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Tuesday, 21 Jul 2009
CIT Bailout Adds to Risk Appetite, Safe-Havens in Decline
Yesterday's rally on Wall Street, which led to a devaluation of the major safe-haven currencies such as the USD, was led by a decision from CIT, a large financial firm, in favor of a $3 billion bankruptcy protection bailout. The resultant boost in confidence led stock markets into a strong rally, followed by a declaration from the Bank of Japan (BOJ) that their economy may no longer be getting worse. All of this optimism has helped to increase risk appetite and lower the appeal of safe-haven investments.
USD - Dollar Tumbles as Stock Markets Rally
The Dollar tumbled to its lowest level in over a month vs. the EUR, as Wall Street rallied on Monday. The rally was initiated by U.S. commercial finance company CIT board approving a $3 billion rescue package. The USD's subsequent devaluation and Wall Street's gains yesterday were also owed to increased risk appetite, as traders were taking into account continued optimism from the 2nd quarter, following last week's optimistic results from U.S. banks. Adding to optimism for the U.S. economy, U.S. housing data released yesterday points to stabilization of the U.S. housing sector.
The Dollar Index touched 78.799 on Monday, the lowest level since the 3rd of June. The USD tumbled against the JPY by over 70 pips to 93.92, as traders ditched the greenback for higher yielding assets. The GBP/USD jumped by 120 pips to 1.6518, as the GBP acted positively to the optimism in the banking sector. The EUR/USD closed nearly 60 pips higher at 1.4214, as the USD's safe-haven status is dissipating as signs of global economic recovery are in the making. It seems that as long as global equities rally, the USD will continue to slide vs. the major currencies.
Looking ahead to today, there are some crucial releases that are set to come out of both the U.S. and Canada. Canada is set to publish both the BOC (Bank of Canada) Rate Statement and Overnight Rate at 13:00 GMT. The results of these are set to determine the USD/CAD rate in the coming week. At 14:00 GMT, U.S. Federal Reserve Chairman Ben Bernanke will testify before the Financial Services Committee in Washington, DC. This is significant for future U.S. monetary policy. Surrounding this event, the forex market is likely to experience heavy volatility.
EUR - EUR Hits 6-Week High against USD
The EUR hit a 6-week high against the USD yesterday, as U.S. and global equities rallied. This was owed to optimistic U.S. and European data in the past week. Also, the U.S. largely led the rally, as U.S. financial firm CIT's bondholders agreed to $3 billion of emergency financing to prevent bankruptcy. The GBP also hit a 3-week high against the USD due to global banking industry expectations. The 2 things that helped the Pound gain yesterday was risk, as traders felt comfortable in diversifying their investments due to renewed optimism.
The EUR/USD cross hit as high as the 1.4250 level on Monday, before closing at 1.4210. This bullish pattern of the pair is much owed to the USD's safe-haven status declining as the global economic recovery kicks in. The GBP/USD closed at 1.6518, while the EUR/GBP cross finished lower by 30 pips at 0.8603. Much of the GBP's bullishness recently has been owed to rising energy prices and the recovery of the banking sector, as the British economy is very dependent on these 2 industries.
Today, we can expect economic news releases from both Europe and Britain. Switzerland is set to release her trade balance figures at 06:15 GMT. A high figure will be good for the CHF, as this would show a higher surplus of exported goods during the previous month. Britain is set to release public sector net borrowing figures at 08:30 GMT. A lower than forecasted 15.7 billion Pounds may help the GBP today, further adding to recent optimism in the British currency.
JPY - JPY Climbs on CIT Rescue Plan
The JPY climbed against a number of its currency pairs yesterday, as a result of the rescue plan by the shareholders of U.S. finance company CIT. This automatically helped spread the rise in equities from the U.S. to Japan. As a result, the JPY climbed against its major currency pairs. The JPY climbed against the USD by 70 pips to 93.92, as investors put their money in higher yielding assets. The Japanese currency also made gains vs. the EUR, to close 64 pips higher at 133.34.
