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Thursday, 30 Jul 2009
Crude Oil Price Crashes after Unusually High Inventory Data
The price of Crude Oil experienced a sharp decline in prices yesterday after a U.S. inventories report highlighted a sudden surge in energy supplies. While these reports may carry mixed messages about demand, supply, and growth expectations, the message yesterday was quite clear: demand is plummeting. Many analysts were expecting a draw-back in prices after last week's surge, but the inventory report only demonstrated how unwanted this commodity has become, which only put additional weight on the downward pressure this commodity was already expecting.
USD - Dollar Extends Profits against the Majors
The Dollar continues to strengthen against all the major currencies. During yesterday's session the greenback was traded near a two-week high versus the EUR. The Dollar also marked a significant uptrend against the Pound and Yen.
It seems that the main reason for the USD's appreciation yesterday came as a result of the positive Core Durable Goods Orders monthly report, as well as a statement by China that it will maintain a more loose monetary policy. Whilst the Durable Goods figures reported a drop of 2.5% in June, mainly as a result of the weak demand for new civilian aircraft and defense equipment, it seems that investors were more impressed by the 1.1% rise in the Core Orders during June.
The difference between the two reports is that the Core report measures the change in the total value of new purchases orders placed with manufacturers for durable goods, excluding transportation items. Orders for aircraft are known to be very volatile, and thus have the potential to distort the underlying trend. This is why investors tend to attribute more importance to the Core report. The positive figure marked the third consecutive month in which this report delivered signs of positive growth, driving investors to believe that the global recession is reaching its end.
As for today, the main publication from the U.S economy looks to be the weekly Unemployment Claims report at 12:30 GMT. Currently, while all the major indicators of the U.S economy are showing signs of improvement, it is only the job sector which continues to deliver negative figures. Analysts forecast that 578K individuals have filed for unemployment insurance for the first time during the past week. If the actual result will be similar, this could be the harshest unemployment figures in the last month. Such a result may help drive the demand for the safety of the USD and drive its recent bullishness even higher.
EUR - German CPI Marks First Annual Decline in 22 Years!
The EUR dropped yesterday against most of the major currencies. The EUR is currently traded near a two weeks low against the Dollar, as the pair fell to the 1.40 level. The EUR also saw a sharp drop against the Pound during yesterday's session.
The EUR's slide came as a result of the unexpected negative German Preliminary Consumer Price Index (CPI) report. This indicator measures the change in the price of goods and services purchased by consumers in Germany. Considering the fact the Germany currently holds the strongest and relatively healthiest economy in the Euro-Zone, the inflation indicators from this nation have a large impact on the EUR. The indicator showed a drop of 0.1% in July.
More severely, this report has marked the first annual decline in consumer prices in Germany in more than 22 years! It appears to be the drop in energy and food costs, which took place as a result of the global recession, which created the poor annual decline in German CPI. It now seems quite certain that for any negative indicators from the German economy such as this one have the potential to weaken the EUR in the near future.
Looking ahead to today, another significant report is scheduled from the German economy. The German Unemployment Change, which measures the change in the number of unemployed people during the previous month, is expected at 07:55 GMT. Analysts have forecasted that unemployment in Germany increased by 44K in June. If the results are indeed close to this figure, the EUR might continue to depreciate against the major currencies.
JPY - Yen Slides on Poor Retail Sales Release
The Yen underwent a bearish session against most of the major currencies yesterday. The JPY dropped over 100 pips versus the Dollar, and over 200 pips against the Pound.
The Yen dropped yesterday on poor Retails Sales data. The report showed that the total value of sales at the retail level dropped by 3.0% in June, failing to reach expectations for a 2.5% drop. Furthermore, Japan's retails sales fell for a 10th month in June, making the longest losing streak since 2003. It seems that even though the Japanese economy is showing signs of recovering, mainly due to the positive export figures, the Japanese citizens are reluctant to resume last year's consumption levels, an indication that optimism may be lacking in Japan.
