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Monday, 5 Jul 2010
Can The Dollar Correct Last Week's Losses?
As this week begins, the major question in the market is whether the U.S. dollar will drop further, or can it erase last week's losses? The dollar weakened on all fronts last week, following a series of negative data from the U.S. economy, including the Non-Farm Payrolls. It now seems that only a positive economic publication will be enough to strengthen the dollar.
USD - Dollar Tumbles as U.S. Payrolls Drop More Than Expected
The dollar fell against most of its major counterparts during last week's trading session, including 200 pips against the euro and 250 pips versus the yen.
The main reason for the dollar's bearish session was the disappointing data from the U.S. economy. First, the Consumer Confidence survey declined in June more than forecasted, to 52.9 from 62.7 in May. The unfortunate data continued as the Pending Home Sales report showed that the number of contracts to purchase previously owned houses plunged by 30% in May, well below expectations for a 7.4% drop. The dollar's bearishness was accelerated by Friday as the Non-Farm Payrolls data was released. The U.S. Non-Farm Employment Change report showed that payrolls dropped by 125,000 in June, falling for the first time this year. The combination of the negative data from the housing sector and the employment condition was enough to weaken the greenback. It seems that the bearish trend might prolong until the U.S. economy will show a recovery signal to calm investors.
As for the week ahead, the most significant economic publications from the U.S. seems to be the Non-Manufacturing Purchasing Managers' Index on Tuesday and the weekly Unemployment Claims on Thursday. If the two indicators will provide further negative results, the Dollar might weaken further. However traders should take under consideration that a positive release has the potential to reverse the Dollar's downtrend.
EUR - European Interest Rates Announcement Expected On Thursday
The euro saw mixed results against the major currencies during last week's trading session. While EUR/USD moved up about 200 pips, reaching as high 1.2600, mixed results were recorded against the yen and British pound.
The euro strengthened against the dollar mainly due to negative data from the U.S. economy. The U.S. economy showed recovery slowdown signals as both the housing sector and employment levels have deteriorated during the previous month. However the euro failed to make gains against the other major currencies as the euro-zone's condition still appears somewhat gloomy. The European M3 Money Supply recorded an annual fall of 0.2% in May, dropping for the fourth time in a row. In addition, the European Consumer Price Index Flash Estimate report showed that inflation rose by 1.4% in June, failing to reach expectations for a 1.5% rise. Considering the high-uncertainty that exists in the market regarding the European nations' ability to overcome the debt crisis, investors are looking for clear recovery signs before fully investing in the euro.
Looking ahead to this week, traders are advised to follow the Minimum Bid Rate, which is the Euro-Zone's interest rates announcement for July. The European Central Bank (ECB) is expected to leave rates at 1.00%, however any rates manipulation has the potential to create massive volatility, and traders should be prepared. Traders are also advised to follow the ECB's press conference that will follow the rates release. The ECB is likely to discuss its monetary policy, which usually has an instant impact on the market.
JPY - Yen Strengthens As Risk Appetite Decreases
The yen rose against most of the major currencies during last week's trading session. The yen gained about 250 pips against the dollar, as the USD/JPY pair dropped below the 87.00 level. GBP/JPY fell about 200 pips as well.
The yen strengthened last week as negative data from the U.S. economy has declined risk-appetite in the market and turned investors to look for safer assets. The poor housing data and the negative employment data from the U.S. have led to doubts regarding the state of the economic recovery, causing investors to invest in the Japanese currency. In addition, several positive economic publications from Japan have supported the yen. The most significant data was the Tankan Manufacturing Index, which is a survey of large manufacturers who are asked to rate their general business conditions. The quarterly survey rose for the fifth time in a row, providing positive figure for the first time in 8 months.
As for this week, traders should follow the major publications from the Japanese economy, such as the Core Machinery Orders and the Japanese Current Account, which are expected on Wednesday night. Traders are also advised to follow Japanese equity markets as they tend to have a large impact on the yen.
Crude Oil - Crude Oil Drops Below $72.00 a Barrel
Crude oil dropped below $72.00 a barrel for the first time in 4 weeks by Friday. Crude oil saw a sharp drop during last week's trading session, falling from $78 a barrel to $71.60 by the weekend.
Crude oil's downfall came as a result of the disappointing data from the U.S. economy. The downfall began as reports showed that Consumer Confidence in the U.S. tumbled in June. Later, negative data was released regarding the current state of the housing and employment sector. Considering the U.S. is the largest consumer of oil in the world, the negative data has created speculation about a drop in demand.
Looking ahead to this week, traders are advised to follow the major publications from the U.S. and the euro-zone, as these tend to have a large affect on oil prices. In addition, traders should follow the U.S. Crude Oil Inventories report on Thursday, as its result tends to have an immediate impact on the market.
The Stochastic Slow on the 8-hour chart shows that a bearish cross formed some time ago for this pair, indicating a downward correction is likely to take place. This sentiment is supported by the Relative Strength Index on the 4-hour chart. Traders are advised to go short today.
Both the Stochastic Slow and the Relative Strength Index on 4-hour chart show the pair trading in overbought territory, which usually indicates a downward correction should occur in the near future. That being said, most other indicators show the pair trading in neutral territory. Traders may want to take a wait and see approach today.
The Stochastic Slow on the 2-hour chart shows a bullish correction for the pair has formed, indicating an impending upward correction. The Relative Strength Index on the daily chart supports this theory. Going long with tight stops may be the preferred strategy today.
While the Stochastic Slow on the 4-hour chart shows the pair trading in overbought territory, the Relative Strength Index on the daily chart indicates the opposite. Most other indicators do not show a clear direction for the pair. Traders may want to take a wait and see approach to see where the pair moves later today.
The Wild Card
The Relative Strength Index on the 4-hour chart shows the pair trading in overbought territory, indicating a downward correction may take place later today. This theory is supported by the Relative Strength Index on the 8-hour chart. Forex traders are advised to go short with tight stops today.
|23:50||JPY||M2 Money Stock||y/y||4.4%||4.4%||-|
|00:00||JPY||Monetary Policy Statement||*||*||*|
|00:00||JPY||BoJ Press Conference||*||*||*|
|00:00||GBP||10-y Bond Auction||2.73|1.8||*||-|
|00:01||GBP||BRC Retail Sales Monitor||y/y||3.9%||*||-|
|00:30||AUD||NAB Business Confidence||8||*||-|
|06:00||JPY||Prelim Machine Tool Orders||y/y||40.3%||*||-|
|07:00||EUR||German Trade Balance||18.5B||19.3B||-|
|10:00||GBP||Inflation Report Hearings||*||*||*|
|15:00||GBP||NIESR GDP Estimate||0.8%||*||-|
|23:30||AUD||Westpac Consumer Sentiment||-3.0%||*||-|