnings are all expected to see small losses, and along with bullish USD or EUR news could further reducing the much-needed points for the JPY.
Today, local Japanese data could contribute to JPY volatility as we expect Overall Household Spending, the Unemployment Rate and Retail Sales. Data is forecasted to be negative and will likely move the JPY in a bearish direction. Forex investors might consider going short against the JPY today.
Oil - Looking To Break Two Month Low.
Crude Oil is currently traded near a 7 weeks low, at $123.50 a barrel. The main reason for the continuation of the downtrend is most likely to be OPEC decision to increase its output by 200,000 barrels a day. The Organization of the Petroleum Exporting Countries which is in charge of over 40% of the world's oil supply has managed to halt the surging oil prices. Another support for the slipping oil was the seemingly change in U.S foreign policy. U.S approach is now considered to be less aggressive towards Iran, looking to avoid a military conflict, and by so calming investors concerns from another violent episode in the Middle East.
As oil dropped for about $24 a barrel in two weeks, no signs for a solid change are noticeable, and Crude prices are widely expected to further descend.
Technical News
EUR/USD
Since the last bearish move, the pair has been consolidating around the 1.5700 level for quite a while now. The hourlies provide bearish signals, suggesting that the restoration of the bearish momentum is due. Going long appears to be preferable today.
GBP/USD
The pair has been range-trading for a while now, with no specific direction. The Daily chart's Slow Stochastic providing us with mixed signals. All oscillators on the 4 hour chart do not provide a clear direction as well. Waiting for a clearer sign on the hourlies might be a good strategy today.
USD/JPY
There is a very distinct bullish channel forming on the daily chart, as the pair is now floating at the top barrier of it. However, the RSI on the one hour chart has peaked at the over-bought zone, and been dropping ever since, suggesting that a bearish move is impending. A bearish cross on the 4 hour chart's Slow Stochastic also supports that notion. Going short with tight stops seems to be a good strategy.
USD/CHF
For the past few days the pair has been floating around 1.0350, with no apparent breach. Now however, new sings for a bearish move are given in the form of a bearish cross on the Slow Stochastic of both the daily and the 4 hour chart. Traders are advised to wait for the break and swing.
The Wild Card
EUR/AUD
The pair is in the midst of a very strong bullish move, as a "W" shape was formed on the 4 hour chart, suggesting that the bullish move has more steam in it. This might be a great opportunity for forex traders to join a very promising trend.
The Dollar has strengthened in early trading as last week's worries of fundamental weakness in the European and British economies continue. Will the Dollar further appreciate as the appetite for riskier currencies dwindles?
Economic News
USD - U.S. Dollar Starts the Day Strong Ahead of Busy Week
Pushing below 1.2800 against the EUR last Friday, the USD has seen some intense ups and downs ever since. In early trading hours Friday, the USD saw some significant gains against its primary European counterpart, but then turned around to lose it all, ending the day at 1.2970. Today, however, the USD appears to be back on the upswing. Starting the trading day with a sharp 50 pip gain against the EUR, the USD appears to be on track to recover the position it was heading for during Friday's early trading hours.
As confidence in the European markets dwindles, the U.S. Dollar appears more and more to be the safe-haven currency of choice for most investors. Despite the continuing downtrend in important economic sectors, such as housing - which has dropped consecutively for months now - the U.S. economy remains the king which many believe must be saved in order to rescue the entire system. As such, we see large investors bailing out of other currencies and shoring up their positions within the USD regardless of fundamental data.
This week will no doubt see high volatility in USD pairs as the U.S. economy is set to receive one of its busiest news weeks. On top of all of the information regarding Barack Obama's economic stimulus package being released, we also have a number of significant indicators coming out this week. Of primary importance is the first meeting for the Federal Reserve Board in 2009; they will be discussing the possibility of cutting the Federal Funds Rate even lower than its present target rate.
Moreover, two important pieces of information regarding the U.S. housing sector will be released Monday and Thursday. We also have the Advanced GDP report for the 4th quarter of 2008 coming out this Friday. Forex traders should mark these events in their calendars as they will no doubt generate exceedingly high volatility in the market, especially surrounding USD pairs and crosses.
EUR - Credit Downgrades of Smaller Euro-Zone Economies May Weaken EUR
The EUR has been experiencing some interesting price swings these past few trading days. With sharp fluctuations against the USD, JPY, and GBP, the 16-nation currency is poised for an important news week. Ending last week against the USD at 1.2970, the pair currently sits around the 1.2900 level as the greenback made strong gains earlier today, but is currently losing steam. Moreover, against the GBP, the pair is continuing to move steadily towards parity, with a current price of 0.9475.
As the economies in Portugal, Spain, Greece, and Italy are all experiencing a credit downgrade, some analysts are beginning to wonder what the benefit of multi-billion EUR bailout packages will offer when their focus is almost exclusively on France and Germany, leaving the countries on the periphery out to dry.
A type of "save the king" mentality may be present in the Euro-Zone, which believes that rescuing France and Germany will help stimulate the others to return to growth. However, the decentralized economic system in Europe, in a way, prevents such top-down overflow from occurring. The two economic giants will use bailout funds to shore up their assets and ensure the safety of their system, but possibly too late to effectively rescue these other countries before they are forced to declare bankruptcy and exit the European Monetary Union (EMU). This does not bode well for the Euro-Zone regional economy.
Looking ahead this week, the 16-nation Euro-Zone is anticipating important consumer data which will lend a better understanding as to how much confidence Europeans have in their economic system. With the regional unemployment rate reaching almost as high as 8%, and sales decreasing consistently, it may be right to assume that this consumer data will no doubt show a lack of trust in the EMU. It may be wise for forex traders to look for an unwinding of EUR positions as these consumer reports weaken the EUR in the coming days.
JPY - Yen Remains Strong; Japanese Economy Weakened
The Japanese Yen continues to gain in relative strength to its currency counterparts as the recent lowering of European interest rates has made the Japanese-funded carry trade less relevant. This comes as bad news for the Japanese economy. As its currency becomes stronger; its ability to sell goods overseas decreases, which further weakens its economic strength.
This week will highlight more specifically the negative impact the recent economic downturn and subsequent strengthening Yen has on the Japanese economy. With an unusually high number of economic indicators being delivered this week, the JPY could see one of its worst economic data releases since the financial crisis of the late-1990s. Every single figure to be given throughout this week is forecasted to be lower than the previous release, signaling very clearly how bad Japan's economy has gotten since this crisis started. Without a major market event to turn things around, Japan's economy, and currency, could face more difficult times up ahead.
OIL - Iraq Increases Oil Production by 8%; May Drive Oil Prices Lower
After making a sharp increase during the final hours of last week's trading, the price of Crude Oil appears to be stabilizing near $45.75 a barrel. Last Friday, the price of Crude Oil remained steady around $43 a barrel until the final hours of trading when the price jumped to reach almost as high as $47 a barrel prior to market close. However, most economists remain steady with their forecasts that the price of Crude Oil will continue downward once these small corrections lose momentum.
One of the reasons analysts claim the price of oil will sink in the coming days is because Iraq's oil producing and exporting capabilities has begun to increase these past few months. Increasing production by over 8% last month, Iraq, which remains outside of OPEC quotas while rebuilding its infrastructure, may actually put increased downward pressure on the price of Crude Oil unless the remaining OPEC countries cut their production to compensate for Iraq's sudden surge of oil surplus. Traders may want to look for the price of Crude Oil to continue on its downward slide.
