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Monday, 25 Oct 2010
Bernanke Speech Likely to Drive Market Direction Today
As the market's get set for another week of heavy trading, investors are eagerly awaiting a speech from the Fed Chairman today, scheduled to occur at 12:30 GMT. Traders will want to watch out for any mention regarding the size of the Fed's plan for quantitative easing, which is likely to occur as early as next month. The dollar may take further losses today if investors continue to doubt the pace of US economic recovery.
USD - Dollar May Drop Further Ahead of Fed Chairman Speech
Taking a quick look at last week's trading, the dollar saw some heavy market movement against its main currency rivals. A mid-week return to safe haven assets led to huge gains for the USD against the euro. Ultimately, the dollar reversed courses once again, and by week's end, the EUR/USD pair was once again trading around the 1.4000 level. The greenback performed better against the UK pound and Swiss franc. The GBP/USD is pair is down almost 100 pips from the middle of last week, although moderate bullish movement was seen in overnight trading. The USD/CHF pair saw continuous upward movement last week, and is currently trading around the 0.9730 level.
Today, traders will want to pay careful attention to Fed Chairman Bernanke's speech, scheduled to take place at 12:30 GMT. Bernanke will likely hint at the scope of the quantitative easing measures set to take place in the US next month. Should the speech renew investor confidence in the troubled US economy, traders can expect the dollar to make some afternoon gains, particularly against the euro.
Turning to the rest of the week, traders will want to pay attention to Tuesday's US Consumer Confidence report, as well as a batch of significant news set for Wednesday. Early predictions are for slight increases in many of the indicators over their previous releases. Whether this means that US economy is finally improving is yet to be seen. What is for certain is that the dollar is set for a big week.
EUR - EUR Moves Up against Safe Havens
Starting off the week, the euro continues to make gains on the safe haven US dollar and Japanese yen. The EUR/USD pair has gone up over 100 pips in overnight trading, and currently stands at the 1.4030 level. The EUR/JPY pair has moved up close to 50 since markets opened, and is currently trading at around the 113.75 level.
Analysts attribute the euro's gains to renewed investor concerns about the US economy ahead of a speech from the Fed Chairman later today.
Today, in addition to the US news scheduled to be released, traders will want to pay attention to the euro-zone Industrial New Orders figure, set to be released at 9:00 GMT. A significant increase over last month's figure is predicted. If so, the euro is likely to receive a boost in morning trading.
As for the rest of the week, traders will want to pay attention to a batch of French and German indicators set to be released. Germany in particular, which represents the largest economy in the euro-zone, tends to have a large impact on euro values. The German economy has seen steady upward momentum as of late. Positive news this week will likely help the euro against its main currency rivals.
JPY - Yen Continues to Gain on USD
The USD/JPY pair has tumbled close to 40 pips since markets opened for the week and is once again set to fall below the 81.00 level. The yen had begun to lose ground against its US counterpart late last week, but following the G20 summit that occurred over the weekend, has once again resumed its bullish trend.
The summit ended with a pledge from the participating countries to not actively devalue their currencies. Traders will remember that the Bank of Japan did just that several weeks ago, in an effort to weaken the JPY. Japan is dependent on a week yen in order to boost its vital export industry.
With the yen once again gaining on the dollar, investors are eagerly waiting to see if Japan will maintain its pledge of non-interference in the marketplace. Comments from officials in Japan are not encouraging, and traders will want to pay close attention for any surprise moves the BoJ may make this week. If something indeed happens, expect the USD to spike against the yen.
Crude Oil - Oil Prices Spike As Markets Open for the Week
Following a late week rally on Friday, crude oil prices continued to move up in overnight trading. Currently right around the 82.30 level, oil is up close to 70 pips since markets opened. Analysts attribute oil's bullish movement to the downward pressure the US dollar has experienced as of late. Investors often turn commodities like crude oil as an alternative investment when the dollar is down.
Today, with no news forecasted that will directly impact oil prices, traders will want to pay close attention to the Fed Chairman's speech at 12:30 GMT. Should the speech mention in any detail the level of quantitative easing the Fed is likely to implement to help revive the stalled US economy, the dollar may go down further. If the dollar does indeed drop following the speech, traders can anticipate that oil prices will increase further as a result.
The Williams Percent Range on the 8-hour chart indicates that this pair may be approaching overbought territory, and could see a downward correction in the near future. The Relative Strength Index (RSI) on the 4-hour chart is approaching the overbought zone as well. Traders will want to watch out for the RSI moving above the 70 line, in which case a bearish move would likely occur.
Most technical indicators show this pair trading in neutral territory. This typically means that the pair has yet to decide what direction it will be taking in trading today. Traders may want to take a wait and see approach, as a clearer picture will likely present itself later on.
Most technical indicators show this pair approaching oversold territory. Traders may want to pay close attention to the Relative Strength Index (RSI), on the 8-hour chart. Should it drop below the 30 level, the pair may see an upward correction in trading today. Going long with tight stops may be the preferred strategy.
After making some fairly substantial gains in trading late last week, this pair appears to be now trading in neutral territory. With technical indicators showing no clear direction at this point, traders may want to take a wait and see approach for the pair today.
The Wild Card
The Stochastic Slow on the 4-hour chart shows a bearish cross forming. Typically, this is seen as a sign of an impending downward move. This theory is supported by the Williams Percent Range on the 8-hour chart, which is well into overbought territory. Forex traders will want to go short with tight stops today.