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Monday, 18 May 2009
A Busy News week Promises High Volatility
The dollar was slightly more volatile over the past week than usual, and the explanations for this have been getting trickier by the day. As for this week, forex traders are advised to take positions on trades, as a string of data releases coming out of Europe and Japan are likely to affect the greenback's main currency crosses.
USD - USD Rallies - Benefits from Safe-Haven Appeal
The USD has experienced a positive day of trading during the today's early morning hours. Closing last Friday slightly up versus the majority of its currency pairs and crosses, the USD continued this bullishness and appears poised to maintain its recent momentum. Gaining against the EUR, the greenback is currently trading near the 1.3435 price level, and even climbing as high as 1.1240 against the Swiss Franc, a high not seen since 10 days ago.
As U.S. data illuminates the economy in a positive glow, large exporting countries like China have begun to purchase more and more U.S. Treasury Notes despite the various cautions for doing so. A number of negative results from the European economies, and even Canada last Friday, have pushed many investors into the safe-haven of the USD and JPY. Again, despite some warnings that the USD's safe-haven is not as stable as many believe, traders continue to purchase the greenback for portfolio protection. Without a strong shock to forex trader confidence, this behavior will likely continue throughout the next few trading days.
With a severely lacking mix of indicators being released from the U.S. economy this week, the likely mover behind the forex market in the coming days appears to be the EUR. However, there does appear to be 2 indicators worth marking in your calendars. On Tuesday we are expecting the Building Permits report which may actually, for the first time in months, show that the housing sector is on the rebound. This could help the Dollar's rally continue through to the second indicator due to be released on Thursday. The Unemployment Claims report on Thursday may be more important than most expect considering last month's Non-Farm Payroll report indicated a sharper contraction in employment than most expected. This could prove to be USD-negative.
EUR - Euro-Zone Fundamentals Weak as GDP Shrinks
Across-the-board weakness may be the best way to describe the EUR's activity in today's early trading sessions. Losing strength to every major currency pair, the EUR is a little worse for wear. Dropping to 1.3435 against the USD, 127.30 against the JPY, and even as low as 0.8870 against the Pound Sterling, the 16-nation currency has been on the receiving end of negative news since last Friday's GDP figures illustrated a larger regional contraction than most analysts had foreseen.
As was illustrated by the various reports from countries within the European Monetary Union (EMU), the national and regional economies throughout the Euro-Zone suffered a deeper economic contraction than was forecast, and the EUR is suffering the consequences. This growing weakness doesn't seem to be abating either.
With a heavy news week ahead, the EUR will no doubt be steering this week's forex market. However, most expectations are for a continuation of the recently poor showing of Euro-Zone fundamentals. The weakness in regional GDP means that the 16-nations of the EMU are struggling to produce the jobs, manufacturing, and industrial output to remain as competitive as is necessary. With French and German manufacturing and services data expected on Thursday, this week's data has the potential to show that the Euro-Zone is indeed still within a deep recession and not yet on its way out. The other possibility is for a sudden surprise batch of news which shows the regional economy rebounding strongly, in which case the EUR may go bullish.
JPY - Yen Out-Performs Other Currencies
The Yen has out-performed all of its competitors in recent days. Regaining most of the strength lost in the previous few weeks, the JPY has now fought back to some of the highs not seen in months. Climbing to 94.80 versus the USD, a level not seen since mid-March, the Yen actually appears to have regained its safe-haven status. It also climbed to the 127.30 level against the EUR, a range not seen since late-April.
This week also appears to be an exciting news week for the JPY, a statement not often made by economic analysts in the forex market. With 2 large indicators due to be published, the Yen may actually be a driving force in this week's market. On Tuesday, the Japanese Cabinet Office will release its preliminary GDP figures which are expected to show that the Japanese economy may have shrunk by 4.2% in the first quarter of 2009. Also due this week is a decision by the Bank of Japan (BoJ) on its short-term interest rates. As rates are still near 0%, a reduction seems unlikely. The information released by the BoJ, however, may give traders and indication of the future monetary policy decision to come.
Crude Oil - Has the Price of Oil Reached its Peak for 2009?
The price of Crude Oil in recent weeks has been on a steady bullish trend. However, last Friday this trend may have been breached with a downward correction resulting from a decline in stock markets. With regional stock markets declining since last Friday, market demand for oil has come under scrutiny. While the United States may have published a series of positive growth data, the Euro-Zone illuminated its continued weakness with low GDP figures. Mixed with poor performing markets, economic growth and energy demand seem higher than they should be.
Most analysts are now backtracking by stating that the uptrend in oil seen over the previous weeks was due to a surge in market optimism that saw stock markets soaring and the USD dropping. However, as markets inevitably correct themselves after optimism has run its course, true values return. The sad truth is that demand for Crude Oil is still at an all-time low, and some analysts are reducing their 2010 forecasts. If this keeps up, the current price of $57.00 a barrel may be a high point in the coming weeks.
There is a fresh bullish cross forming on the 4- hour chart's Slow Stochastic indicating a bullish correction might take place in the nearest future. The upward direction on the hourly chart's Momentum oscillator also supports this notion. When the upward breach occurs, going long with tight stops appears to be preferable strategy.
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. The 4 hour charts do not provide a clear direction as well. Waiting for a clearer sign on the hourlies chart might be a good strategy today.
The hourly chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, the daily Chart's RSI is already floating in the oversold territory indicating that a bullish correction might take place in the nearest future. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
The price of this pair appears to be floating in the over-bought territory on the hourly chart's RSI indicating a downward correction may be imminent. The downward direction on the 4-hour chart's Momentum oscillator also supports this notion. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.
The Wild Card
Gold prices rose significantly in the last week and peaked at $933 for an ounce. However, 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.