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Tuesday, 14 Jun 2011
British CPI, US Retail Sales on Tap
The UK Office for National Statistics is due to release several significant data reports today; most impactful will be the 9:30 GMT publication of the CPI and RPI inflationary figures. The US will also be publishing its retail sales figures, and PPI data.
USD - USD in Decline ahead of Retail Sales, PPI Reports
The US dollar was seen in decline in late trading yesterday as low market liquidity combined with a positive industrial production figure in Italy to generate an uptick in euro values. With most of Europe coming back online today following yesterday's hiatus, traders appear anxious to evaluate the value of the region's currencies after last week's muted response to hints at a future rate hike by the ECB.
The US economy was also largely absent yesterday, with only a minor speech by President Barack Obama about the economy at lighting manufacturer, Cree Inc., in Durham, NC. The impending vote on patent reform in the US Congress has been hyped recently with national politicians harkening towards a strengthening of the US manufacturing and industrial innovation sectors via revisions to patent law which would make it easier for firms to obtain licenses and protection for their products.
With today's retail sales and PPI figures impending, many analysts are trying to evaluate what impact the data will have on this upcoming vote. The need for patent reform has been a leading issue in many areas of the US economy and both sides of the House and Senate appear poised to favor the agenda item. A bipartisan agreement could boost confidence and lift the USD in the short- to mid-term.
GBP - CBI: British Unemployment Expected to Rise in 2011
The British pound (GBP) was seen trading with mixed results yesterday, ahead of today's news. The UK Office for National Statistics is due to release several significant data reports today; most impactful will be the 9:30 GMT publication of the CPI and RPI inflationary figures.
While the pound was seen climbing sharply against the euro and US dollar yesterday, it appears to have touched a record low against the Swiss franc and was trading sideways versus the Japanese yen. Safe-haven currencies are on the rise lately, and even the relatively stronger pound wasn't immune to downfalls against these dominating currencies.
A recent report by the Confederation of British Industry (CBI) highlighted the structural weaknesses found in the UK economy, focusing intently on the labor market.
The report directed attention to a weakness in the British labor market that masked by astounding growth during the years prior to the financial meltdown of 2007-08. These structural weaknesses are not likely to abate this year, and the CBI is forecasting a growth in unemployment through the remainder of 2011 which will likely drag on the pound as the months progress.
JPY - Japanese Yen Bullish as Traders Seek Safety
The Japanese yen has been trading higher against most of its currency rivals recently as investors move toward safety. Japan's economy has published several positive figures over the last week, much of which has helped establish the yen's recent bullishness. With today's rate statement affecting JPY values, traders are likely to see heightened volatility as the day moves ahead.
While the yen suffers from its own economic concerns, particularly downturns in manufacturing and industrial output, shifts in consumer sentiment have helped lift yen values against a number of its rivals. The allure of buying the JPY has also gained from an increased focus on interest rate differentials and carry-trades. Many nations are beginning to lift interest rates, making a carry-trade with the JPY more enticing. Traders appear to be expecting a strengthening JPY this week.
Oil - Oil Prices Plummet ahead of China and US Data
Oil prices dropped sharply this morning with the $97 price level approaching fast. Data releases out of China and the US today are driving many investors away from physical assets in expectations of a decline in growth among two of the world's largest economies. The weakness of OPEC, revealed in last week's meeting, also suggests that production output may become a more unilateral decision in the weeks ahead, possibly leading to boosts by Saudi Arabia and other Western allies.
The value of the US dollar versus the euro in recent trading has also dropped towards a six-day low of 1.4530, which has helped prevent oil prices from taking off after last week's surprisingly unhinged OPEC meeting. With today's steady sideways movement, traders appear likely to see oil reaching a decision point this week; which may have taken place yesterday. A test of this weekly low is expected over the next few days.
A three week rally was met with a failure of the pair to breach 1.4700, a level not far from the previous trend line which opened the door for a significant pullback that retraced 50% of the late May to early June gains. The week's declines ended at the 20-day moving average at 1.4330 and will serve as initial support. Falling daily stochastics suggest the move lower may have scope to continue where the pair may find resistance at 1.4250, a level that coincides with the 61% retracement and the rising trend line from the May low. A breach here and the pair will test the 100-day moving average followed by the May low at 1.3970. To the upside, resistance will likely come in 1.4570 followed by 1.4700.
The weekly candlestick suggests further declines may be in store as last week's candlestick ended on a shaven bottom, indicating momentum is moving to the downside. A confirmation will be needed from this week's trade to confirm the bearish pattern. In the meanwhile the move lower finished at the 38% retracement level of the December to April move and is quickly approaching the trend line off the May 2010 low at 1.6180. The pair could receive a bounce from this level, as was the case in late May. Resistance is located at 1.6400 and 1.6460, and 1.6550. Should the pair not receive a bounce at the trend line declines could mount to 1.6060 and the April low at 1.5935.
The yen was relatively unchanged from the previous week after an attempt to breach below the 80 yen level was only briefly successful before the pair was bid higher. While most oscillators remain in neutral territory, the pair continues to trade lower with resistance at the falling trend line from April high which comes in near the 20-day moving average at 81.00. This level may offer traders a better price to enter short. Further resistance is located at 81.75 from the May 31st high followed by 82.25 of the May 19th high. Support comes in at the May low of 79.50 followed by the all-time low at 76.11.
The pair is testing a short term resistance level at 0.8450 and a breach here would expose the resistance at 0.8855 which lies just below the 20-day moving average. A rise to this price may offer traders better levels at which to enter short. Above these levels rests the falling trend line from the mid-February high which comes in at 0.8720. Support is found at the all-time low at 0.8325.
The Wild Card
Spot crude oil prices broke below the rising support line from the triangle consolidation pattern that the commodity has been trading in over the past month. Thus forex traders may want to be short on spot crude oil with a first target at $93.00. This level has added significance as it coincides with the January highs as well as the rising trend line from the August low.