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Monday, 12 Jul 2010

Can Spain's World Cup Victory Add to Risk Appetite?

The 1-0 over-time victory of Spain over the Netherlands in yesterday's World Cup Final has generated an interesting question among market analysts. Does this victory put optimism and positive sentiment back into Spain's crumbling economy? Can it boost short-term growth enough to add further momentum to the euro's latest gains against its primary rivals?

EUR/USDGBP/USDUSD/JPYUSD/CHFAUD/USDEUR/GBP
Daily Trenddowndownupdownupup
Weekly Trendupdownupdownupup
Resistance1.26991.540789.301.06000.88020.8442
1.26701.526188.991.05880.87980.8410
1.26481.516288.851.05790.87790.8393
Support1.26081.500788.511.05590.87690.8361
1.25881.495188.331.05490.87650.8345
1.25551.479988.021.05350.87550.8305

Economic News

USD - USD Sinking Under Weight of Risk Appetite

This past week witnessed the US dollar come down from its recent highs as risk returns to the market. With economic data showing improvements in various sectors around the globe, and with governments taking the necessary steps to reign in financial problems, investor sentiment seems to have returned to a temporary state of risk-taking.

Against the euro, the dollar has fallen to as low as 1.2700 this past week and looks to continue trading weaker as various reports show optimism throughout various European economies, albeit muted. The victory of Spain over the Netherlands in the World Cup yesterday may help to increase consumer spending across parts of Europe and lead to short-term growth. The boosted optimism also adds to the already-present risk appetite which has been returning slowly these past few days.

The greenback has been gaining against the Japanese yen, however, as the recent defeat of Prime Minister Naoto Kan's ruling party put the his financial policies at risk of being overturned. The yen has taken a modest bearish turn as a result. Should uncertainty remain about future Japanese monetary policy, the USD/JPY's bullish trend could continue.

As for today, the only major news that could affect the dollar directly is a speech being given by Federal Reserve Board Chairman Ben Bernanke about returning the flow of credit to small businesses at a forum in Washington D.C. If his statements reveal hawkish sentiment about measures to increase investment and credit flows to start-ups and other small businesses, then the USD could see some positive growth.

EUR - Does Spain's Victory in the World Cup Help the EUR?

The 1-0 over-time victory of Spain over the Netherlands in yesterday's World Cup Final has generated an interesting question among market analysts. Does this victory put optimism and positive sentiment back into Spain's crumbling economy? Can it boost short-term growth enough to add further momentum to the euro's latest gains against its primary rivals?

Theoretically, anything is possible. Does the World Cup affect currency prices directly? Not likely. But can it affect optimism, outlook, and risk appetite? Absolutely. All of these things affect currency values, the bigger question is: By how much?

Since last week the euro has climbed against the US dollar from as low as 1.2200 to a recent high of 1.2720 by Friday's closing hours. The euphoria from having two European teams playing in yesterday's final likely boosted retail sales and other consumables by significant quantities in the short-term, now analysts wonder how long this sentiment will last.

Looking forward to today's news, there is not much to look forward to in terms of data. Britain will release its Final GDP figures for the second quarter of 2010. The forecast is for a 0.3% growth. Outside of this data, little else will be published from Europe.

JPY - Kan's Democratic Party Defeat Saps JPY Strength

The Japanese yen has been plunging this morning against the majority of its currency pairs. The reason is currently being explained as the defeat of Prime Minister Naoto Kan's ruling Democratic Party in recent elections. PM Kan had put forth policy initiatives to reign in Japan's massive debt risk; his defeat puts those policies at risk of being overturned and has caused the yen to experience some uncertainty.

Against the US dollar, the JPY has fallen to as low as 89.10 from its recent high of 87.00 just last Thursday. Versus the euro, the yen has fallen to 112.15 from its 2-week high of 107.50. Unless the political situation in Japan receives further clarity, the Japanese yen could continue to experience weakness from uncertainty.

OIL - Chinese Imports and Weak USD Boost Oil above $76

The price of spot crude oil has climbed since last Friday above $76 a barrel on increased Chinese oil imports. The heightened demand emanating from China has helped support the price of oil to its latest high mark and the market currently appears to be appeasing this move with a complimentary decrease in value for the US dollar.

The USD has been trading lower these past few trading days as market sentiment favors risk taking over safe-havens. The price of the greenback has fallen and commodities - which were falling steadily just last week - are now returning to a stable bullish pattern. This week's data on the strength of the dollar and on China's latest surge in imports will determine the week's movements.

Technical News

EUR/USD

The price of this pair appears to be floating in the over-sold territory while the hourly chart's RSI is indicating that an upward correction may be imminent. The upward direction on the 4-hour chart's Momentum oscillator also supports this notion. When the upward breach occurs, going long with tight stops appears to be the preferable strategy.

GBP/USD

Narrow range trading continues as the pair did not make any significant move in either direction. The daily chart is showing signs of a bearish momentum. The Bollinger Bands are tightening and a breach might be imminent to any side. A good strategy might be to wait for the signal and ride the momentum.

USD/JPY

On the daily chart the moderate bullish price movement continues within the upwards channel which still has yet to be breached. The 4-hour chart is also joining that notion with the Slow Stochastic pointing to the continuation of upwards momentum. Next testing point should be around 90.50. Going long appears to be preferable today.

USD/CHF

Friday's appreciation in the pair may have created a selling opportunity. The pair is trending sharply lower, both on the weekly chart and on the daily chart as the price is trading in a perfect order, below the 200, 100, 50, 20, and 10-day simple moving averages. Traders should be short and can target the low of the bearish trend as the first support line.

The Wild Card

Oil

Crude oil has rallied last week, rising from a low of $71 to a high of $76.40. Following the bullish run, a buy signal has recently been triggered as the 5-day simple moving average is crossing above the 20-day simple moving average. This signal works well in a trending market. CFD traders may target the resistance line just below $80.

Current Time: 10/31 08:14 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
10/31
08:00EUR+ German Retail Salesm/m2.5%-0.8%-3.2%3
08:45EUR+ French Consumer Spending m/m0.7%-0.3%-0.8%3
10:00EUR+ Italian Monthly Unemployment Rate12.3%12.4%-1
11:00EUR+ CPI Flash Estimate y/y0.3%0.4%-5
11:00EUR+ Unemployment Rate11.5%11.5%-3
11:00EUR+ Italian Prelim CPI m/m-0.3%-0.1%-1
13:30CAD+ GDPm/m0.0%0.0%-5
13:30USD+ Core PCE Price Index m/m0.1%0.1%-3
13:30USD+ Employment Cost Index m/m0.7%0.6%-3
13:30USD+ Personal Spending m/m0.5%0.2%-3
13:30USD+ Personal Income m/m0.3%0.3%-1
14:45USD+ Chicago PMI60.560.2-3
14:55USD+ Revised UoM Consumer Sentiment86.486.4-3
14:55USD+ Revised UoM Inflation Expectations2.8%--1
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