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Tuesday, 3 Mar 2009
Additional Bailout for AIG May Prove to be USD-Positive
The USD rose to its highest level in 2 years against all of its major currency counterparts on speculation that the U.S. government would pour a further $30 billion into American International Group (AIG), fuelling safety buying of the USD. With recent gains, the USD has obtained a momentum that some say will last at least through the rest of March 2009.
USD - USD Forecasted to Strengthen Through March
The USD rose to its highest level in 2 years against all of its major currency counterparts on speculation that the U.S. government would pour a further $30 billion into American International Group (AIG), fuelling safety buying of the USD. The Dollar was also held gains after a report showed U.S. consumer spending and personal income came in better than expected in January. The fact that the U.S. authorities seem to be taking swift actions to overcome the crisis in the financial system has supported the Dollar lately, which looks to be relatively less risky than the other currencies.
The Dollar was traded at 1.2574 per EUR yesterday, after climbing 0.7%, while against the JPY the Dollar was little changed, at 97.48 per Yen. The greenback has also strengthened versus the British Pound, falling below 1.4000 yesterday after data showed U.K. home prices dropped the most since 2001. Despite the fact that the U.S. economy is still very weak, it seems that the investors expect the U.S. to recover first from the global economic crisis. And the country's potential to be the first economy to pull out from recession is confirmed by the improvements in the ISM manufacturing, personal income and personal spending data.
Meanwhile, the news from AIG, and worries about Eastern Europe has been of most market interest, which has been benefiting the Dollar. Today, investors should be closely looking to upcoming U.S data, especially the Pending Home Sales report, for more clues on the depth of the recession. With recent gains, the USD has obtained a momentum that some say will last at least through the rest of March 2009.
EUR - The EUR Cannot Withstand Strong Dollar Gains
The European currency slumped to its lowest in 3 months on Monday as traders anticipated another interest rate cut and a shift to quantitative easing from the European Central Bank (ECB) at its policy meeting Thursday. The European Central Bank expected to cut its main refinancing rate to a record low of 1.5% on March 5th to spur economic growth .The currency also came under pressure and fell 0.7% to 1.2579 against the Dollar as a summit of European Union (EU) leaders rejected a mass bailout of countries in Central and Eastern Europe.
Meanwhile, the GBP also slid 2.2% versus the USD to less than 1.4000 for the first time in more than a month. The GBP weakened after reports showed U.K. banks granted fewer mortgages in January than economists forecast and house prices declined an annual 10% last month, adding to evidence that the recession in Europe's second-biggest economy is deepening.
The EUR was hit hard not only by the EU rejection of the bailout for Eastern Europe but also by a survey showing Euro-Zone manufacturers had their worst month in 12 years! Analysts said that if not for heavy selling of the British Pound against the EUR, the Euro-Zone currency might have been pushed toward the 1.2330 level against the greenback.
JPY - Is the Yen Still a Safe-Haven Contender?
The JPY was among the few currencies to climb against the USD on Monday, as the currency's sharp rebound late last week from a weekly slide worried Japanese exporters and prompted them to sell the Dollar early to hedge their overseas earnings.
The Japanese currency rose slightly to 97.45 against its U.S counterpart after declining 9.6% last month. The Japanese currency has fallen nearly 11% against the Dollar since hitting a 13-year high of 87.10 Yen in January, with the slide worsening after poor GDP numbers and the resignation of the Japanese finance minister last month.
The Yen also rose against the Euro-Zone currency for a third day, climbing to 122.41 per EUR as stocks tumbled on concern that the global recession is deepening, prompting investors to buy the Japanese currency as a refuge. Analysts have said that the Yen's sharp depreciation might be stalled at the resistance level of 98.89. Since the JPY has failed to break that level in the next two weeks, the Yen might rise to as high as 94.63 against the greenback.
Oil - Oil Prices Weaken; Will OPEC Cut Production Further?
Crude Oil prices continue to remain steady on Tuesday, hovering just above $40 a barrel. Crude Oil prices stabilized after previously dropping almost 10% on increased signs the deepening global recession will limit fuel demand. However, Crude Oil is likely to continue declining if the USD will strengthen further against its currencies of six major U.S. trading partners, thus reducing the appeal of commodities as an alternative investment. Market players await the U.S. inventory data being released on Tuesday, as the figures are likely to show the impact on demand from the world's top energy consumer.
Crude Oil prices, which fell to a 5-year low of $33.87 a barrel on Dec. 19th, have rebounded recently as the Organization of Petroleum Exporting Countries (OPEC) restricted production further. Although OPEC officials gave conflicting signals on their intentions to further cut output in order to bolster prices when they meet in Vienna on March 15th, it created certain expectations in the mind of market participants. Investor sentiment is expecting OPEC to make another cut, but if the cartel decides not to lower crude production when it meets, analysts anticipate that Oil prices have much further to fall, perhaps below $30 a barrel.
The daily chart is showing mixed signals with its RSI fluctuating in neutral territory. However, the 4-hour chart's RSI is already floating in the over-sold 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 the preferable strategy.
The typical range trading on the daily chart continues. Both the daily RSI and Slow Stochastic are floating in neutral territory. However, the pair currently sits near the bottom border of the 4-hour chart's Bollinger Bands, suggesting an upward correction may be imminent. When the upwards breach occurs, going long with tight stops appears to be the preferable strategy.
The bullish trend is losing its steam and the pair seems to consolidate around the 97.00 level. The daily chart's RSI is already floating in the over-bought territory suggesting that the recent upwards trend is losing steam and a bearish correction is impending. Going short with tight stops appears to be the preferable strategy.
The daily chart is showing mixed signals with its Slow Stochastic fluctuating in the neutral territory. However, a fresh bullish cross on the hourly chart's Slow Stochastic implies that an upwards correction might take place in the nearest time frame. When the upwards breach occurs, going long with tight stops may be a wise choice.
The Wild Card
Gold prices are once again dropping, and it is currently trading around $924.10 an ounce. At the moment, the daily chart's Slow Stochastic is giving bullish signals, indicating that gold prices might go up in the near future. This might give forex traders a great opportunity to enter a very popular trend.
|09:00||CHF||KOF Economic Barometer||99.8||-||-|
|10:30||GBP||Net Lending to Individuals||m/m||4.9B||-||-|
|10:30||GBP||M4 Money Supply||m/m||-1.0%||-||-|
|11:00||EUR||Italian Prelim CPI||m/m||0.2%||-||-|
|16:00||USD||Pending Home Sales||m/m||-2.3%||-||-|
|22:45||NZD||Overseas Trade Index||q/q||1.3%||-||-|
|23:30||AUD||AIG Manufacturing Index||50.2||-||-|
|USD||Total Vehicle Sales||18.2M||-||-|
|02:35||JPY||Final Manufacturing PMI||52.8||-||-|
|04:30||AUD||RBA Rate Statement||-||-||-|
|04:45||JPY||10-y Bond Auction||0.32|2.8||-||-|