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Friday, 28 May 2010
Can EUR Sustain Thursday's Rally?
The EUR rallied versus the USD yesterday as U.S equities surged and China denied reports it is contemplating a reduction in its European bond holdings. But can the EUR maintain its gains heading to next week?
USD - USD Declines As Risk Taking Returns
The USD declined against the EUR Thursday as market sentiments improved and U.S stocks showed a 2.5% gain. Growth tied currencies benefited the most from the improved sentiment Thursday as investors shifted away from the safety of the USD and JPY with the Australian Dollar shooting up 3.5% and the Canadian Dollar soaring nearly 2% against the greenback.
U.S growth data released Thursday showed that the number of U.S. workers filing new claims for unemployment benefits fell last week, but the drop was lower than expected. The GDP data also came below expectations, however, it still showed that the U.S economy expanded last quarter. Despite falling short of expectations, the data still indicated the U.S. is on the path toward a sustainable recovery and is unlikely be hurt by Euro-Zone debt issues.
EUR - EUR Rallies as Investor Confidence Improves
The EUR rallied Thursday after nearing a four-year low against the Dollar overnight, after China denied rumors it was reviewing its holdings of Euro-zone debt. The EUR gained 1.6% to $1.2367 at closing time in New York, from $1.2178 Wednesday. It bought 112.62 Yen after touching 108.84 on May 25th, a nine year low.
While short term investor sentiment seems to have improved, and it looks like the European debt crisis is unlikely to spread outside the Euro-zone, recovery concerns linger. Both credit risk, as well as the needed austerity measures and their implications on the regions recovery are still cause for concern. Furthermore, it is unlikely the ECB will raise interest rates in the near future which puts further pressure on the EUR.
JPY - Yen Falls As Investors Turn Away From Safe Havens
The Yen dropped against all of its most-traded counterparts as gains in stocks and commodities spurred demand for growth-linked assets, turning investors away from the safe haven USD and JPY.
Growth tied currencies such as the AUD and NZD benefited greatly from this surge, with The Australian dollar heading for its first weekly advance in more than a month. The Australian Dollar advanced 3.5% as Asian equities extended a global rally, boosting demand for higher- yielding assets.
Crude Oil - Crude Soars As Risk Taking Returns
Crude futures rallied to a two week high Thursday as the EUR appreciated against the USD and global equity markets soared. Light, sweet crude for July delivery settled $3.04, or 4.3%, higher at $74.55 a barrel on the New York Mercantile Exchange. Spot Crude is currently trading at $75.30 a barrel.
Futures have risen 8.4% over the last two days as outlook for the debt crises in Greece and Spain began to look less dire for the world economic recovery, supporting commodities and growth tied currencies. Oil prices rallied after China denied a report that it is considering a reduction in its European bond holdings and following the release of U.S data which showed that the world's largest economy is on the path to recovery, which boosted demand expectations.
Most technical indicators show the pair currently trading in neutral territory, indicating that no major price shifts are expected in the immediate future. The exception is the Stochastic Slow on the hourly chart, which shows the pair approaching oversold territory. Still, traders are advised to take a wait and see approach today, as no definite trend is known.
The Relative Strength Index on the 4-hour chart indicates that the pair is trading well into overbought territory, indicating that a bearish correction may be imminent. This theory is supported by the Bollinger Bands on the 8-hour chart. Traders are advised to go short on this pair today.
The Stochastic Slow on the 4-hour chart shows a bullish cross occurring, indicating that this pair may see a downward correction in the near future. This theory is supported by the Relative Strength Index on the 2-hour chart, which shows the pair trading well into overbought territory. Traders are advised to go short with tight stops today.
Most technical indicators show this pair trading in neutral territory, meaning that no major price shifts are expected in the near future. At the same time, the Relative Strength Index on the daily chart shows the pair trading well into overbought territory. Traders may want to take a wait and see approach today, but keep an eye out for any bearish trends.
The Wild Card
The Stochastic Slow on the 4-hour chart indicates that the CFD is trading well in overbought territory. This typically means a bearish correction could occur in the near future. This theory is supported by the Relative Strength Index on the 2-hour chart. CFD traders are advised to go short with tight stops today.
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||0.1%|
|13:30||USD||Employment Cost Index||m/m||0.7%||0.6%||0.7%|
|14:55||USD||Revised UoM Consumer Sentiment||86.4||86.4||-|
|14:55||USD||Revised UoM Inflation Expectations||2.8%||-||-|