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Monday, 2 Mar 2009
As the Global Economy Sinks the Dollar Rises to the Top
The USD may continue to strengthen on global economic weakness. As equity markets maintain their bearish momentum, the Dollar has shown considerable strength. The trend of buying Dollars over other major pairs could continue into this week as the global economy continues to suffer and risk aversion remains high.
USD - USD Gaining on Negative Fundamentals
After stock markets plummeted to a 12-year low this past week, the USD apparently responded with a strong appreciation in value. Against its primary currency rival - the EUR - the greenback gained almost 100 points in early trading hours, and is currently trading near the price of 1.2600. It made similar gains against the GBP as it started the day at 1.4314 and currently stands near 1.4260.
Lately the U.S. Dollar has been strengthening as a result of a weakening global economy. With talk of multiple bailouts, stimulus bills, and stipulations for domestic investment, many large hedge funds are beginning to bank on those currencies which benefit from protectionism. Economies which rely on exports typically suffer the most from protectionism, whereas those economies which import more possess the ability to regain lost momentum during times of international draw-back. The USD is benefiting from just such an action.
Many banks and large financial firms are pulling out of risky investments and into safe-haven currencies, the Dollar being the primary safe-haven among them. As a result, traders are seeing a reversal to typical economic outcomes. With more negative news coming from every economy, traders may actually expect the value of the primary global safe-havens - the USD and Gold - to continue their rally and gain levels of strength not seen in decades. The coming week will be no different considering a multitude of economic indicators are expected to be released, all of which are forecast to show a continuation of economic suffering across the boards.
EUR - EUR Weakness Evident as Investor Confidence Writhes in Anxiety
Losing value to the majority of its currency pairs these past few trading days has made the EUR look less and less appetizing for willful traders. Trading down against the USD, just under the 1.2600 price barrier, the pair has been gaining momentum on its downward slide. Against the British Pound, the EUR is also taking losses, trading close to the 0.8840 price level in today's early trading hours.
Not helping this large regional currency was the fact that the European Union (EU) rejected recent calls for additional aid to Eastern European countries in need of financial assistance. What many analysts feared all along might just come true. The Euro-Zone is appearing to polarize into rival camps with the potential of instituting trade restrictions and protectionism within the region. Large economies, such as Germany, are pairing against the smaller, harder-hit economies of East Europe. Investors are bailing out of the 16-nation currency as a result.
After a series of economic data which has highlighted just how weak the Euro-Zone economy has become, the European Central Bank (ECB) appears poised to slash interest rates yet one more time to a record low of 1.50%. Britain may also be following this rising trend by cutting their rates by 50 basis points as well to 0.50% this Thursday. Traders have begun to price in these upcoming rate cuts and many investors believe this week will be one of the more interesting weeks in forex trading for 2009 thus far.
JPY - JPY Weakness Growing More Apparent
Those investors trading the JPY lately have taken note of the recent downward trend occurring with this island currency. When the global economic recession began, there was a rush to unwind carry trades when interest rates were being slashed. This helped strengthen the JPY. As economies posted continuous negative data the JPY became a safe-haven. However, nowadays the JPY is also showing signs of continued stress which has investors worried that the Japanese economy may not be able to withstand the rising tide.
Trading at record highs against its currency rivals in recent months, the JPY now stands to lose most of what it has gained. The foreboding of such a disastrous turn of events for Japan, this currency weakness will no doubt harm the island economy in ways which it may struggle to recover from. The JPY is currently trading at its lowest level in 2009, with a reading of 97.55 against the Dollar and 122.67 against the EUR. Traders won't likely see this trend reverse anytime soon.
OIL - Oil Demand Continues to Fall; As Does the Price of Crude Oil
After climbing to a recent high of $45 a barrel last week, the price of Crude Oil has apparently continued its descent. It has decreased in price for two consecutive days and currently stands just under $44 a barrel. This coming directly after a short-lived increase after it dropped to $42.50 during late trading hours last Friday.
It has been said by many analysts the world over that the ongoing economic recession is responsible for the downward slide in oil prices. This continues to be the case as many forecasts for oil demand are being reduced even further for the 2009 fiscal year. As the specter of this recession looms over investors, there is likely to remain a downward pressure on energy prices despite OPEC's recent production cut.
Since the opening of the trading week, the pair has dropped about 100 pips. The 4-hour chart shows that a bearish channel has been formed and that the pair is now testing the 1.2540 level. Traders should look for a breach of the support level, as it might trigger another bearish move.
The cable has been range-trading within a restricted range for a few days, hovering around the 1.4270 level. Currently, a bearish cross on the 4-hour chart's Slow Stochastic suggests that the pair may enter a mild downtrend with a potential of reaching the 1.4200 level.
It appears that the pair might have limited it bullish trend after peaking at 97.65. A fascinating triple doji has been formed on the daily chart, indicating that a strong breach is imminent, and as all oscillators are pointing down, it appears that the momentum is quite bearish. A breach of the 96.80 level might validate the bearish trend.
Ever since the pair bottomed at the 1.1460 level, it has reversed course, and is now trading around the 1.1700 level. As both the MACD and the Slow Stochastic on the 4-hour chart are giving bullish signals, it seems that another bullish session is impending. Going long appears to be the preferable choice today.
The Wild Card
The pair has entered an extremely strong bullish trend lately, appreciating over 2,500 pips in a few days. The 4-hour chart shows a very clear bullish channel, with the potential of reaching even higher. This might be a great opportunity for forex traders to join a very popular trend.
|14:00||USD||Fed Chair Yellen Speaks||-||-||-|
|15:30||USD||Natural Gas Storage||94B||83B||87B|
|00:00||JPY||Monetary Policy Statement||-||-||-|
|00:00||JPY||BoJ Press Conference||-||-||-|
|00:30||JPY||Tokyo Core CPI||y/y||2.6%||2.5%||-|
|00:30||JPY||National Core CPI||y/y||3.1%||3.0%||-|
|01:05||GBP||GfK Consumer Confidence||-1||0||-|
|01:30||AUD||Private Sector Credit||m/m||0.4%||0.4%||-|
|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%||-|