The strength of the Japanese currency may be owed to the fact that the Japanese economy has bottomed out. Therefore, forex traders are willing to put more of their money in the Japanese currency, as the global economic situation improves. Additionally, as this occurs, investors are beginning to pour their money back into Japan. The result will therefore lead to a stronger Japanese currency for the foreseeable future. We may see the USD/JPY drop below 93.50 in today's trading.
Crude Oil - Crude Oil Hits a 2-Week High
The price of Crude Oil hit a 2-week high of $65.86 yesterday, before closing at about $65.30. Crude prices rose on Monday for a number of reasons. There was much optimism coming out of the U.S., spurred by the CIT rescue plan. In turn, the equity rally in America led traders to diversify their investments. Thus the USD declined, which helped boost the price of Crude Oil. The gains in commodities extended throughout the day.
There are some investors now that are talking of a price correction in Oil. However, if there is enough optimism to support the price of Crude, there is no reason that prices won't rise to over $66 per barrel of Crude in today's trading. This could come sooner rather than late, providing that the U.S. Dollar continues to plummet. In addition, optimism from U.S. Federal Reserve Chairman Ben Bernanke's speech may add to possible gains to Crude prices later in the day.
The hourly chart's Bollinger Bands appear to be tightening on this pair in anticipation of a modest price jump. With the pair floating near the upper border of the 4-hour chart's Bollinger Bands, combined with the bearish crosses on the 4-hour and daily Slow Stochastic, we could see some downward movement in the nearest future. Going short with tight stops may be a wise choice today.
The indicators on this pair seem to show mixed signals. There is a tightening on the hourly Bollinger Bands, which suggests impending volatility, but the bullish cross on the hourly Slow Stochastic mixed with the bearish cross on the 4-hour Slow Stochastic highlights the unpredictability of the impending movement. Waiting for the breach and then jumping on the trend as early as possible may be a solid tactic for today.
The price of this pair appears to be floating in the over-sold territory on the hourly chart's RSI, signaling upward pressure. The fresh bullish cross on the hourly Slow Stochastic, and what appears to be a developing bullish cross on the 4-hour Slow Stochastic, may both point in the direction of an upward movement. Going long may be today's best strategy for this pair.
There appears to be fresh bullish crosses on the hourly and 4-hour MACD, as well as the 4-hour Slow Stochastic, which suggest the impending movement of this pair is likely to be upward. The price floats in the over-sold territory on the 4-hour RSI, which supports this notion. Going long may be a good idea.
The Wild Card
The hourly Bollinger Bands appear to be tightening on this commodity as prices prepare for a volatile jump. With bearish crosses on the 4-hour and daily Slow Stochastic, as well as an over-bought indication on the 4-hour RSI, the next major movement may indeed be in a downward direction. Forex traders involved in commodity trading can take advantage of this knowledge by going short on Silver and riding out what appears to be building up to be a sharp movement in price.
|00:00||JPY||Monetary Policy Statement||-||-||-|
|00:00||JPY||BoJ Press Conference||-||-||-|
|00:30||JPY||Tokyo Core CPI||y/y||2.6%||2.5%||-|
|00:30||JPY||National Core CPI||y/y||3.1%||3.0%||-|
|01:05||GBP||GfK Consumer Confidence||-1||0||-|
|01:30||AUD||Private Sector Credit||m/m||0.4%||0.4%||-|
|07:00||JPY||BoJ Outlook Report||-||-||-|
|08:00||EUR||German Retail Sales||m/m||2.5%||-0.8%||-|
|08:45||EUR||French Consumer Spending||m/m||0.7%||-0.3%||-|
|10:00||EUR||Italian Monthly Unemployment Rate||12.3%||12.4%||-|
|11:00||EUR||CPI Flash Estimate||y/y||0.3%||0.4%||-|
|11:00||EUR||Italian Prelim CPI||m/m||-0.3%||-0.1%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|