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Wednesday, 7 Oct 2009
Attention Turns to Crude Oil Before Inventory Data
With the US Dollar's future feeling uncertain, attention seems to have turned towards Crude Oil following speculation that the Gulf States recently discussed dropping the USD for oil trading in exchange for a basket of currencies. While the rumor was denied later by Gulf State leaders and foreign ministers, the impact created a moment for pause in the market. As a result, many are now focusing their attention on today's Crude Oil Inventories report to find out where the relative level of demand for the commodity currently stands to gauge if these rumors have any substance behind them.
USD - Dollar Falls on Increased Risk Appetite
The US Dollar fell against most of its major currency pairs yesterday on a media report, later denied, that Gulf Arab states were in talks to abandon the Dollar in oil trading. By yesterday's close, the Dollar had fallen 0.5% against the JPY to 88.70, nearing an 8-month low hit last week. The greenback experienced similar behavior against the EUR and closed at 1.4723.
A rise in equity and commodity prices on the back of strong U.S. data also drove investors from the U.S. Dollar and into perceived riskier assets.
The buck had already been under pressure on expectations the U.S. Federal Reserve would not rush to raise its interest rates and on the growing view that the greenback has become a funding currency for carry trades. In addition, analysts attributed the fall in the Dollar, which has been treated as a lower risk, safe-haven investment, to growing optimism that the worst of the financial crisis has passed. This has caused investors to buy commodity-linked and higher-yielding currencies, which rallied earlier this week.
Looking ahead to today, the most important economic indicator scheduled to be released from the U.S. is the Crude Oil Inventories report at 14:30 GMT. Traders will be paying close attention to today's announcement as it has the potential to impact the price of oil, and thus the USD, in today's trading.
EUR - EUR Rises on Weaker Dollar
The EUR finished yesterday's trading session with mixed results versus the major currencies. The 16-nation currency extended gains versus the U.S. Dollar on Tuesday, to trade above $1.4720 amid a broad sell-off in the greenback. The EUR did see bearishness as well as it lost 50 points against the JPY and closed at 130.54.
The EUR was affected by the global stock market rally and the bearish Dollar. The U.S. stock market rally led investors to buy-back into the EUR, as they looked for returns on buying commodity-linked and higher-yielding currencies in Tuesday's trading.
The Pound Sterling hit a one-week low against the EUR yesterday after an unexpected fall in UK manufacturing output raised doubts about the economy's recovery prospects. British manufacturing output fell 1.9% on the month in August -- the steepest fall since January -- and compared with July's downwardly revised rise of 0.7%.
Looking ahead to today, the most important economic indicator scheduled to be released from Euro-Zone is German Factory Orders at 10:00 GMT. Analysts are forecasting this figure to decrease from its previous reading. Traders will be paying close attention to today's announcement as a better than expected result may continue to boost the EUR in today's trading.
JPY - Yen Continues its Bullishness against Major Currencies
The Japanese Yen strengthened against most of its major counterparts yesterday, continuing to prove that for the time being this is the solid currency that traders can rely on to provide them with steady profits. The Yen extended gains versus the Dollar on Tuesday, to trade at about 89.40 amid a broad sell-off in the USD. The JPY also saw bullishness against the EUR and closed at 130.60.
The yen gained against the Dollar after Japanese Finance Minister Hirohisa Fujii said that he told officials from the Group of Seven (G7) nations in Istanbul last weekend that governments shouldn't pursue policies that seek to devalue their currencies.
Further strengthening could be seen in the Yen if other nations begin to raise interest rates in order to ward off inflation. This could potentially wreak havoc on the Japanese economy by making Japanese exports relatively more expensive compared to their foreign counterparts. The yen has gained 14% against the Dollar in the past year, hurting earnings for export-dependent Japanese companies.
Crude Oil - Crude Oil Inventories Data to Drive Oil Trading Today
Crude Oil prices experienced another day of appreciation as the oft-traded commodity rose above $71 a barrel during yesterday's trading session. Crude Oil prices rose yesterday as traders took their cue from the weak US Dollar, hit by a report that Gulf States considered dropping the greenback for oil transactions.
Oil and other commodities denominated in dollars for global trading tend to rise when the U.S. currency falls as they become cheaper for holders of other currencies. A move away from Dollar-based pricing of the world's leading commodity could further weaken the greenback.
As for today, traders should pay attention to the U.S Crude Oil Inventories report scheduled, as it tends to have a large impact on Crude Oil's prices, especially in the short-term.
The price has been floating in the over-bought territory on the 4-hour RSI for some time now, but appears to be cascading downward back into neutral territory. This suggests that the momentum has turned for the time being and traders may see some bearishness later today. The impending bearish cross on the daily Slow Stochastic supports this notion. Going short appears to be today's preferable strategy.
There seems to be what looks like a bullish cross on the 4-hour Slow Stochastic, suggesting an impending bullish correction. As the price sits just above the over-sold territory on the daily RSI, there may indeed be a hint of upward pressure. Going long might not be a bad tactic today.
The price of this pair has recently entered the over-sold territory on the 4-hour RSI, suggesting upward pressure. The series of bullish crosses on the daily MACD strong support the notion of an imminent upward move. Going long on this pair could turn out to be a wise decision today.
This pair seems to be giving off mixed signals. The price is floating in the over-bought territory on the hourly RSI; however, the bullish crosses on the daily Slow Stochastic, as well as the hourly and 4-hour MACD suggest upward momentum. This indicates range-trading price behavior. The pair may see a small downward move in the nearest time-frame, but the overall trend right now is bullish. Going long with wider stops, to allow for the fluctuation of the trend, may be a good choice today.
The Wild Card
The recent upward movement of this commodity's price has pushed its technical indicators into a corrective posture. The 4-hour and daily Slow Stochastic are showing bearish crosses and the 4-hour RSI has the price floating near the highest level of the over-bought territory, suggesting very strong downward pressure. Forex traders involved in the commodities market will not want to miss out on the apparently obvious downward movement that this commodity is expecting!
|01:00||EUR||German Prelim CPI||m/m||0.2%||-0.1%||-|
|01:00||EUR||Italian 10-y Bond Auction||-||-||-|
|01:00||ALL||Jackson Hole Symposium||-||-||-|
|01:05||GBP||GfK Consumer Confidence||4||4||-|
|01:30||JPY||Tokyo Core CPI||y/y||-0.1%||-0.1%||-|
|01:30||JPY||National Core CPI||y/y||0.1%||-0.2%||-|
|09:00||EUR||Spanish Flash CPI||y/y||0.0%||-0.1%||-|
|10:30||GBP||Second Estimate GDP||q/q||0.7%||0.7%||-|
|10:30||GBP||Prelim Business Investment||q/q||2.0%||1.6%||-|
|14:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|16:00||USD||Revised UoM Consumer Sentiment||92.9||93.2||-|
|16:00||USD||Revised UoM Inflation Expectations||2.8%||-||-|