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Monday, 19 Oct 2009
Bernanke's Speech to Dominate the Market Today
Following a week that predominately delivered remarkable record highs for gold, in addition to new lows for the Dollar; the main question is whether this trend will extend. Perhaps not and we'll witness a change in trends this week. Federal Reserve Board Chairmen Ben Bernanke is due to deliver a speech today which might set the tone for the major currencies, and may just help to clarify the picture of today's market.
USD - Dollar Drops to a Year Low against the Euro
Last week the Dollar saw mainly downtrends against the major currencies. The USD dropped to a 14-month low against the EUR, as the EUR/USD pair reached the 1.4965 level. The Dollar weakened against the Pound as well, hitting as low as 1.6395.
It appears that the Dollar dropped due to some positive data from the U.S economy. The Core Retail Sales rose by 0.5% in September, beating expectations for a 0.3% rise. The core report measures the change in the total value of sales at the retail level, excluding automobiles and airplanes, due to their large volatility. The Core Consumer Price Index rose by 0.2%. This was the 9th consecutive time that this crucial indicator rose, and is one of the strongest signs that the American economy is recovering.
Last week's trading session proved once again that positive data from the U.S economy is continuing to only drives investors into riskier investments, and not yet into the Dollar. Furthermore, it seems that positive publications from the U.S help support the Euro, as the European nations rely greatly on U.S consumption.
As for the week ahead, many influencing news events are expected from the U.S economy. The housing data seems to be the most intriguing data this week as the Building Permits are expected on Tuesday and the Existing Home Sales on Friday. Many analysts share the assumption that the real-estate bubble has caused this recession, and thus only the housing sector can pull the economy out of recession. This means that the results of these reports should have a large impact on the market, and traders should use it as best they can in their trading tactics.
EUR - Euro Rises despite Negative Data
The Euro rose against most of its major counterparts during last week's trading session. The EUR rose to a 14-month high against the Dollar as the EUR/USD pair reached the 1.4965 level. The Euro also saw a bullish trend against the Yen.
The Euro rose last week despite some relatively negative data published from the Euro-Zone. The most crucial publication was the German ZEW Economic Sentiment, which is a survey of about 350 institutional investors and analysts who are asked to rate the next 6-month outlook for Germany. The survey dropped to 56.0 from 57.7 on September, failing to reach expectations of a 58.6 reading. The European Core Consumer Price Index for September dropped by 0.3%. This marked the 4th drop in a row. Consumer prices account for a majority of overall inflation, and thus a repeatedly negative results show that maybe the European economies aren't recovering as quickly as expected.
Nevertheless, despite some unfortunate figures from the Euro-Zone, the Euro appreciated against most of the major currencies. It seems that the main reason for this turn of events is the weak Dollar, which boosted the Euro. As long as the Dollar continues to fall against the majors, the Euro is likely to continue appreciating.
Looking ahead to this week, many interesting data releases are expected from the Euro-Zone. The most impacting publication is likely to be the German Ifo Business Climate report. This report is a survey of about 7,000 business who are asked to rate the current business conditions and expectations for the next 6 months. If this report will also fail to reach expectations it has the potential to reverse the Euro's currently bullish trend.
JPY - Yen Drops against the Majors
The Yen saw an extremely bearish session during last week's trading. The Yen dropped against the Dollar, the Euro and the Pound. This was the most remarkable drop the Yen has experienced against the Pound, as the GBP/JPY pair rose by about 600 pips and is currently traded at the 148.40 level.
The Bank of Japan (BoJ) chose to leave the Japanese Interest Rates at the 0.10% level, the lowest in the industrial world. The BoJ's policy is quite clear. Its purpose is to keep the Yen as low as possible in order to help the Japanese exporters. The objective behind it is that the BoJ believes that raising exports will be the greatest aid to the troubled Japanese economy, and thus chooses to have the lowest rates in the world as a tool to reach this target. For the time being it seems that the BoJ's plan is working, and the Yen is indeed weakening.
As for this week, a batch of data is expected from the Japanese economy. However the most impacting economic publication looks to be the Trade Balance, expected on Wednesday. The Trade Balance measures the difference in value between imported and exported goods and services during September. Due to the high dependence of the Japanese economy on its export, this report tends to have a large impact on the Yen. If the end result will reach expectations for a 0.38T rise, the Yen is likely to be supported as a result.
Crude Oil - Crude Oil Almost Reaches $80 a Barrel!
Crude Oil continued to rise during last week. Crude Oil saw a very strong and coherent bullish trend during almost all of last week's trading sessions. By the end of the week a barrel of oil had risen in price by $6 and is currently trading near $79.
The most significant reason for the rally of crude oil is the sliding Dollar. Because Crude Oil is traded in Dollars, the usual affect of the weakening Dollar is the strengthening of oil.
Furthermore, in a week that the USD saw a 1-year low against the Euro, and the EUR/USD pair almost reaches the 1.50 level, crude oil prices are likely to appreciate. In addition, the batch of positive data from the U.S economy last week has reinforced the sensation that the global economy is indeed recovering. Investors assume that this means that oil demand will increase as a result, and thus the price of crude oil rose.
Looking ahead to this week, traders are advised to follow the major publications from the U.S and the Euro-Zone as they will have an immense effect on the value of oil. In addition, traders should also follow the Crude Oil Inventories weekly report, which is expected on Wednesday. This report tends to have an immediate impact on crude oil, and traders should take advantage of it.
The indicators on this pair's daily chart appear to be showing strong downward signals today. A fresh bearish cross on the daily Slow Stochastic, followed by a downward cascading movement suggests that today may see downward mobility. The price also appears to have turned downwards and begun exiting the over-bought territory on the daily RSI, which suggests very strong downward pressure. Going short may be a wise choice today.
The price appears to be floating in the over-bought territory on the 4-hour RSI, and has turned downwards, which suggests moderate downward pressure. The fresh bearish cross on the daily Slow Stochastic supports the downward notion. Going short appears to be today's preferable tactic.
There appears to be a fresh bearish cross on the 4-hour MACD, indicating a downward correction is imminent. The price is also floating in the over-bought territory on the 4-hour RSI, which supports this notion. Going short on this pair may not be a bad idea.
The fresh bullish crosses on the daily Slow Stochastic and 4-hour MACD both suggest that this pair is due for an upward correction in the immediate future. As the price has just left the over-sold territory on the daily RSI, it appears as if the move may be muted somewhat. Going long with tight stops may be preferable today.
The Wild Card
This pair is beginning to show very strong signs of an impending downward movement today. The daily chart's Slow Stochastic shows 3 consecutive bearish crosses, and the 4-hour MACD shows 2 bearish crosses. This suggests very strong downward pressure and forex traders can take advantage of this knowledge by entering short positions on this pair, and at a great entry price!
|08:00||EUR||German Retail Sales||m/m||0.5%||0.3%||-2.3%|
|08:45||EUR||French Consumer Spending||m/m||0.1%||0.7%||0.4%|
|10:00||EUR||Italian Monthly Unemployment Rate||12.4%||12.3%||-|
|11:00||EUR||CPI Flash Estimate||y/y||0.2%||0.2%||-|
|11:00||EUR||Italian Prelim CPI||m/m||0.1%||0.0%||-|
|14:30||USD||Employment Cost Index||q/q||0.7%||0.6%||-|
|16:00||USD||Revised UoM Consumer Sentiment||93.3||94.2||-|
|16:00||USD||Revised UoM Inflation Expectations||2.8%||-||-|