Technical News
EUR/USD
After several failed attempts to breach the1.2750 support level on the 4 hour chart, the pair is now consolidating around 1.2900 price level. The hourly studies show mixed signals, and the daily charts support that notion as well. 4 hour charts' Slow Stochastic is showing a bearish cross suggesting that a downwards correction might take place in the nearest time frame. Going short with tight stops appears to be preferable strategy.
GBP/USD
The Cable has resumed its downtrend and is attempting to breach the 1.3550 level. The daily chart shows that the current price has dropped beneath the Bollinger Band's lower border, indicating that the bearish move is gathering more steam. Should the breach take place, the pair might further extend its bearish run, with a potential price target of 1.3500.
USD/JPY
The pair has made a substantial bearish correction, and is now floating around a key Fibonacci level 88.80. The hourly chart is showing a bearish cross which indicates that if a bearish breach through that level will occur; we shall probably see the bearish trend continue. Traders are advised to hold for the breaching attempt before making an entry.
USD/CHF
The bullish momentum the pair has shown since the breach of the channel on the daily chart continues. The daily Slow Stochastic is showing the continuation of the trend. It seems that the pair could face another bullish session today. Going long might be the right choice.
The Wild Card
OIL
The Crude Oil prices are once again increasing, and a barrel of Crude Oil is currently trading around $45.50. Now, all oscillators on the 4 hour chart are providing bullish signals, indicating that Crude prices will probably continue its upward momentum. This might give forex traders a great opportunity to enter a very popular trend.
Yesterday's major market event appears to have been the announcement that Britain's 4th largest bank, Barclays, will not need additional bailout funds from the Bank of England. The resulting stability in the forex market led some investors to pull their investments away from currencies and back into the stock markets resulting in a worldwide rally in stocks. This pushed some currencies, such as the USD, to more realistic levels given recent negative economic data coming out of the United States.
Economic News
USD - Dollar Slides against EUR and GBP on Risk Aversion
The Dollar slid yesterday by over 250 pips against the Pound and EUR to 1.4044 and 1.3211 on risk aversions. This was sparked by good news coming out of Britain's banking sector, led by Barclays, which said they won't need the 4-billion-Pound government aid for their investment banking arm. The reason why this led to the Dollar's decline against its major currency pairs, such as the GBP and EUR, is because when investors feel there is less risk in the market they invest in riskier assets. Therefore, investors drop less risky assets and currencies, such as the Dollar, and pour their money into riskier assets, such as shares in the stock market.
This is a pattern that we are likely to see over the coming weeks. For example, when it looks like the global economy is improving, and the recession seems it may be ending earlier-than-anticipated, then the safe-haven Dollar is likely to drop. This marks a contrast to last week, when the Dollar rose significantly against a number of its main currency pairs, such as the Pound and EUR.
The Dollar's decline yesterday was also due to the better-than-expected data release from the U.S. that showed Existing Homes Sales at 4.74 million, significantly higher than the forecasted 4.40 million. This resulted in a continuation of the Dollar's earlier gains. The combination of positive news yesterday on both sides of the Atlantic led to rallies in British and European stock markets, as investors abandoned the Dollar. The American stock market also made decent gains yesterday.
Looking ahead to today, the behavior of the Dollar may be similar to yesterday, as traders continue to reevaluate their portfolio. Traders are advised to follow the release of the CB Consumer Confidence figures coming out of the U.S. at 15:00 GMT. If the results are better than expected, then the Dollar may continue to decline against the Pound, EUR, and Yen. It is also advisable to follow the situation following the Senate's approval of President Obama's nominee for Treasury Secretary Timothy Geithner. It may take the currency market another day to digest the positive news for Obama and the U.S.
EUR - EUR and GBP Climb on Banking Rebound
The EUR gained on news from Britain that Barclays, Britain's fourth largest Bank, is scheduled to post better than expected profits. The importance of this is due to the fact that British and European banking stocks dropped dramatically last week; led by negative banking data coming out of Britain. This resulted in these 2 currencies declining significantly against their main currency pairs. However, so far this week, there has been a reverse in fortunes.
The EUR rose against the GBP by about 40 pips to 0.9405, as parity nears. The EUR and GBP rose significantly against the Dollar to close at 1.3211 and 1.4044 respectively. This comes about as British and European stock markets rallied as the positive banking news inspired investors to drop the Dollar. The other reason why these currencies were so volatile yesterday may be due to the fact that investors saw them as over-sold, and we may be seeing a price correction. However, only time will tell if this is the case.
Today, there is several important news events on the economic calendar scheduled for Europe. Coming out of Germany at 9:00 GMT is the German Ifo Business Climate report. Better than expected results are likely to push the currency higher against the EUR's major currency pairs. Britain releases figures on CBI Realized Sales at 11:00 GMT. Good results are likely to push the GBP up significantly against the USD and JPY. These 2 releases are likely to be the main determinants of the strength of the European currencies until the U.S. Stock Market opens later in the day.
JPY - Yen Slides on Stock Market Rallies
The Yen slid yesterday against the EUR and Pound, as global stock markets recorded impressive gains. This was sparked by Britain's Barclays Bank reporting that it didn't need to raise additional capital, as it is expected to release better-than-expected quarterly profits. This led to a considerable rise in British, European, and Asian stock markets, whilst U.S. stocks also posted gains. This confidence, which led to traders dropping the Yen, means that confidence may be returning to investors. The question is how long can this last? The answer depends on how quickly the global economy recovers.
If data releases today from Europe and the U.S. are better than expected, then the Yen is likely to lose further ground against its major currency pairs. It's important to take into account that a weaker Yen is better for Japan as this may help the country's exports. There is a possibility that in the coming trading days the Yen is likely to drop the gains that it made against the Pound and the EUR last week. This could come about as these 2 currencies were over-sold. As Japan releases more data showing how deep their recession really is, investors may further unwind their trades from the JPY, to the USD, EUR, and GBP.
Oil - Crude Oil Declines on Demand Concerns
The price of a barrel of Crude Oil fell around half a Dollar, or 1.5%, yesterday as the Organization of Petroleum Exporting Countries (OPEC) fears that their production cut may not be adequate enough to support prices. The International Energy Agency (IEA) backed these claims, stating that demand for Oil will decline for a 2nd year in a row as the global recession is set to prolong. Analysts say that the expected 5% cut in OPEC output this month won't be enough to support the prices. This comes about as supplies of Crude Oil in the United States reached their highest level since August 2007.
In the meantime, one of the only ways to uphold Crude's price, and push it up to a more desirable price-level, is by OPEC agreeing to cut production further. They are expected to meet again in March as the drop in revenues has pushed many Middle Eastern countries into the red. Today, Crude Oil may reverse some of yesterday's gains if Europe and the U.S. post positive economic data releases. What may also put pressure on Crude's price later today is if Barack Obama and Treasury Secretary Timothy Geithner increase their tough rhetoric on taking the U.S. and the world out of this recession.
Technical News
EUR/USD
After peaking at the 1.3250 level, the pair has halted its bullish momentum and is now trading around 1.3216. The RSI on the hourly chart is located around the 60 level, suggesting that the bullish move has more room to go. Going long might be the right strategy today.
GBP/USD
Ever since bottoming at the 1.3550 level, the pair is now galloping full steam ahead and is currently traded around the 1.4056 level. The hourly chart is providing exclusively bullish signals; implying that another bullish session is forthcoming and the 4-hour chart supports that notion. Going long seems to be the right strategy today.
