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Monday, 18 Oct 2010
Can The Dollar Extend Friday's Recovery?
Despite Friday's recovery, the U.S. dollar fell for the fifth consecutive week against most of the major currencies. As several releases from the U.S. economy are expected today, the main question is whether the dollar is on its way to erase last week's losses, or will the greenback drop for the sixth week.
USD - Dollar Falls For the Fifth Week in a Row
The U.S. dollar saw an extremely volatile session during last week's trading. The currency began last week with a bullish trend against most of the major currencies, including a 200 pips gain against the euro and the British pound. By midweek the dollar erased all its gains, and even reached fresh lows against the majors. By the time the weekend arrived, the dollar had corrected some of its losses, but still closed with modest losses.
The greenback declined last week due to speculations that the Federal Reserve will further ease monetary policy, debasing the dollar. In addition, several disappointing economic releases were published in the U.S. last week. The trade deficit widened more than forecasted in September. The gap grew by 8.8% to $46.3 billion, significantly below economists' expectations for a $44 billion deficit. In addition, the weekly Unemployment Claims report showed that the labor sector in the U.S. continues to deteriorate. The number of Americans filing for unemployment benefits for the first time unexpectedly increased last week. Jobless claims rose by 13,000 to 462,000. As long as the U.S. economy continues to provide poor data, speculations regarding further monetary easing will likely continue to weaken the dollar.
As for the week ahead, many significant economic releases are expected from the U.S. Traders are advised to focus on the Long-Term Purchases, Building Permits, the weekly Unemployment Claims and the Philadelphia Manufacturing Index. Positive results on these reports may prevent the dollar from falling for the sixth straight week.
EUR - Euro Sees Mixed Results against the Majors
The euro saw mixed results against its major counterparts during last week's trading session. The euro mainly saw ups and downs against the major currencies, without marking significant changes in value. By the end of the week, the currency was trading near its value when markets opened the previous Monday.
The euro began last week's trading with an upward trend following positive data out of the euro-zone, specifically from the German economy. Inflation in Germany accelerated in September, led by increasing prices for heating oil and food. The inflation rate rose by 1.3% from a year ago after increasing 1% in August. In addition, the euro-zone industry expanded in September, showing gains in most sectors. The total value of output produced by manufacturers, mines and utilities rose by 1.0%, beating expectations for a 0.7% rise. However, better-than-expected British labor reports, followed by positive U.S. Retail Sales data managed to cut most of the euro's gains, especially against the British pound.
Looking ahead to this week, traders are advised to pay attention to economic releases from Germany. Germany holds the largest economy in the euro-zone and two major reports are expected this week: the Economic Sentiment on Tuesday and the Business Climate on Friday. Positive results will strengthen speculations that the euro-zone is indeed recovering, and is likely to boost the euro.
JPY - Fears of Further Intervention by the BoJ Manage To Halt Yen's Bullishness
The Japanese yen began last week's trading with rising trends on all fronts. However, by midweek, the currency started to correct its gains, especially against the euro and British pound. The EUR/JPY pair is still trading above the 113.00 level, and the GBP/JPY is trading near the 130.00 level.
The positive data from the Japanese economy has added to the bullish pressure on the yen. Japanese machinery orders unexpectedly rose, in a sign that a recovery in earnings may encourage companies to spend on equipment. In addition, the uncertainty in global markets continues to support the demand for the yen. The JPY is considered to be a safe asset, and thus when risk-aversion increases, the currency tends to strengthen.
However, investors should always keep in mind that the Bank of Japan (BoJ) may move to devalue the yen, should the currency continue to strengthen. Despite international criticism, Japan has not announced that it will not intervene again. For the moment, the yen appears to have stabilized, although further upward movement may occur.
As for this week, traders are advised to continue following the announcements from Japanese officials. These announcements have had a massive impact on the yen's value over the past few weeks, as investors look to see whether the BoJ will indeed intervene in the currency's trading again.
Crude Oil - Crude Oil Drops Below $81 a Barrel
Crude oil fell to its lowest level in two weeks on Friday, reaching as low as $80.75 a barrel. Crude began last week's trading around $82.50 a barrel, and was able to go as high as $84.10.
Crude oil fell close to the weekend as a result of the strengthening dollar, which reduced the appeal of commodities as an alternative investment. The dollar gains came following better-than-expected U.S. Retails Sales results in September. It appears that if the dollar will continue to strengthen against the major currencies, especially the euro, crude oil may drop further. At the moment, it has the potential to drop below $80 a barrel before the end of the week.
Looking ahead to this week, traders are advised to follow the major news releases from the U.S. and the euro-zone, as these tend to have the biggest impact on crude oil trading. In addition, traders should pay particular attention to the U.S. Crude Oil Inventories report, scheduled for Wednesday, as this release usually has an instant impact on the market.
After peaking at the 1.4155 level, the pair has consistently dropped and is currently trading around the 1.3890 level. As the RSI on the 4-hour chart has dropped below the 30 line, the pair is likely to continue with its bearish trend, and has the potential to reach the 1.3800 level.
There is significant technical evidence that that the pairs recent downward trend may be coming to an end. A bullish cross has recently taken place on the 4-hour chart's Slow Stochastic, suggesting that an upward correction might take place. Going long with tight stops might be a good strategy today.
The pair's bearish trend failed to gain momentum over the last few days, and the USD/JPY is still trading above the 81.00 level. That being said, the MACD on the weekly chart continues to provide clear bearish signals, indicating that the downward trend still has room to grow.
The pair appears to be approaching the end of its bearish trend, having dropped as low as 0.9460. Technical data is showing signs of an upward correction. A bullish cross on the daily chart's Slow Stochastic indicates that upward movement is likely. Going long might be the right choice today.
The Wild Card
After reaching a record high at $1,386 an ounce, gold is slowly dropping and is currently trading around $1,360 an ounce. Now, all oscillators on the 4-hour chart are pointing down, indicating that the bearish correction may continue today. This may be a great opportunity for forex traders to join the trend at its beginning. Going short is the recommended strategy today.
|07:45||EUR||French Gov Budget Balance||-74.9B||-||-|
|08:00||CHF||Foreign Currency Reserves||437.7B||-||-|
|09:30||GBP||Consumer Inflation Expectations||3.6%||-||-|
|11:00||EUR||German Industrial Production||m/m||-0.6%||0.7%||-|
|13:30||USD||Non-Farm Employment Change||113K||151K||-|
|13:30||USD||Average Hourly Earnings||m/m||0.2%||0.2%||-|
|17:00||USD||FOMC Member Dudley Speaks||*||*||*|