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Tuesday, 26 May 2009
Can German Ifo Data Reverse EUR Trends?
Traders witnessed one of the first vital pieces of information from the Euro-Zone which actually put a dent in the plans of the EUR. The German Ifo Business Climate report failed to meet expectations and slightly lowered investor confidence in the 16-nation currency. As a result, traders may indeed see a reversal in the making for the EUR/USD unless today's news puts a halt to the correction. Sticking close to the calendar today and betting on news releases would be a wise move for the weary trader today as the movements of the forex market are not yet stabilized.
USD - Is a USD Rally in the Making?
The Dollar rose marginally against the European currency as the economic calendar in the U.S. was blank due to a bank holiday. The knock-on effect of this was a forex market with less volatility than usual. In reality this translated into little fluctuations in the USD and its main crosses.
Many analysts have been worried about the greenback's rapid deterioration in value in the past several weeks. They are beginning to ask themselves, "Is a reversal in the making?" In Monday's trading, the EUR/USD rate reached as high as 1.4028. However, the pair ended up lower by 15 pips for the day at 1.3974. Against the Pound, the USD was unchanged at 1.5877. The Dollar gained versus the JPY by 10 pips to close at 94.73.
This behavior shows that in late trading hours, the Dollar reversed some of its losses, and started gaining against the major currencies. This may be due to 2 main factors. Firstly, the Dollar has been over-sold lately, and is under-valued. Secondly, the bank holiday in the U.S. made the forex market more flat than it would have been under normal market conditions. The slightly negative German Ifo Business Climate news release from Germany may have also helped weaken the EUR in late trading. This is compounded with the fact that other major economies are in even more dire straits than the U.S.
Looking ahead to today's news, the most important economic news release coming out of the U.S. is the CB consumer confidence figures at 14:00 GMT. The release is a top measure of U.S. consumer spending. Therefore, the results are likely to be pivotal in driving the direction of the market both before and after the data release. Traders are advised to take-up positions in the majors, while volatility is still low, in order to make some profits in the USD and its dominant crosses.
EUR - EUR Declines against Greenback
The EUR slipped slightly against the Dollar as the markets failed to take a clear direction yesterday. It can be said that speculation alone cannot drive the EUR higher due to some of the recent data releases. This was shown when the German Ifo Business Climate report put some downward pressure on the EUR as investors realized that the Euro-Zone currency may be slightly overvalued against the USD, and other major currencies.
The Dollar gained 15 pips against the EUR, reversing a near-2-week trend to close at 1.3974. The EUR/GBP cross finished yesterday's trading to close marginally lower at 0.8799. The EUR/JPY pair was virtually unchanged at 132.36. The question now is can the EUR return to its bullish run against the greenback? It is valid to say that there is more to back the EUR in theory than the USD or the GBP. Both the U.S. and Britain have lower Interest Rates than the Euro-Zone. Additionally, Europe has been more conservative than her 2 economic rivals in printing money. Furthermore, Britain and the U.S. have mounting deficits, whereas the Euro-Zone doesn't. It seems reasonable to say that the long term bullishness may belong to the EUR, rather than to her main currency rivals.
Today, there are plenty of economic indicators from the Euro-Zone that are likely to help determine the EUR's main crosses going into mid-week trading. The Current Account and Industrial New Orders are set to be published at 8:00 and 9:00 GMT respectively. The impact of these releases will show forex traders the health of the Euro-Zone economy. This could signal if the European currency is overvalued, and if it can uphold its bullish run against the Dollar. The impact of this will be increasingly felt, especially as the markets moved little in yesterday's trading due to British and American bank holidays. Traders are advised to open positions now, in order to make profits when volatility kicks in.
JPY - JPY Strength Uncertain, Heavy News Week may Help
The Yen failed to topple the Dollar yesterday, despite a bearish Dollar in the last few weeks. The pair actually closed up 10 pips at 94.73. The release of the worse-than-forecasted CSPI figures in late trading helped prevent the JPY from gaining bullish momentum against its major currency pairs.
There was very little movement in the EUR/JPY pair as it closed at 132.36. However, the Yen lost a bit of ground against the British currency to finish trading at 150.45. These small forex market currency fluctuations were largely owed to the British and American bank holidays yesterday. Nevertheless, markets are set to be much more volatile today, as forex market volatility returns to more normal conditions in the coming hours.
The short-term future of the JPY depends on the speed of the global economic recovery. If things do improve quicker than many analysts anticipate then the Yen may start to go bearish. This is increasingly the case if the U.S. raises Interest Rates before all of the other industrialized countries. Today, in late trading the Monetary Policy Meeting Minutes and Trade Balance figures at 23:50 GMT are likely to help determine the JPY's strength going into mid-week trading. A 95.50 USD/JPY rate may be a possible by tomorrow's close. However, it is wise to open positions in the JPY now as news from the Euro-Zone and U.S. is published.
Crude Oil - Crude Oil Prices Decline 1%
The price of Crude Oil tumbled 1% in yesterday's trading to $60.90. This comes despite increased optimism from the Organization of Petroleum Exporting Countries (OPEC) recently. However, many analysts expect the price of Oil to climb through the long-term as market conditions return to normal. Many analysts believe that the long-term prospects for Crude Oil are between $75-80.
In the meantime, the price of Crude Oil may only start going bullish again when the Dollar continues its decline, and if OPEC makes no output increases in their next meeting in Vienna, Austria on the 28th of May. In today's trading, the economic figures coming out of the U.S. and Euro-Zone are likely to impact the volatility of oil prices and traders would be wise to enter the market before this volatility kicks off.
The sustained upward movement these past few trading days has apparently generated a bearish cross on the daily chart's Slow Stochastic, indicating a longer-term downward correction may occur shortly. As the weekly Momentum oscillator begins to turn a corner, we may very well be seeing a reversal in the making. Going short to enter this new trend may be a wise move today.
The price of this pair appears to be floating in the over-bought territory on the RSI of the daily chart, signaling long-term downward pressure. A fresh bearish cross on the daily chart's Slow Stochastic supports this notion. A downward correction may be in the works for this pair in the medium-term. Entering with short positions directly after the downward breach may be a smart decision today.
There appears to be a head-and-shoulders formation on the hourly and 4-hour charts for this pair, signaling an imminent, rapid downward movement. However, the Slow Stochastic on the hourly chart shows a fresh bullish cross, signaling the next movement may be upwards. With the price floating near the over-sold territory on the daily chart's RSI, the longer-term trend may be up. Waiting for a clearer signal might not be a bad choice today.
The price appears to have just exited the over-sold territory on the 4-hour chart's RSI indicating the upward correction may be running out of steam. However, the daily chart's Slow Stochastic appears to have a fresh bullish cross, which signals further corrective movement may be in the works. Going long with tight stops might be a solid decision throughout the day.
The Wild Card
There appears to be a fresh bullish cross on the 4-hour chart's Slow Stochastic for this pair, signaling an upward movement may be in the making. With its sustained downward movement over the past weeks, this pair is overdue for a rebound. With fresh bullish crosses on the MACD for the hourly, 4-hour and daily charts, this rebound may indeed be developing. Forex traders can definitely take advantage of this swing by buying this pair now, and at a great entry price.
|11:00||EUR||CPI Flash Estimate||y/y||0.2%||0.2%||0.2%|
|11:00||EUR||Italian Prelim CPI||m/m||0.1%||0.0%||-0.1%|
|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%||-||-|