USD/JPY
The 4-hour chart is giving mixed signals with its RSI floating in neutral territory. However, the hourly chart's Slow Stochastic is showing quite a strong bullish momentum and the RSI confirms that the direction is indeed up. Going long with tight stops is a preferred strategy today.
USD/CHF
The bearish momentum the pair has shown since the breach of the channel on the daily chart continues. The 4-hour chart's Slow Stochastic is showing the continuation of the trend, and the hourly studies also confirm the bearish notion. Going short might be the right choice today.
The Wild Card
Silver
It seems that the bullish momentum is still relevant, and that Silver is heading up with plenty of room to run. The Bullish correction which took place 4 days ago seems to have larger potential as all oscillators on the daily and the hourly charts are showing fresh upward momentum. Forex traders have a great opportunity to join the bullish move at a very early stage and with a great entry price.
The Dollar moved sharply higher as the Federal Reserve held its benchmark interest rate at a historic low while it is exploring other alternative methods for fixing the American economy. The passage of Barack Obama's economic stimulus package also lent weight to the notion that the U.S. is on track for a relatively speedier recovery than the rest of the world. Will these efforts pan out in favor of the USD in the long run?
Economic News
USD - Dollar Strengthened by Fed's Statements
Yesterday's trading was highlighted by the Dollar's rally across the board after the release of the Federal Reserve's statement on Wednesday afternoon during the New York trading session. The greenback jumped against the EUR with the pair plunging below a significant support level of 1.3100. The Dollar also reversed most of its downward momentum against the Pound, closing the day at 1.4155. Against the Japanese Yen, the Dollar rose from 89.22 to end the day at 89.68.
The Dollar began the day in the red as traders feared the Fed may take up more unconventional methods of battling the U.S. economy's downturn. It was suspected that the Fed would buy long-term Treasury bonds in order to help lower U.S mortgage rates. There were also rumors in the market that the Fed would undertake efforts to prevent deflation from occurring. Traders have a negative view of these tactics as a rise in inflation would significantly hurt the Dollar's purchasing power.
Other traders have also taken the view that the Fed has been very aggressive in tackling the economic crisis in the U.S. The Federal Reserve was out in front of its European and British counterparts, slashing interest rates and aggressively adding bad banking assets to its balance sheet to support the U.S. banking industry. This has helped to create positive momentum for the Dollar.
Today's trading of the USD will focus on two pieces of fundamental data. Due to be released today is the core durable goods orders and new unemployment claims. Both indicators are expected to show sharp declines. This may hurt the Dollar in the short term, perhaps sending the EUR/USD higher to the 1.3200 mark by day's end.
EUR - Interest Rate Speculation Provides a Temporary Boost to the EUR
The EUR experienced high volatility in the wake of a speech by European Central Bank (ECB) President Jean-Claude Trichet. During a speech at the World Economic Forum (WEF) in Davos Switzerland, Trichet hinted that the ECB may hold interest rates steady for their upcoming policy meeting scheduled for Feb 5th.
The ECB has repeatedly reduced European interest rates in light of the economic recession in the Euro-Zone economy. Currently the Minimum Bid Rate stands at a record low 2.00%. Market analysts have forecast a rate cut of 0.50% during the ECB's next meeting. ECB board members must now balance the ability to ease monetary policy to fight the economic downturn in the Euro-Zone, while avoiding cutting rates too much too quickly. Policy-makers fear that a sharp drop in interest rates could lead to future inflationary pressures.
A report released today by the International Monetary Fund (IMF) was an updated economic forecast for the Euro-Zone economy. The IMF slashed its growth rate projection from a decline of 0.50% to a much larger contraction of 2.00%.
The Euro-Zone economy appears to be deteriorating faster then previously thought. But policy-makers may be sending mixed signals to the market. The ECB has not kept up with the Bank of England or the Federal Reserve in its mission to stem the tide of the economic downturn. Perhaps more aggressive moves are needed by the ECB. Then we may see some appreciation in the EUR.
JPY - Strengthening USD Puts Downward Pressure on the Yen
The USD/JPY was driven higher today on the Fed's comments and an increase in risk appetite. Fueling the appreciation of the Dollar was a rise in the Dow Jones Industrial Average. When U.S. equity markets rise, this pair tends to rise as well. Also fueling an increased risk appetite was the passage of Barack Obama's economic bailout plan by the U.S. House of Representatives. These factors helped to rally the USD/JPY to end the day at 89.68. The pair now stands at a one-week high.
The Yen is largely seen as a safe haven currency to be used during times of financial distress. As traders grow more comfortable taking on further risk, they will abandon their positions in the Yen for the USD and higher yielding currencies. Risk sentiment appears to be improving as the Federal Reserve and the Obama administration are teaming up to restore confidence and future prospects for a stable economic recovery. This may boost the USD/JPY in the near term and we may see the pair rise to the 91.00 level.
Oil - Crude Supplies Drop the Price of Oil
The price of Crude Oil dropped yesterday as U.S. Crude Oil Inventories were reported to be almost 2.5 times higher than forecasted. This helped to lower the price of Oil to end the day down at $41.51, though the drop in price was less significant than yesterday's plunge.
The rising inventories are an example of what is occurring in the market for Crude Oil. There is currently a glut of supply with wavering demand. Oil refineries have not cut production enough to arrive at equilibrium with demand. These market forces will settle once a return of confidence is seen in the global economy. Traders may look for further easing of the price of Crude Oil as the $40 mark could be in sight once again.
Technical News
EUR/USD
After witnessing a significant drop yesterday, this pair appears to have found a short-term equilibrium. The oscillators on all charts are indicating a lack of direction for this pair with the only useful information being given by the weekly chart's Momentum oscillator which shows that the downward movement may continue. Waiting for a clearer signal might be the right strategy today.
GBP/USD
It appears that the price is currently floating in the over-sold territory on the hourly chart's RSI indicating an upward correction may occur in the very near future. The price of this pair is also located near the lower border of the hourly chart's Bollinger Bands, which lends support to the notion of an imminent upward correction. Going long with tight stops might be the right choice today.
USD/JPY
The Slow Stochastic on the 4-hour chart is showing a bearish cross has just occurred and is pushing the pair further down. The weekly chart's Momentum oscillator also indicates a continuation of the downward movement. On the contrary, the hourly chart's Slow Stochastic may be forming a bullish cross in the near future, signaling the downward movement may witness an upward correction within a short time frame. Going long with tight stops might be a good strategy for the short-term today.
USD/CHF
The price of this pair appears to be floating in the over-bought territory on the 4-hour chart's RSI indicating a downward correction may be imminent. A bearish cross forming on the 4-hour chart's Slow Stochastic supports this notion. Going short might be the right choice today.
The Wild Card
Gold
The price of this commodity appears to be hovering near the over-sold territory on the hourly and 4-hour charts' RSI, signaling an upward correction may occur soon. The imminent bullish cross on the 4-hour chart's Slow Stochastic adds weight to this notion, while the weekly chart's Momentum oscillator also shows sharp upward pressure. As this commodity continues to surge upwards, forex traders have the potential to join the upswings by entering early at great prices and capturing their profits.
The Dollar has gone bullish since the beginning of yesterday's trading, and ahead of the release of today's release of Advance GDP figures at 13:30 GMT. Results better than the forecasted -5.4% is likely to make the dollar go from strength to strength as the trading weak comes to a close.
