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Friday, 26 Feb 2010
Bernanke Reaffirms Low Interest Rates
Rumors of another possible downgrade of Greece by Standard & Poor convinced traders to sell the EUR in favor of higher yielding currencies like the Yen, as well as the EUR's traditional rival, the USD. But the Dollar's gains have become muted since Federal Reserve Board Chairman Ben Bernanke continued his testimony yesterday and reaffirmed keeping interest rates at record lows. While helping US stocks rise, the greenback has suffered a minor downturn.
USD - USD Up on European Woes, but Muted by Bernanke's Testimony
The US Dollar continued rising yesterday against all of its major counterparts except the Japanese Yen amid a distinct downturn in the Euro and British Pound. The greenback is currently trading at 1.3580 versus the EUR from yesterday's start of 1.3525, and is rising back towards 89.40 yen from yesterday's drop towards 88.70. Gains similar to those against the EUR were also seen versus the Pound with the buck presently sitting at 1.5276.
Rumors of another possible downgrade of Greece by Standard & Poor's has convinced traders to sell the EUR in favor of higher yielding currencies like the Yen, as well as the EUR's traditional rival, the USD. But the Dollar's gains have become muted since Federal Reserve Board Chairman Ben Bernanke continued his testimony yesterday and reaffirmed keeping interest rates at record lows. While helping US stocks rise, the greenback has suffered a minor downturn.
Today's news is going to be moderate for the US Dollar, relative to its European counterparts. Later in the day we'll receive the US Preliminary GDP figures which are forecasted to show a decreasing speed of growth from 5.7% to 5.6%. The Existing Home Sales figures will also be released at 15:00 GMT and could potentially boost the USD with a small growth in housing sales.
EUR - EUR Continues Bearishness in Light of Poor Fundamentals
The Euro has been on the selling side of the trading equation for weeks now given the poor standing of a few of its member states. The 16-nation single currency is currently trading lower against all of its currency rivals from a lack of fundamental support. Against the Yen, the EUR is currently trading at 121.33 from 122.12 seen at the start of yesterday's trading. Versus the USD, the EUR has fallen towards 1.3580 from the level of 1.3635 seen at this week's start.
Should Standard & Poor's downgrade Greece once more in the coming month the EUR will likely not be able to exit its current slump until these debt concerns are solved. Given the current economic climate in Europe, this is not likely to happen in the near future. Poor economic outlook, declining consumer confidence and a decrease in lending all support the notion that Europe is facing a dismal first quarter. If things don't pick up soon, the EUR may find itself in a bearish channel throughout the coming spring months.
Euro-Zone news today is going to be somewhat absent amid the string of reports coming from Switzerland and the UK. The Swiss will be publishing their KOF Economic Barometer which may show a sign of increasing market sentiment, and could help the CHF in today's trading. The Euro-Zone will be publishing its consumer price index (CPI) reports, but the figures will not likely carry a strong enough impact to reverse current trends.
JPY - JPY Outperforming Other Currencies despite Poor Data
The Japanese Yen has been on the upside of current market fluctuations. The predominance of risk aversion has led the JPY higher against the majority of its currency rivals. Indeed, the Yen appears to be the only currency beating the US Dollar at present with the price reaching a 2-week high of 88.80 in yesterday's closing hours.
Fundamental data does not seem to support the majority of Japan's recent currency gains. Core figures from the Japanese economy are still declining and the recent recall crisis for Toyota is damaging the desirability of Japanese industry. However, the JPY tends to fare well when the economy is performing badly, so the recent growth is supporting this notion. If Japan's economy cannot turn around in the nearest future, the JPY could continue its bullish trend into the month of March.
Crude Oil - Crude Oil Declines Following Economic Concerns
Crude Oil failed to find support above $80 a barrel in yesterday's trading following a series of reports which helped boost the USD temporarily and put downward pressure on commodities. Crude Oil, Gold, Silver and Platinum have all been in decline since the greenback became bullish over a week ago on European economic woes. With Greece continuing to wreak havoc on the Euro-Zone's regional economy, the Dollar stands to continue gaining despite Fed Chairman Bernanke's recent testimony.
Bernanke reconfirmed that the Fed would continue to hold interest rates at record lows, leading stocks to climb higher in yesterday's trading while the USD's boost was dampened. Europe's declining growth and sovereign debt concerns mixed with a shaky US economic recovery have led many investors to assume that energy consumption may fall in the near future and this sentiment is being priced in. If the current risk-averse environment persists, Crude Oil may continue to come under selling pressure.
The daily chart shows the pair has appreciated to a downward sloping trend line that begins on Jan 19th. The 4-hour chart shows the same downward sloping trend line, along with a potential bearish cross forming on the Slow Stochastic Oscillator. This indicates the potential for a downward move in the price. The 7-day Relative Strength Indicator is also floating in the overbought region and is moving lower, further supporting a price move lower. Traders may want to wait for the completion of the sell signals and enter the market near the trend line or at the resistance level of 1.3625.
The pair has displayed an impressive bearish streak over the past month, but the charts are beginning to show some technical resistance. The weekly chart shows the potential for a bullish cross forming on the Slow Stochastic Oscillator, indicating the potential for a rise in the price in the near term. This is supported by the daily chart that also displays a potential bullish cross. Due to both charts forming potential bullish crosses, a greater significance should be placed on the oscillator and caution heeded before adding to any short positions in this pair.
The 4-hour chart shows it might be time to liquidate any short positions. The price is currently approaching the downward sloping trend line that begins on February 19th. The Slow Stochastic Oscillator shows a recent bullish cross has formed, indicating the potential for the price to appreciate in the near term. Both the 14-day and 7-day RSI have dropped below the oversold level and have since breached the 20 level, indicating the potential for a rise in the price.
The drop in the value of the pair has left the price close to the upward sloping trend line that begins on January 13th. This would be the 5th point of contact the currency pair has made with the trend line, making the line very significant. Buying at a significant trend line can be a good opportunity for traders to enter into the market a relatively good price level.
The Wild Card
The daily chart shows yesterday's high price volatility did send the pair below the long term trend line that begins on February 5th, but the price breach failed to close below the trend line. This may present forex traders an excellent opportunity to enter into the market long on the recent price dip.
|08:00||EUR||German Industrial Production||m/m||0.7%||-||-|
|08:01||JPY||BoJ Press Conference||-||-||-|
|08:45||EUR||French Trade Balance||-3.3B||-||-|
|09:00||CHF||Foreign Currency Reserves||540B||-||-|
|10:30||GBP||Manufacturing Production m/m||m/m||-0.8%||-||-|
|10:31||EUR||German 10-y Bond Auction||0.69|1.2||-||-|
|16:00||GBP||NIESR GDP Estimate||0.5%||-||-|
|16:30||USD||Crude Oil Inventories||4.0M||-||-|
|19:01||USD||10-y Bond Auction||2.24|2.7||-||-|
|01:01||GBP||RICS House Price Balance||53%||-||-|
|01:50||JPY||Core Machinery Orders||m/m||-3.6%||-||-|
|05:45||JPY||30-y Bond Auction||1.41|3.1||-||-|