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Tuesday, 8 Dec 2009
Bernanke's Speech Weakens the Dollar as Interest Rate Changes are Doubtful
The dollar fell today after Federal Reserve Chairman Ben Bernanke gave comments concerning the slow recovery of the U.S. economy may keep inflation low. This hints towards a continued Fed policy of lower interest rates for the foreseeable future and short term pressure on the dollar.
USD - Dollar Falls after Bernanke's Speech
Bernanke's speech did not hint at an estimated time of a rate increase, though one will be needed to tighten monetary policy after the excess liquidity provided by the central bank during last year's financial crunch. The U.S. economy is still in recovery mode with high unemployment at 10%. At this point in time, inflation concerns are slight and the chance of a rate increase in the near future is slim.
The remarks made by the Fed chief helped to boost the EUR/USD, ending a dollar rally that began on Friday after a better than expected U.S. Non-Farm Employment change. Friday's significant drop in the pair's rate required many traders to abandon their long positions in the pair, adding significant momentum to the downward price move. However, today the long term upward trend was seen as the EUR climbed against the dollar.
The pair is currently trading at 1.4840 after floating just below the 1.4800 prior to Bernanke's speech. Earlier in the day the EUR/USD was trading at its lowest level in the previous five weeks. The Pound also fell against the dollar, trading at 1.6452, down from an opening price of 1.6476.
The Canadian Dollar will come into focus during today's trading. The Bank of Canada will announce its decision on the overnight rate which is not expected to change, along with the release of the accompanying rate statement. The explanation may contain hints at the future direction of Canadian monetary policy. A dovish tone in the rate statement may continue to push the USD/CAD lower towards the 1.0400 level today.
EUR - GBP Economic Data to Highlight Today's Trading
Yesterday's trading had the Pound mixed against its major pairs. The pound traded down against the Dollar, while strengthening against the EUR. During the Japanese trading session, the EUR/GBP was trading up at 0.9020 but off from yesterday's opening price of 0.9034.
Today traders will focus on the state of the U.K. economy as major economic data is set to be released. First to be released at 9:00am GMT will be the Halifax Housing Price Index (HPI). The leading indicator of the housing industry's health shows the change in housing prices and can influence the movement of the Pound. The rate is expected to decline by 4%. Up next will be manufacturing production numbers, set to be released at 9:30am GMT. The number is associated with the previous month and is a large percentage of total industrial production. The release is considered to be a good indicator of England's overall economic health.
These two major economic indicators may set the tone for today's trading in the Pound's crosses. Bullish numbers could send the pound higher against its rivals. Toward s the end of the trading day, we may see the GBP/USD trading near the 1.6535 mark and the EUR/GBP floating close to 0.8990.
JPY - Dollar Drops against the Yen after Profit Taking
The Dollar fell versus the yen yesterday with traders taking profits. The pair fell from last week's one month high after the pair was boosted by the surprisingly positive U.S. Non Farm Payrolls report which posted better than expected job numbers.
As the USD/JPY approached the key 90 yen level, the currency pair was sold off. Today's overall Dollar weakness also helped to push the pair lower. The pair is now trading down at 89.03 from an opening price of 89.86.
Yesterday's price movement can be attributed to the speech by Federal Reserve Chairman Ben Bernanke. The market may continue to be influenced by speculation and predictions of just when the U.S. will raise interest rates. With this in mind, the dollar may push above the 90 yen resistance level by the end of the week.
Crude Oil - Oil Falls again Despite a Weak Dollar
Crude Oil continued its decline for the fourth consecutive trading session following Bernanke's speech and estimations for lower inflation and a weak U.S. economy. The price of Crude ended the day down at $74.14 after an opening price of $75.60. This was a price drop of almost 2%. Today's weaker dollar may have helped to lessen the price drop in Crude.
The price may have also been influenced by weak fundamentals in the Crude Oil market. There may still be an excess amount of supply in the market that has yet to be reduced with lower demand due to the slowing global economy.
The positive from yesterday may be in Bernanke's speech. As long as inflationary pressures are muted, the Fed will continue to hold Interest Rates low. This could be a positive factor for the price of Crude Oil. A higher Interest Rate would be dollar positive, thereby potentially pushing crude oil prices lower.
The hourly chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, the 4-hour Chart's RSI is already floating in the oversold territory indicating that a bullish correction might take place in the nearest future. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
The pair has been range-trading for a while now, with no specific direction. The Daily chart's Slow Stochastic providing us with mixed signals. The 4 hour charts do not provide a clear direction as well. Waiting for a clearer sign on the hourlies chart might be a good strategy today.
The pair has recorded much bearish behavior yesterday. However, the technical data indicates that this trend may reverse anytime soon. For example, the 4-hour chart's Stochastic Slow signals that a bullish reversal is imminent. An upward trend today is also supported by the hourly chart's Slow Stochastic. Going long with tight stops may turn out to pay off today.
The price of this pair appears to be floating in the over-bought territory on the 4-hour chart's RSI indicating a downward correction may be imminent. The downward direction on the daily chart's Slow Stochastic also supports this notion. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.
The Wild Card
Crude oil prices have dropped significantly yesterday and peaked at $74.00 per barrel. However, on the 4-hour chart RSI is floating in an oversold territory suggests that a bullish correction is impending. This might be a great opportunity for forex traders to enter the trend at a very early stage.
|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%||-||-|