Economic News
USD - Dollar Rises on Safe-Haven Status
The USD may further extend its gains against the EUR today; on speculation that growing evidence of a global slowdown will increase the appeal of the U.S currency to traders as a safe-haven. The Dollar closed at $1.2889 per EUR from $1.3120, rising over 230 pips, the biggest gain in three weeks. The Dollar was broadly supported on Thursday as risk aversion came to the fore and optimism rose over the latest U.S. monetary and fiscal stimulus measures, which pushed the U.S currency higher.
The greenback also advanced after the Federal Reserve made its announcement about buying Treasuries to help boost the U.S economy. On Wednesday the Fed kept Interest Rates near zero as widely expected, and said it was prepared to buy long-term Treasury debt if that would help improve credit conditions. Moreover, a separate report revealed sales of new U.S. homes plunged 14.2% last month to a record low, further dulling the appeal of higher-risk currencies and assets such as stocks and boosting safe-haven flows into the Dollar. Apparently, bleak U.S. economic data and falling share prices kept investors wary of risk, even as countries embraced further monetary and fiscal stimulus to boost their economic growth.
Against the JPY however, the dollar was down 0.7% at 89.73 Yen yesterday. The greenback's decline came as a result of the Federal Reserve unwillingness to provide more information about buying Treasuries, fueling speculation investors will favor Japan's currency over the USD. The Dollar and Yen have been viewed as safe-haven currencies amid the global financial crisis, and both of these currencies often fluctuate depending on perceived shifts in investors' tolerance for risk.
EUR - EUR Falls on Weak Economic Data
The European currency retreated from gains made earlier in the week against its major counterparts. Against the USD it was down about 2% at $1.2889, after hitting a session low of $1.2875, and versus the Japanese currency, the EUR was down over 2% at 115.18 Yen. The EUR currency slipped on comments by European Central Bank (ECB) President Jean-Claude Trichet, who said that the ECB could cut key Euro-Zone Interest Rates below the current 2%, in addition to more unconventional measures.
The weak economic figures which came out of the Euro-Zone reversed any significant gains that the EUR made against the Dollar in recent days. The underlining weakness in the European economy was data showing that German unemployment posted its biggest increase in nearly four years in January. In addition, the European Commission said its index of executive and consumer sentiment declined to a record in January. The index fell to 68.9, the lowest level since it was started in 1985. Analysts say that for many investors, the strategy appears to be simple: to avoid risk; which means funds are flowing out of the EUR and back into the Dollar and the Yen. The slowing economic growth of the Euro-Zone has prompted investors to repatriate funds from higher-yielding assets that might cause the EUR to decline further.
Looking ahead to today, there are 2 important economic data releases coming out of the Euro-Zone. The CPI Flash Estimate and the Unemployment Rate figures are set to be published at 10.00 GMT. If these figures are better than expected, then the EUR may reverse some of yesterday's declines. However, if the figures are in line with forecasts or worse, then the EUR may make additional losses today vs. the Dollar, Pound, and Yen. Forex traders are advised to pay attention to GDP figures coming from the U.S., and Consumer Confidence data coming from Britain later today, as this may determine the Euro's strength against the GBP and USD into the middle of next week.
JPY - Yen to Rise Further Due to Government Insufficiency
The Japanese Yen may rise further through the end of the country's fiscal year on March 31, as exporters buy the currency to hedge revenues, and money managers bring funds home amid the global slump. Analysts forecast that the market should expect even further Yen appreciation as the Japanese fiscal year comes to a close, as both corporate hedging and investor repatriation flows support the currency. The Japanese currency closed at 89.34 per Dollar from $89.68 yesterday. The Yen has gained 1% against the greenback this month, following a 23% rally last year. The JPY may continue to strengthen as investors unwind so-called carry trades, where they borrowed in the currency to invest in nations where benchmark Interest Rates exceeds Japan's 0.1%.
Recently, some important market players have called for more aggressive government measures to halt the Yen's rise. It's important to note that the strong Yen has significantly hits exporters profits. Even though the world is currently in a deep recession, it seems the Japanese government's policies are totally insufficient, according to many leading industrial leaders. Japan's Finance Ministry is unlikely to shield the country's exporters from a rising currency by ordering the Bank of Japan to intervene and sell the Yen. Some analysts predict that the structural Yen appreciation has yet to run its course as there remains scope for investors to unwind more carry trades, and they believe that JPY will appreciate further versus the USD, possibly to the 84 Yen within 3 months.
OIL - Crude Oil Floats on Weak U.S Economy and Strong Dollar
The Crude Oil prices failed to strengthen on Thursday, due to the release of another round of gloomy U.S. economic data, the world's top energy consumer. The failure of Oil to reverse recent losses was also owed to a strong U.S. Dollar in yesterday's trading. This came about largely due to reports showing U.S. unemployment rose to a record peak in mid-January, while new orders for long-lasting manufactured goods fell for a 5th month. The deepening U.S. economic recession has cut demand for fuel and contributed to the biggest 4-month buildup in U.S. crude stockpiles since 1990. Prices for Crude has dropped more than $100 since its peak last summer, ringing alarm bells for the Organization of Petroleum Exporting Countries (OPEC) nations dependent on Oil revenues. This has resulted in OPEC cutting output by 4.2 million barrels per day since September.
Crude Oil prices, however, were little changed yesterday, after settling at $41.56 a barrel. This was largely due to the fact that OPEC Secretary General Abdullah al-Badri said that the group would not hesitate to act again if the Oil price remained low, when speaking at the World Economic Forum in Davos, Switzerland. Oil producing nations are foresee that Oil will add to this weeks losses by the end of next weeks trading, as Thursday saw a potential U.S. Oil refiner strike and traders are speculating that a potential strike could affect supplies of refined products.
Technical News
EUR/USD
The price of this pair appears to be floating in the over-sold territory on the hourly chart's RSI indicating an upward correction might be imminent. The upward direction on the 4-hour chart's Momentum oscillator also supports this notion. Going long with tight stops might be the right choice today.
GBP/USD
The typical range trading on the 4 hour chart continues. Both the hourly RSI and Slow Stochastic are floating in neutral territory. However, there is a fresh bearish cross forming on the daily chart's Slow Stochastic indicating a bearish correction might take place in the nearest future. In that case traders are advised to swing in after the breach takes place.
USD/JPY
The pair has been range-trading for a while now, with no specific direction. The Daily chart's Slow Stochastic providing us with mixed signals. All oscillators on the 4 hour chart do not provide a clear direction as well. Waiting for a clearer sign on the hourlies might be a good strategy today.
USD/CHF
The daily chart is showing mixed signals with its Slow Stochastic fluctuating at the neutral territory. However, the Hourly Chart's RSI is already floating in the overbought territory indicating that a bearish correction might take place in the nearest future. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.
The Wild Card
Gold
The bullish trend is loosing its steam and the price is consolidating around the $906 for an ounce. The daily chart's RSI is floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage.
The USD rose to the highest level in almost two months against the European currency ahead of a report tomorrow will show European producer prices slid a fifth month, giving the European Central Bank (ECB) more room to cut Interest Rates. As inflation is slowing and the Euro-Zone economy deteriorates, the Dollar is likely to increase further to as much as $1.27.
