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Thursday, 20 Aug 2009
BOE Reveals Doubt over Short-Term Recovery
Yesterday's bearish behavior by the GBP was felt by many traders as the Bank of England's (BOE) Monetary Policy Committee (MPC) released the minutes from a recent meeting regarding interest rates and quantitative easing. There was a hint of dissension among the policymakers with some calling for a greater extension of the quantitative easing program which ended up pumping an additional 50 billion Pounds into the UK market recently. Fears over weak inflationary growth and market downturns have some MPC members lobbying for more aggressive measures, which puts pressure on the Pound.
USD - The Dollar Turns Down as US Stocks Rebound
The greenback fell against 11 of its 16 major currency counterparts Wednesday before a report, expected to show an index of U.S. economic indicators, rose for a 4th consecutive month. The U.S Dollar traded near a 1-week low against the EUR on speculation economic data will add to signs the global recession is easing, prompting investors to seek higher-yielding assets. The Dollar changed hands at $1.4230 vs. the EUR down from $1.4127 yesterday.
The U.S. Dollar was supported in earlier trading by declining U.S. stocks, following Chinese markets, prompting investors to move toward assets perceived as less risky.
However, the Dollar weakened against the Japanese yen, although it came off the day's worst levels, as a sharp slide by China's stock market overnight raised concerns about the global economic outlook and boosted the Japanese currency's allure.
In recent months, the USD has tended to fall as stock prices and risk appetite rises, giving investors less impetus to buy dollars as a safe haven. In the absence of fresh economic data, currencies were mostly following stock prices for direction. Traders may see more volatility and choppy trades given that not much is happening in terms of events. So any correction to stock markets could be a key driver for the USD currency.
EUR - The EUR Hits Session High above $1.42
Europe's single currency gained versus 11 of its 16 major rivals on Wednesday as economists said the Markit Economics' composite index of both industries may be the highest in a year. The index is based on a survey of purchasing managers and due for release on Aug. 21st. The EUR added to gains against the U.S. Dollar, rising 0.6%, as stocks pared losses and oil prices rose sharply. The EUR also pared losses against the Yen and was last down 0.1% at 133.60 yen, off a one-month low of 132.16.
The European currency rose from near a 1-week low against the GBP on speculation a European report this week will show manufacturing and service industries contracted at a slower pace, adding to signs the recession in the 16-nation region is abating. The British Pound weakened 0.9% to 86.07 pence per EUR and dropped 0.2% vs. the Dollar to $1.6534.
The GBP extended losses after Bank of England (BOE) meeting minutes showed that some policymakers had wanted to extend quantitative easing by more than the amount decided. The central bank is spending 175 billion pounds to buy assets in a move aimed at pushing down borrowing costs to revive the U.K.'s shrinking economy. Asset purchases require the BOE to print money, which some investors fear may lead to an oversupply of the Sterling and eventual inflation.
JPY - JPY Rises as Chinese shares fall more than 2%
The Japanese yen rose versus other major currencies on Wednesday as a fall in Chinese shares made investors cautious about returning to risky investments. The Yen climbed to its strongest level in 3 weeks against the U.S. Dollar after China's benchmark stock index fell into a so-called bear market, reigniting concern that the global economic recovery is stalling.
China's main stock index, which tracks the bigger of China's stock exchanges, slumped 4.3%, leading other Asian bourses lower and boosting demand for the Yen as a refuge. The Yen typically rises during times of financial turmoil because Japan's trade surplus reduces the nation reliance on foreign capital. The JPY also gained against all 16 major counterparts after the Daily Telegraph cited Hartmut Schauerte, the economic state secretary, saying Germany is preparing measures with the Bundesbank in anticipation of a new credit crunch wave early next year.
Crude Oil - Oil Rallies on Sharp U.S. Inventory Data
Crude prices soared above $73 a barrel on Wednesday, as rising U.S. equities and an unexpected drop in inventories propelled oil prices to finish at their highest level since early June. Oil surged as much as 5.2% yesterday after crude stockpiles dropped 8.4 million barrels last week, the most since the week ended May 23, 2008, an Energy Department report showed. Crude Oil also gained as the U.S Dollar declined against other currencies, increasing the appeal of commodities to investors looking for an inflation hedge.
Oil prices fell earlier on Wednesday, hitting a low of $68.05 after a near 5% slump in Chinese shares sent doubts rippling through global markets about the strength of the world economic recovery. Traders also watched for storms in the Atlantic Basin but no immediate threat was seen to U.S. oil installations in the Gulf of Mexico. Expectations for a potential rebound in the economy could increase fuel consumption and have already helped lift prices.
Fresh bearish crosses on the hourly MACD and 4-hour Slow Stochastic suggest that a downturn is impending. With weekly momentum shifting into a downward posture, forex traders may see this pair go bearish in the coming hours. Going short may be a wise choice.
This pair is currently giving off mixed signals as bullish and bearish crosses have recently formed on various indicators, which are contradicting one another. Long-term momentum still appears bearish and the doji candlestick formation on the daily chart suggests a downward correction may be imminent. Going short appears to be the preferable strategy.
Recent upward movement has pushed the price of this pair into the over-bought territory on the hourly chart's RSI, suggesting downward pressure. The bearish crosses on the hourly Slow Stochastic support this notion. Going short with tight stops appears to be a good decision for today's trading.
There appears to be a bullish cross on the 4-hour Slow Stochastic, with an impending bullish cross on the 4-hour MACD as well, indicating an impending upward movement. The bullish cross on the hourly MACD supports this notion and gives it some added urgency. Going long as soon as possible might be a wise decision.
The Wild Card
The latest upward movement on this pair has given forex traders two distinct signals for a downward correction later today. The first is a bearish cross on the 4-hour Slow Stochastic, suggesting a downward movement is imminent. The second is a fresh doji candlestick formation on the 4-hour chart, which typically signals a reversal is in the making. Entering short positions as soon as possible may help traders capture decent profits.
|00:00||JPY||Monetary Policy Statement||-||-||-|
|00:00||JPY||BoJ Press Conference||-||-||-|
|00:30||JPY||Tokyo Core CPI||y/y||2.6%||2.5%||-|
|00:30||JPY||National Core CPI||y/y||3.1%||3.0%||-|
|01:05||GBP||GfK Consumer Confidence||-1||0||-|
|01:30||AUD||Private Sector Credit||m/m||0.4%||0.4%||-|
|07:00||JPY||BoJ Outlook Report||-||-||-|
|08:00||EUR||German Retail Sales||m/m||2.5%||-0.8%||-|
|08:45||EUR||French Consumer Spending||m/m||0.7%||-0.3%||-|
|10:00||EUR||Italian Monthly Unemployment Rate||12.3%||12.4%||-|
|11:00||EUR||CPI Flash Estimate||y/y||0.3%||0.4%||-|
|11:00||EUR||Italian Prelim CPI||m/m||-0.3%||-0.1%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|