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Tuesday, 2 Jun 2009
A Global Stock Market Rally Leads Trading
Strong economic data from the U.S, U.K and China combined with strong equity performances has led to a sell-off of the safe haven currencies and pushed investors to higher yielding, riskier currencies as many see the global recession coming to an end. The encouraging global economic data has also been helping push Crude Oil to the $70 price level.
USD - Dollar Moves on Release of Strong Economic Data
The release of strong economic data from the U.S. economy led to a stock market rally in the U.S. and the rest of the world. This led to strong implications for the Dollar. The Dollar rose against the Yen, whilst dropping against the British Pound. However, there was very little movement against the EUR. The main factors affecting Dollar volatility yesterday were the release of optimistic manufacturing, personal income, and construction figures from the U.S. This led traders to the conclusion that the worst of the economic downturn in the U.S. is over.
The results of the data releases led the Dollar to tumble to an 8-month low against the Pound. The pair closed higher by nearly 230 pips at 1.6445. The greenback rose by nearly 140 pips vs. the Yen to 96.37, as investors dropped the JPY for higher-yielding assets. The Dollar's behavior against the EUR was more stable as the pair remained virtually unchanged, up barely 10 pips at 1.4154. This was mainly due to traders putting their money into riskier investments on both sides of the Atlantic, leading to low volatility in the EUR/USD currency cross.
Looking ahead to today, there are 2 important news events coming out of the U.S. These are the Pending Home Sales data set to be released at 14:00 GMT, and the Total Vehicle Sales figures that will be released throughout the afternoon. Forex traders are advised to take up their positions in the Dollar and its major crosses early in the day as markets are likely to go volatile as Europe also publishes unemployment data later in the day. Additionally, investors are likely to weigh-in on the real value of the U.S. Dollar as the forex market still reacts to Monday's U.S. data.
EUR - Pound Climbs to an 8-Month High Versus the Dollar
The Pound climbed to an 8-month high in Monday's trading versus the Dollar. This was in part due to a global stock market rally, led by the U.S. that was sparked by the release of highly optimistic U.S. economic data. This was what the GBP needed to extend its rally against the Dollar. However, investors dropping lower-yielding currencies such as the Dollar, for higher-yielding ones such as the Pound led to a very bullish Pound yesterday. The GBP also recorded great volatility and gains versus its other major currency pairs.
The Pound rose by a massive 230 pips against the Dollar to around 1.6445. The GBP recorded massive gains vs. the JPY to close nearly 400 pips higher at 158.24, as traders dropped the safe-haven JPY currency for the GBP. The Pound also gained an impressive 100 pips against the EUR to close at 0.8618. These results show a resurgent British Pound, as the global economic situation improves in Britain and the rest of the developed economies. Therefore, as long as long as the global economic situation improves, then the Pound is likely to reap the benefits.
Today is set to be another congested news day for the British economy and the Pound. There is the release of Construction PMI at 7:30 GMT, Net Lending to Individuals and Mortgage Approvals at 8:30 GMT and Nationwide Consumer Confidence figures at 23:01 GMT. It would be a wise move for traders to open their GBP positions both prior to and after these economic data releases, as the pound is likely to be volatile throughout the trading day.
JPY - JPY Tumbles Against its Major Currency Pairs
The JPY tumbled against its major currency pairs yesterday as the Japanese Stock market made big gains. This was ignited by a release of a string of strong economic figures from the U.S. immediately fueling a rally on Wall Street. Japanese shares, especially the automakers, such as Toyota were boosted by the General Motors bankruptcy. This led to signs of optimism that Japan will gain a higher global market share of the auto industry.
The Yen declined by about 440 pips vs. the GBP to close at 158.24. The Yen also made steep declines against the Dollar to close about 140 pips lower at 96.37. The EUR/JPY pair finished higher on Monday by over 200 pips at 136.47. This market behavior came about as traders dropped the Yen for higher-yielding currencies in yesterday's trading. The repercussions of a weaker Yen in the long-term may turn out to be fruitful for the Japanese economy as competitiveness returns to Japan's export market
Crude Oil - Crude Oil Eyes $70 a Barrel
Crude Oil recorded another day of bullishness on Monday, as the black gold extended
its bullish run. Crude closed up $1.25 or 2% in yesterday's trading. This came about as the U.S. released impressive economic data, indicating that the U.S. economy will continue to beat many analysts' expectations. Traders are also still taking into account the optimism of the OPEC meeting from the latter part of last week.
The price of Crude Oil is only likely to keep on rising as long as the global economic situation continues to pick up. In recent months the U.S., Euro-Zone, British, and Chinese economies have signaled that they are getting back on track. This is despite rising unemployment. If the trend continues, then OPEC's forecast may be correct and we may see Crude at $75-$80 sooner rather than later.
After the sharp rise in price yesterday, the pair has been down-correcting to find its true value. With most oscillators beginning to go neutral, the daily chart's RSI still shows this pair in the over-bought territory, meaning there is still room for a downward correction. The Bollinger Bands are tightening on the hourly chart. As such, we might be seeing some downward movement today. Going short might be a wise choice.
This pair appears to be floating in the over-bought territory on the hourly and daily charts' RSI, indicating a downward correction may be impending. The bearish cross on the daily chart's Slow Stochastic also supports this notion. However, there does appear to be a bullish cross on the 4-hour chart's Slow Stochastic, which demonstrates that this pair may actually be range trading with clear ups and downs. Buying on lows and selling on highs could be a good move throughout the day.
The recent uptrend has pushed the price of this pair into the over-bought territory on the RSI of the 4 hour chart, signaling an imminent downward correction. A bearish cross may also be forming on the 4 hour charts' Slow Stochastic, which would support the notion of a downward move. Going short with tight stops might be a wise choice today.
With relatively flat movement over the past several days, this pair has remained in a range-trading pattern for some time. Most oscillators are giving off neutral indicators, but there was a recent bullish cross on the daily chart's Slow Stochastic, signaling a correction to the sharp downward movement from last week. With the weekly Momentum oscillator still showing an upward direction, going long with tight stops may be a wise choice today
The Wild Card
This pair's sustained upward movement has finally pushed its price into the over-bought territory on the daily chart's RSI. Not only that, but there actually appears to be a bearish cross forming on the hourly charts' Slow Stochastic pointing to an imminent downward correction. Forex traders have the opportunity to wait for the downward breach on the hourlies and go short in order to ride out the impending wave.
|03:00||CHF||Daylight Saving Time Shift||-||-||-|
|03:00||EUR||Daylight Saving Time Shift||-||-||-|
|03:00||GBP||Daylight Saving Time Shift||-||-||-|
|01:00||EUR||German Prelim CPI||m/m||0.9%||-||-|
|01:00||EUR||Italian 10-y Bond Auction||1.36|1.5||-||-|
|01:50||JPY||Prelim Industrial Production||m/m||3.7%||-||-|