Economic News
USD - U.S. Senate Might Reject Obama Stimulus Plan; USD Could Suffer
After last week's surprising bullishness against the EUR, the USD may be positioned to rise back up to price levels not seen since November. Ending last week at 1.2811 against the EUR, the greenback broke through a number of significant price barriers and continues to hold ground. However, the USD did not gain strength against every major currency. Against the British Pound the Dollar actually weakened to 1.4484 down from the 1.3660 seen at the start of the week.
With the week starting with troublesome news about Obama's stimulus package potentially being killed in the U.S. Senate, the USD may stand to lose ground if action is not taken soon to help the economy recover. U.S. Republicans stand in opposition to this economic stimulus package as it appears to be in favor of excessive spending and a lack of focus on areas which Republicans feel need more attention, such as housing. But if this package is killed in the Senate, will there be quick enough action to come up with a new package which will appease both sides of the partisan divide in time to rescue the U.S. economy from entering a deeper recession?
This week's upcoming news may indeed turn out negative for the U.S. economy, and the U.S. Dollar as a result. With Non-Farm Employment Change and the Unemployment Rate reports predicted to indicate a drop in employment across the United States, the U.S. currency will no doubt feel a pinch. Last week's 11th-hour rally may in fact get reversed by mid-week unless the results from these reports turn out better than forecasted. Otherwise, traders should look for a weakening of the USD back to levels above 1.3000 against the EUR.
EUR - EUR Experiences Bad Week; Could this Week be Worse?
The EUR witnessed a significant drop at the end of last week versus the USD, Pound Sterling, and Yen, as investors lost more confidence in the 16-nation currency. As the economic downturn worsens, traders and investors alike are searching for a proper safe-haven to store their money. Dropping below 1.2900 against the USD and falling farther away from parity with the British Pound last Friday to hit a recent low of 0.8800, the EUR has seen better days.
With most fundamental data being released about the U.S. stimulus plans and British banking crisis, the EUR appears to be receiving little attention. With this week's monetary policy meeting on the Euro-Zone interest rates looming, traders, while anticipating a decision to hold rates steady, perceive the EUR as a weak investment option compared with stronger safe-havens such as the U.S. Dollar. However, upcoming news about the U.S. Senate potentially refusing to pass President Obama's stimulus package, the EUR may benefit from an unwinding of Dollar positions in exchange for an alternative investment.
This week will, however, be an important week for the Euro-Zone economies. The European Central Bank (ECB) will be meeting to discuss interest rates, as will the Bank of England (BoE). These two rate decisions being held simultaneously could potentially guarantee that the two currencies of these regions - the EUR and GBP - may witness high volatility in anticipation of these rate decisions. As interest rate decisions lately typically revolve around rate reductions, traders are likely to see early sell positions being taken on these currencies, which will drive their value lower in the coming days.
JPY - Japanese Yen Maintains Holding Pattern
The Japanese Yen continues to trade in a limited range of prices as its economy remains largely on track to continue its recession. As the Japanese economy weakened in recent months, the JPY was pushed higher as a result of Japan's monetary and fiscal policies which intentionally held the Yen at an artificially low level while economic growth was bounding. As this growth unwinds and global interest rates are cut, the Japanese Yen reaps the benefits. But does this help Japan?
As is typically expected, there is not much fundamental data coming from Japan this week. Forex traders can expect the Yen to maintain its recent holding pattern as it awaits news from the European economies about this week's upcoming interest rate policy meetings. If European rates continue falling, the Yen is likely to experience another period of appreciation. If rates are held steady, risk appetite may help push the island currency above the price level of 91.00 against the USD and 121.00 against the EUR.
Oil - Crude Oil Prices Expected to Dip
After a couple days of trading around the $41 price range, the price of Crude Oil appears to be preparing for a week of downward movement. Recent recessionary fears carry the potential to push the price of this commodity below $40 a barrel for the first time since March contracts began trading. A few Middle Eastern oil producers have downgraded their growth forecasts as a result of declining prices, as well as speculation of a continuation of these downward price trends.
News surrounding the price of Crude Oil doesn't appear to be providing much information that hasn't already been stated time and time again by many analysts. The global recession still holds full sway over commodity prices. This growth slump maintains downward pressure on the price of Crude Oil, and will continue to do so into the near future.
Technical News
EUR/USD
The Slow Stochastic and the RSI on the daily chart are showing a continuation of the current bearish correction. There is also a very accurate bearish channel forming on the 4 hour chart. In addition, all indicators on the hourly chart are pointing down. Going short might be the right choice today.
GBP/USD
Ever since bottoming at the 1.3750 level, the pair is galloping upward with full steam ahead and is currently traded around the 1.4414 level. The daily chart is providing exclusively bullish signals; implying that another bullish session is forthcoming and the 1 hour chart support that notion. Going long seems to be the right strategy today
USD/JPY
The pair has been range-trading for a while now, with no specific direction. The Daily chart's Slow Stochastic providing us with mixed signals. All oscillators on the 4 hour chart do not provide a clear direction as well. Waiting for a clearer sign on the hourlies might be a good strategy today.
USD/CHF
According to a daily chart this pair is still floating in a neutral territory with no distinct price direction. However a cross above the 70 line on the hourly chart's Slow Stochastic is indicating that the next move is likely to be bearish. Traders should wait for the breach and swing.
The Wild Card
AUD/USD
There is a very accurate bearish channel forming on the 4 hour chart, as the pair has consecutively dropped for the past three days. Currently, as the RSI on the daily chart is floating below the 50 line and the Slow Stochastic is pointing down, the pair might extend its bearish trend. This might be a great opportunity for forex forex traders to join a very popular trend.
The currency pair which could experience the highest volatility today may be the AUD/USD. The Royal Bank of Australia (RBA) slashed Interest Rates by 100 basis points this morning at 3:30 GMT. This would be the 5th consecutive rate cut by the RBA. In the coming days, the European Central Bank and the Bank of England are expecting similar meetings to their discuss interest rates. These falling global interest rates have been bouncing the market to bizarre highs and lows. Forex traders should take advantage of this volatility today and start opening large positions during these price swings.
Economic News
USD - Risk Aversion Drives the Dollar Higher but Gains Fail to Hold
The Dollar began this week's trading by strengthening against its major pairs, only to rescind those gains against the EUR in later trading. Gains against the GBP held and the GBP/USD stands at a 1-week low. Risk aversion was the driving force in the currency markets yesterday and this theme typically lends support for the greenback. As risk recedes in the market, riskier bets that are funded by USD are sold and converted back into Dollars, helping to appreciate the currency.
The greenback saw a boost against the European currencies as Moody's downgraded the credit rating for Barclays Bank. This decreased traders' risk appetite, but would soon prove to be short-lived as the Institute for Supply Management's Index beat market forecasts. The report helped to spark a late-day rally in the EUR/USD, erasing the Dollar's earlier gains. Some traders reported thin liquidity in the forex market as a large snow storm didn't allow for many of London's traders to make it to their offices today. Stymied liquidity can help to exaggerate price swings in the currency markets. At one point the EUR/USD reached as low as 1.2705 but the pair would later rebound to close the day at 1.2874.
Looking ahead to today's trading session, a pair that may experience high volatility could be the AUD/USD. The Royal Bank of Australia (RBA) is forecasted to cut Interest Rates by the enormous amount of 100 basis points today at 3:30 a.m. GMT. This would be the 5th consecutive rate cut by the RBA. A dovish statement accompanying the rate cut could send the pair higher than the 0.6500 level. The pair has shed almost 10% this year on poor economic performance coming from down under.
