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Friday, 23 Jan 2009
All Eyes on the Dollar as Obama Optimism Continues
Dollar's Bullish run likely to continue today as European economies are set to go further into decline. The strength of the greenback is expected to remain strong, as long as traders are pleased with Obama plans for global economic recovery. The question now is can the Dollar regain its safe-haven status for the long term?
USD - Dollar Remains Bullish Despite Negative Data Releases
Despite a slumping U.S economy, the Dollar continued to perform well against most of its major currency pairs on Thursday. The Dollar shrugged off more poor disappointing economic data from the U.S. yesterday, appreciating against the EUR and the GBP. The U.S. Census Bureau reported yesterday that building permits missed analyst's forecasts while U.S. new Unemployment Claims rose by 44,000 more than forecasted.
The EUR/USD ended the day down at 1.2940, while the GBP/USD fell to 1.3752.
Since the New Year, the GBP has depreciated more than 5% against the Dollar and 10% vs. the EUR. The GBP has suffered lately, with most of the Sterling's losses occurring after the British government announced a second financial bailout package after large asset write-offs were reported by U.K. banks. Much of the Dollars' gains were viewed as providing a safe-haven from British and European economic woes.
The Dollar received additional support yesterday as the New York Federal Reserve Bank President Timothy Geithner moved one step closer to a successful appointment to Treasury Secretary. Geithner stated in his speech on Thursday that a strong Dollar was in the interests of the United States. This therefore led to the assumption by investors that Barack Obama's economic policy will be largely based on making the Dollar a strong safe-haven currency.
There is a fair possibility that the greenback will strengthen against its major currency crosses. For example, fundamental data due to be released today from Great Britain may help to continue the Dollar's bullish run on the week, as Britain is set for several highly significant data releases. The most important are British Preliminary GDP and Retail Sales reports at 9:30am GMT time. The results of these data releases are likely to determine the GBP's strength vs. the USD going into next week.
EUR - Rating Downgrade hurts the EUR
The struggles that the Euro-Zone economy is currently facing continue to put pressure on the EUR. Disappointing economic indicators have helped to bid down the EUR against the USD as investors view the EUR as a riskier currency. Therefore, from the point of view of traders, the Euro is starting to lose status as a safe-haven. Moreover, if the EUR continues to decline vs. the USD, then medium-long term safe-haven status may return to the U.S. Dollar.
Some of the recent declines in the EUR have been due to downgrades of the EUR's debt ratings. Both Greece and Spain were the main culprits, as they had their ratings lowered by Standard & Poor's (S&P). The two countries of the single currency have both been downgraded by the rating firm in less than 1-week. This is continuing to stir up renewed fears of a distressed Euro-Zone economy, and it is highly likely to raise the cost of borrowing for the two European Union members.
The rating downgrades are likely to weigh down on the EUR into next week. In addition, a prolonged economic downturn may further hurt other European nations, thus leading to a depreciating of the EUR against its major currency pairs. For today, traders are advised to follow economic data releases closely today. Poor economic news coming out of the Euro-Zone may push the EUR/USD to the 1.2850 level by the end of the day. In regards to the EUR/GBP, traders are advised to follow the release of Britain's quarterly GDP figures at 9.30 GMT. The result of this release is likely to determine the EUR/GBP rate going into next week.
JPY - Yen Rallies on Economic Data and Risk Aversion
The Yen continued its rally yesterday against the EUR and USD, as poor economic data from the U.S. and the Euro-Zone exemplified the down-ridden global economy, fueling trader's risk-aversion. The Yen has seen large gains as traders pour into the Yen, fleeing higher-yielding currencies. Its important to note that Japanese banks have not been hit as hard as American and European banks during this financial crisis, and a large amount of government foreign reserves has helped support the Yen. Some of the Yen's gains came late in Thursday's trading, as traders digested words from U.S. Treasury Secretary Nominee Timothy Geithner. He spoke about different issues relating to the global slump. However, this led investors to have less confidence in the USD vs. the Yen.
Yesterday the USD/JPY closed 46 pips lower at 88.60. This shows that the Dollars decline against the Yen is likely to continue, as currency pair is off nearly 2% for the year. More strengthening of the Yen could lead to increased intervention by the Japanese government to weaken the value of the Yen. A strong Yen is not good for the country's exports and the government is threatening to sell Yen in the open market, in order to drop the value of the nation's currency. If a further inclination and fear of risk ensue, traders may see more weakening of the USD/JPY to a level of 88.00 by the week's end.
Oil - Crude Oil Drops as Global Recession Deepens
Yesterday the price of Crude Oil dropped as investors digested more poor economic data and looked to the new U.S. economic stimulus package for supporting Crude. The U.S. Energy Information Administration released U.S. Crude Oil inventories data showing inventories were more than 6 times the level forecasted by analysts. Later in the day, Crude showed signs of a rally as traders found a bright spot in the quick passage of President Obama's economic plans quick passage in the U.S. House of Representatives.
Crude Oil finished the day down at $43.01, down 57 Cents. The price of Crude Oil is likely to decline in the coming days. This is due to the likelihood of demand continuing to weaken and the supplies of Crude Oil likely to grow in the short-medium term, as was seen in the inventories data. This trend is expected to continue for at least the next six months. Demand will only grow, when the leading economies recover from the global recession. Look for Crude to finish the week down further, perhaps at the $41.00 mark.
The 4 hour 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.
As a result of a significant downward movement yesterday, the pair has been pushed into the over-sold territory on the daily chart's RSI, indicating that an upward reversal may occur later today. The hourly chart's Slow Stochastic also appears to be showing an imminent bullish cross, which supports this notion. Going long with tight stops might be the right choice today.
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.
Narrow range trading continues as the pair did not make a significant move in either direction, and is currently traded around the 1.15 level. The daily chart RSI is already floating in the overbought territory. It appears that the possible next move might be a bearish one. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.
The Wild Card
After a moderate bullish correction, this commodity is heading $857.08 per ounce. The daily chart is showing growing bearish momentum. This may prove to be a good opportunity for forex traders to join a potentially strong uptrend that might yield high profits.
|07:00||JPY||BoJ Outlook Report||-||-||-|
|08:00||EUR||German Retail Sales||m/m||2.5%||-0.8%||-|
|08:45||EUR||French Consumer Spending||m/m||0.7%||-0.3%||-|
|10:00||EUR||Italian Monthly Unemployment Rate||12.3%||12.4%||-|
|11:00||EUR||CPI Flash Estimate||y/y||0.3%||0.4%||-|
|11:00||EUR||Italian Prelim CPI||m/m||-0.3%||-0.1%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|13:30||USD||Employment Cost Index||m/m||0.7%||0.6%||-|
|14:55||USD||Revised UoM Consumer Sentiment||86.4||86.4||-|
|14:55||USD||Revised UoM Inflation Expectations||2.8%||-||-|