EUR - Traders Await EUR Interest Rate Announcement
The EUR has taken a back seat lately, as fundamental issues surrounding the U.S. economy have been driving the EUR/USD pair. The release of the Obama administration's economic stimulus package and U.S. GDP numbers last week took most of the headlines, along with the gains. The pair dropped more than 1% the previous week on stronger U.S economic fundamentals and overall market risk aversion.
Today, market participants will await the release of the monthly German Retail Sales report. Germany is the Euro-Zone's largest economy and this report could provide a glimpse into the consumer sentiment going forward in a recessionary economic state.
On Thursday all eyes will be focused on the European Central Bank (ECB) and their decision to adjust European Interest Rates. Most economists forecast the rate will remain steady at 2.00%. This should create high volatility for the EUR/USD as the announcement approaches, creating ripe opportunities to make profits on these price spikes.
JPY - Government Gridlock May Hurt the Yen
An economic bailout package currently being debated in Japan may be delayed over a dispute between Japanese Prime Minister Aso and Japan's legislative body. The refusal of the Diet to pass a Japanese economic stimulus plan comes at a time when Aso's approval rating stands at an all time low. Aso refuses to call early elections while the Diet will not budge with the stimulus package until a date for the elections is set.
This could have a dire effect on the Japanese economy to overcome the most recent recession. Japanese Interest Rates stand close to 0%. This limits the government's options for tackling the economic crisis or influencing fiscal policy. But the strife between the Prime Minister and the Diet threaten any type of fiscal policy changes. Now that the government is deadlocked in a political stalemate, the economic recovery may be significantly slower than both its neighboring economies.
A delayed economic recovery could spell trouble for the Yen. Forex markets tend to be forward-looking and may begin to depreciate the Yen for suspected economic weakness. Any further delays to a government stimulus package may cost the USD/JPY to rise to back to the 95.00 level in the coming weeks.
Oil - Averted Refinery Strike Does Little to Lift Crude Oil
Crude Oil fell for the 4th consecutive day as the likelihood of a strike by U.S. refinery workers dissipated. Crude finished the day down more than 2% to close at $40.51. On Sunday, Oil refinery owners and workers appeared closer to a deal that would avert a strike.
Events such as these offer short-term traders the ability to profit from limited interruptions in the steady decline of the price of Crude Oil. Eventually the price of Crude will climb, but only when the market feels a bottom is approaching. Crude traders may not find any support tomorrow when U.S. Crude Oil Inventories are due to be released. We may see the price drop below the $40 mark once again in the coming days.
Technical News
EUR/USD
It appears that the bearish trend may have run out of strength as the pair currently floats near the bottom barrier of the daily chart's Slow Stochastic, suggesting that a bullish correction may be imminent. When the upward breach occurs, going long with tight stops appears to be the preferable strategy.
GBP/USD
The 4-chart is showing mixed signals with its RSI fluctuating in the neutral territory. However, the daily chart's Slow Stochastic is showing a bearish cross suggesting that the downwards trend may continue. In that case, going short with tight stops appears to be preferable strategy.
USD/JPY
According to the daily chart, this pair is still floating in a neutral territory with no distinct price direction. However, a cross above the 70 line on the 4- hour chart's Slow Stochastic is indicating that the next move is likely to be bearish. Traders should wait for the breach and swing.
USD/CHF
The pair is continuing to provide mixed results, and is now trading around the 1.16 level. The one-hour chart demonstrates a flat line since yesterday. The daily Slow Stochastic is showing no crosses, which indicates that the bearish trend may continue. Going short appears to be preferable today.
The Wild Card
Gold
The gold price is once again dropping and an ounce of gold is currently traded around $900. However, the hourly chart's RSI is floating in an over-sold territory suggesting that a recent downwards trend is loosing steam and a bullish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage.
Witnessing a steady decline during yesterday's trading sessions, the USD became weakened as traders unwound their Dollar buy positions in exchange for riskier assets, such as stocks. The global stock rally seen yesterday may have been one of the leading causes in the Dollar's depreciation. With recent market optimism, traders may continue to see a small downward trend in the U.S. Dollar as its positions are unwound in exchange for higher yielding assets.
Economic News
USD - Dollar Falls on Increased Risk Appetite
Investors ditched the Dollar in yesterday's trading session for more risky assets, indicated by the fact that the Dow Jones climbed by 1.8%. This was sparked by a report from Merck and Company that posted better-than-expected earnings. On top of this, investors became more confident as the new Treasury Secretary, Timothy Geithner, reassured Americans that the Obama administration will do everything in its power to lift the U.S. out of recession.
The Dollar's drop was also owed to surprising, but again, better-than-expected Pending Home Sales figures that led investors to flee the Dollar during late-hour trading on Tuesday. The Dollar lost ground against all of its main currency pairs; losing 180 pips against the EUR and closing at 1.3006. The GBP/USD rate finished up nearly 200 pips at 1.4391. Additionally, the Dollar was unchanged against the JPY, which closed at 89.57 yesterday.
Looking ahead to today, there are 2 important economic data releases coming out of the U.S. These are the ADP Non-Farm Employment Change report and ISM Non-Manufacturing PMI figures. These are set to be released at 13:15 and 15:00 GMT respectively. Matching, or worse-than-expected results, may push the USD lower against its major currency pairs. However, better-than-expected figures are likely to push the Dollar higher against such currencies as the GBP, EUR, JPY, and CHF. With employment data showing a steady decline, on the other hand, the ADP employment change report is more likely to show negative results. Traders may want to anticipate a negative news week for the USD.
EUR - EUR Records Mixed Results Ahead of Thursday Rate Decision
The EUR was affected by 2 main things in yesterday's trading. These are the global stock market rally and mixed feelings ahead of Thursday's Interest Rate decision by the European Central Bank (ECB). The U.S. stock market rally led investors to buy-back into the EUR, and dropping the Dollar, as investors looked for returns on risky investments in Tuesday's trading.
The EUR appreciated by 180 pips versus the USD to close at 1.3006 in yesterday's trading. The EUR/GBP pair closed at virtually an unchanged level of 0.9036 ahead of Thursday's Interest Rate decisions for both the Euro-Zone and Britain. Against the JPY, the EUR rose dramatically by 180 pips to close at 116.53. This was largely due to Japan's stock market rally. Overall, the EUR, which for the past week has been sold by most traders, is seeing these sell-positions unwind and is now making a small recovery. The question is whether or not this rally will continue throughout today's trading.
Looking ahead, the EUR today will not be receiving much support from fundamental news events. A service-based price index is expected to show that sentiment in European business will remain largely unchanged since this report's previous release, and retail sales for the broader Euro-Zone are forecast to drop, indicating further weakness throughout the region. With recent market optimism, it is difficult to determine whether this negative news will offset the unwinding of EUR sell positions, and most analysts say that it won't. Traders should look for a continuation of the EUR's recent bullishness, at least in the short-term.
JPY - Weaker Yen inspires Japanese Stock Market Rally
Investors dropped the JPY yesterday, initially inspired by the U.S. stock market rally and the pushed further by better-than-expected home resale figures from the U.S. Japan's stock market also rallied, as car makers, such as Honda and Toyota, made large gains. Other industries, such as shipping, made big gains as well.
The USD/JPY rate remained unchanged to close at 89.57. Against the Pound, the JPY slid over 170 pips to close at 128.93. Also, the JPY declined by over 180 pips versus the EUR to finish yesterday's trading session at 116.53. If the Japanese economy continues to publish better-than-expected results during today's trading, then we can expect much of the same behavior when it comes to the Yen versus its main currency pairs. For now, traders should expect the Yen to remain within its current trends as there is little news which can interrupt its recent behavior.
Oil - Oil Expected to Climb on Middle East Tensions
The price of Crude Oil rose by about $0.68, or nearly 2%, to $40.86, as the Israel-Gaza tensions reappeared on the forefront. Crude prices were expected to fall in yesterday's trading; however, the resurrection of the conflict prevented this from happening. It is likely that Crude prices will remain unstable in the coming weeks as these tensions continue to add instability to the oil market.
Today, the main event that may determine the price of Oil is the results of the U.S. Crude Oil Inventories at 15:30 GMT. If the release is higher than the forecasted 2.5 million barrels of Oil, then this may lead to a drop in Crude prices later in the day. On the other hand, if the result is lower than this figure, this may help boost the price of Crude Oil higher by the end of today's trading session.
Technical News
EUR/USD
The price appears to be floating in the over-bought territory on the 4-hour chart's RSI, indicating a downward correction may occur later today. However, the daily chart's Slow Stochastic indicates a recent bullish cross, signaling a possible continuation of the upward movement. In the short-term traders however may expect a downward correction, but longer-term traders may want to maintain their long positions today.
GBP/USD
Most oscillators display this pair floating in neutral territory at the moment, indicating a lack of direction. The 4-hour chart's Slow Stochastic indicates that the price may hit a bearish cross in the near future, but the weekly chart's Momentum oscillator is still showing steep downward pressure. Waiting for a clearer signal might be the right strategy today.
USD/JPY
The pair continues to hold its range-trading pattern with no clear sign of direction. However, there appears to be a bearish cross on the hourly chart's Slow Stochastic indicating an imminent downward correction. Going short with tight stops appears to be the right strategy today.
USD/CHF
The price of this pair appears to be floating in the over-sold territory on the 4-hour chart's RSI, indicating an upward correction may be imminent. A bullish cross forming on the 4-hour chart's Slow Stochastic supports this notion. Going long might be the right choice today.
The Wild Card
USD/CAD
It appears a bullish cross has recently formed on the 4-hour chart's Slow Stochastic, indicating that this pair's recent upward correction may still have some steam. Now would be a great time for forex traders to join this recent run and capture the remaining profits before the downward trend continues.
Most currencies, with the exception of a few, have been leveling off lately in anticipation of today's interest rate decisions in Europe and Britain. The European Central Bank (ECB) has been forecast to maintain its current rate of 2.00%, but recent data might prove this forecast inaccurate. Britain, on the other hand, is expected to slash its official bank rate from 1.50% to 1.00% at 12:00 GMT today. These rate cuts will no doubt push the value of their respective currencies to new price levels. Forex traders should be in the market today, building their positions early before the announcement of these decisions, and earning lucrative profits from the aftermath.
Economic News
USD - The Dollar Spikes Higher Against the Euro-Zone Currency
The U.S currency held gains versus the EUR as it rose1.4% to 1.2848 on Wednesday after a report showed U.S. private sector employment in January fell in line with expectations. Against other major currencies, the USD remained steady, as investors were reluctant to tilt positions too far ahead of key events tomorrow; employment data in the United States and interest rate decisions by central banks in Europe.
However, analysts have said that traders should remain cautious about whether the USD would be able to sustain its gains as the fate of the stimulus plans still remains unclear. The greenback also got a lift against the EUR after news of a downgrade in Russian sovereign debt, which added pressure on the EUR on expectations Russia will be forced to sell EUR to rebalance its currency basket.
The Dollar was also higher against the Yen after a report showed the U.S. service sector in January shrank less severely than expected. The U.S currency gained 0.2% versus the JPY, rising to 89.41. The ISM data followed another report on Wednesday showing U.S. private sector job losses slowed slightly in January, which helped fuel gains in the USD. Economists say that despite the fact that the U.S. service sector has contracted for the 4th consecutive month, the pace of contraction is slowing down. Combined with the slightly positive employment report on Friday, this helps to improve risk appetite, driving the Dollar higher versus the Japanese Yen.
In today's trading, forex traders should focus on a number of important fundamental data coming from both the U.S and the Euro-Zone. We expect that these pairs may become highly volatile as the market awaits the U.S. labor market figures and Interest Rate decisions from the European Central Bank (ECB) and the Bank of England (BoE).
EUR - EUR Falls Broadly on Russian Downgrade
The EUR is trading near a two-month low against the Dollar on speculation the economic slump in Eastern Europe will cause the Euro-Zone's recession to deepen, and markets are worried that Eastern Europe's situation will get worse before it gets better. The EUR was traded at 1.2852, up from 1.2849 late yesterday. It reached 1.2706 on February 2, the lowest level since December 5. The EUR also tumbled against the Dollar and the Yen after Fitch downgraded Russia's long-term foreign and local currency ratings, sparking fears of a steep downturn in Eastern Europe. Against the JPY the European currency may decline further as traders increase bets that the European Central Bank (ECB) will cut Interest Rates further today.
The EUR also weakened yesterday as the European Union's (EU) statistics office in Luxembourg said retail sales fell 1.6% in December from a year earlier. Analysts say that in the Euro-Zone there is still a drip-feed of bad economic news, which is weighing on the EUR and keeping risk sentiment on the back burner. Data released earlier showed deterioration in Europe's dominant services sector, and separate numbers showed Euro-Zone retail sales falling more than expected year-on-year in December. The EUR has also declined 1.6% to 88.76 against the British Pound after a report showed the U.K. services industry contracted less than forecast in January, and U.S. companies cut fewer jobs than previously expected.
Many economists expect, looking at the state of the Euro-Zone economy, another Interest Rate cut by the ECB this week. But even with low inflation expectations, Governing Council members have indicated that the ECB would not follow the U.S. Federal Reserve and the Bank of Japan (BoJ) in cutting rates to zero. With little room to cut Interest Rates, analysts are starting to look what else central banks have in store, especially whether the ECB would start to directly buy corporate debt.
JPY - JPY May Rise to 80 against the Dollar by Mid-Year
The Japanese currency picked up steam again on Wednesday, prompted by a government stimulus package that has provided a boost to market and risk sentiment. The Yen's strength took the EUR down 0.7% to 115.52 Yen, while the Dollar eased 0.2% to 89.05 Yen. It strengthened to 87.13 on Jan. 21, the strongest level since July 1995, after gaining 23% last year as the global financial turmoil spurred investors to buy back into Japan's currency as they unwound carry trades.
Additional Yen appreciation is likely to shrink profits of exporters even further, weigh on share prices, and induce an increase in the repatriation of funds to Japan. According to analysts, this can become the worst-case scenario facing the Japanese government since a strong Yen is the most critical problem for exporters. As exports fall, economies shrink, deepening the recession and pushing the value of the Yen even higher, causing more damage and creating a downward cycle of harmful data for the Japanese economy.
Oil - Crude Oil Declines on U.S. Fuel Inventory Gain
Crude Oil prices settled near $40 a barrel on Wednesday, down slightly after the U.S. stock market fell and a government report showed U.S. oil inventories jumped more than twice the amount previously forecast. Fuel demand during the past four weeks averaged 19.5 million barrels a day, down 2.8% from a year earlier, the Department of Energy report showed. Crude prices dropped after U.S. equities retreated as disappointing earnings at Kraft Foods Inc. and Walt Disney Co. triggered a sell off in consumer shares.
Recently, Crude Oil prices have been firming up because of output constraint by the Organization of Petroleum Exporting Countries (OPEC), and perhaps a further cut by the cartel may not be necessary. Crude Oil has plummeted by more than $100 since hitting a record near $150 a barrel in July last year as the global recession has weighed on demand for fuel. OPEC, worried that the global economic downturn is reducing oil demand and pressuring prices, has promised to reduce oil production by a total of 4.2 million barrels per day from levels seen in September. OPEC's president said on Tuesday the cartel could remove more oil from the market if needed in order to boost prices.
Technical News
EUR/USD
There appears to be a bullish cross forming on the 4-hour chart's Slow Stochastic, indicating an upward correction is expected in the near future. However, almost all other oscillators are stuck in neutral signaling that this pair may be less volatile than expected. Going long with tight stops might be the right strategy today.
GBP/USD
Most oscillators are still displaying this pair floating in neutral territory, indicating a lack of direction. The RSI on the 4-hour chart indicates that the price is currently floating in the over-sold territory, however, indicating downward pressure on this pair. Going short with tight stops might be the right choice today.
USD/JPY
The pair continues to hold its range-trading pattern with no clear sign of direction. The price sits evenly between the Bollinger Bands on all charts, and continues to float in neutral territory on all oscillators. Waiting for a clearer signal might be the right choice today.
USD/CHF
There appears to be a bearish cross forming on the 4-hour chart's Slow Stochastic, signaling an imminent downward correction. The Bollinger Bands on the hourly chart also appear to be tightening, indicating some volatility could take place in the near future. Going short might be the right strategy today.
The Wild Card
Silver
The price of this commodity appears to be floating in the over-bought territory on the daily chart's RSI, indicating that a downward correction may take place in the near future. The price is also trading near the upper border of the daily chart's Bollinger Bands, signaling downward pressure. Also, the Bollinger Bands on the 4-hour chart appear to be tightening; forex traders may see some volatility in this commodity later today. Going short might be the wise choice today.
The Dollar consolidated gains against the EUR and JPY before the high impact U.S. Non-Farm Payrolls Report is released today. This indicator always provides for extreme market volatility in the major currency pairs. Traders may find good opportunities to enter the market following this vital announcement at 1:30pm GMT.
Economic News
USD - The Dollar Gains Ground Ahead of U.S. Payrolls Report
The USD has strengthened against most of its major counterparts, continuing to prove that, for the time being, this is the solid currency that traders can rely on to provide them with steady profits. The EUR/USD stopped the upside move at a good resistance level of 1.2900 level and from then on the pair fell all the way down to the 1.2790 level. Risk aversion continues to give the Dollar strength and that is likely to continue until we see signs of stabilization.
The dollar rose yesterday on renewed hopes the Obama administration will shore up a tattered financial system, turning around markets that had tumbled on fresh signs of a deep recession. Moreover, U.S. Treasury debt prices also recovered slightly, as weak U.S. and Euro-Zone economic data trumped worries over an expected surge in new issuance, a day before the release of the widely anticipated payrolls report for January.
As for today, a batch of data is expected from the U.S. economy. These figures are expected to set the tone for the USD's pairs and crosses. Special attention should be given to the Non-Farm Employment Change which is expected to fall to 530K. Traders pay close attention to this figure as it has a strong correlation with the value of the U.S. Dollar. Also today, the Unemployment Rate is scheduled which should also have an impact on the market because if it delivers unfavorable figures it will validate a problematic U.S. market, and the USD is likely to weaken as a result.
EUR - EUR Fluctuates as ECB Keeps Interest Rate Unchanged
The EUR completed yesterday's trading session with mixed results versus the major currencies. The 16 nation currency fell against the USD, pushing the oft traded currency pair to 1.2790. The EUR experienced similar behavior against the GBP as the pair dropped from 0.8900 to 0.8745 by days end. The EUR did rise over 150 points against the JPY and closed at the level 116.38.
The European Central Bank (ECP) kept Interest Rates unchanged after four reductions since early October as officials gauge the severity of the recession before cutting borrowing costs again. The EUR may continue to be pressured as ECB President Jean-Claude Trichet said that despite the easing of inflation pressures, the door for further rate cuts will remain open in the next meeting. The recent string of poor economic data which stems from a deteriorating European economy suggests that Interest Rates may need to fall substantially in the months to come.
Looking ahead to today, the most important financial indicator scheduled to be released from Europe is German industrial production numbers. Analysts are forecasting this figure to increase from its previous reading. Traders will be paying close attention to today's announcement, as a stronger than expected result may boost the EUR.
JPY - Yen Rapidly Falls to One Month Low Against the Dollar
The JPY saw a very bearish trading session yesterday, losing ground against all of its currency crosses. The JPY fell to a one month low against the USD and closed at 90.80. Moreover, the Japanese Yen lost almost 150 points versus the EUR, closing at 116.38.
The Bank of Japan needs to keep an eye on the global economy and watch for the potential fallout that could come from this recent crisis. Japan's currency usually does well during times of economic downturn, but when investor confidence is restored, the market may see a sell attitude develop as traders return to their carry trades; selling JPY in exchange for higher yielding currencies.
Today, there is no major economic news expected to be released from Japan, however, we should see active JPY trading in response to key U.S. data releases. The near term outlook for the JPY remains relatively bearish. Therefore, traders are advised to follow US news and Euro-Zone data with extra precaution as they will mark future JPY price movements.
OIL - Oil Makes Light Gains in Early Trading
Oil prices rose slightly yesterday as part of a wider market rally on hopes the Obama administration's plan to shore up the financial system would help banks stem losses and revive lending. Prices had fallen earlier during yesterday's trading session as weak economic data stoked concerns about waning oil demand.
Recently, the lower demand has fueled the losses, and a rash of poor economic data this week has not provided any support. The U.S. Non-Farm Employment report today is expected to show a poor performance and traders may not see very much upside to Crude today.
Technical News
EUR/USD
The Slow Stochastic and the RSI on the daily chart are showing a continuation of the current bearish correction. There is also a very accurate bearish channel forming on the 4 hour chart. In addition, all indicators on the hourly chart are pointing down. Going short might be the right choice today.
GBP/USD
This pair is still in the midst of a steady uptrend which is not yet showing any sign of leveling out. The RSI and Momentum on the 4 hour chart are still positively sloped indicating that there is still plenty of steam left in this bullish move. Once this pair breaches the 1.4680 level it's likely to make another sharp break upwards.
USD/JPY
Narrow range trading continues as the pair did not make any significant move in either direction. The daily chart is showing signs of a bearish momentum. The Bollinger Bands are tightening and a breach might be imminent to any side. A good strategy might be to wait for the signal and ride the momentum.
USD/CHF
The pair's bullish sprint has passed it through the 1.1700 level yesterday. As all oscillators on the 4 hour chart are pointing up, the pair might test the 1.1760 level - making a 2 month record.
The Wild Card
OIL
There is still a bearish configuration on the daily chart, indicating that the momentum is still down. The Slow Stochastic flows high supporting the notion that there is still room to run for this trend. In the shorter time frame there is a bullish cross forming on the hourleis indicates that there might be a small bullish correction before the bearish move resumes. Forex traders can maximize profits by selling on highs and taking advantage of a currently bearish trend.