As for today, a batch of data is expected from the Japanese economy. Traders are advised to follow the Tokyo Core Consumer Price Index report. This report is a leading inflationary indicator for Japan, and thus tends to have a large impact on the JPY's value. If current expectations for a 1.7% drop will be similar to the real result, the Yen might continue to weaken against the major currencies in late-trading today.
Crude Oil - Will Crude Oil Drop Below $60 a Barrel?
Crude Oil prices continued to slide yesterday. Yesterday morning, a barrel of oil was valued near $66, but the current price is trading for less than $63. The main reason for the sharp cut in crude oil prices yesterday was the Crude Oil Inventories report. The report shows an unexpected surge in U.S. energy stockpiles. While analysts expected a drop of 1.1M barrels, the actual result showed that stockpiles surged by 5.1M barrels!
Most analysts had anticipated a pull-back in prices since Oil was seemingly over-bought technically and fundamentally, but the high inventories report simply put added weight to this expected downward pressure. In addition, the USD continued to strengthen yesterday. Crude Oil is valued in Dollars, and as such, tends to fall under the weight of a strong Dollar.
Looking ahead to today, traders are advised to follow the Natural Gas Storage report, scheduled at 14:30 GMT. This is more energy data that has the potential to influence oil prices by showing a continued trend of high stockpiles, indicating low demand. Traders should also consider the Dollar's movements in today's trading, as it has a large effect on commodity values.
After a steady decline in trading yesterday, the price of this pair now sits in the over-sold territory on the 4-hour chart's RSI, indicating a level of upward pressure. The fresh bullish cross on the 4-hour Slow Stochastic, however, indicates that an upward correction is imminent. Going long with tight stops may be a smart choice today.
There appears to be a recent bullish cross on the 4-hour Slow Stochastic and an impending bullish cross on the 4-hour MACD, indicating that an upward movement may be on its way. This pair is currently range-trading, however, and has reached the lower border of its channel, supporting the notion that an upward move is indeed imminent. Buying on lows and selling on highs within this channel might be a wise choice.
The bullish channel on this pair, seen in the 4-hour chart, may be coming to a volatile ending today as the Bollinger Bands on the hourly chart are beginning to tighten drastically. The bearish cross on the 4-hour Slow Stochastic will likely help the price's impending downward movement prior to its volatile jump. Waiting for the breach then jumping on the trend may be the best strategy today.
A volatile breach of the 4-hour chart's Bollinger Bands occurred at the end of yesterday's trading, which has pushed this pair's indicators into over-sold territory. The 4-hour Slow Stochastic has a fresh bearish cross and its RSI is highlighting the downward pressure from the over-sold position. Going short and riding out the correction appears to be preferable today.
The Wild Card
Yesterday's volatile downward plunge has pushed many short- and mid-term indicators into showing an impending correction. However, the long-term indicators on the daily chart show that there may still be room to run for this bearish movement. The sudden pull-back in Crude Oil's price may not yet be finished and, as such, forex traders may want to set their short positions as soon as possible to capture some of the remaining bearish movement.
|12:00||GBP||CBI Realized Sales||28||31||27|
|14:30||USD||Core Durable Goods Orders||m/m||-0.1%||0.5%||-|
|14:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|14:30||USD||Durable Goods Orders m/m||m/m||-1.1%||-0.4%||-|
|15:55||USD||Revised UoM Consumer Sentiment||89.4||90.2||-|
|15:55||USD||Revised UoM Inflation Expectations||2.6%||-|
|16:00||USD||New Home Sales||467K||471K||-|
|16:00||USD||Pending Home Sales||m/m||0.3%||0.9%||-|
|16:30||USD||Crude Oil Inventories||2.6M||-|
|18:00||USD||Natural Gas Storage||-17B||-|
|00:00||AUD||HIA New Home Sales||0.0%||-||-|
|00:00||EUR||German Prelim CPI||m/m||-0.3%||0.0%||-|
|00:00||EUR||Italian 10-y Bond Auction||2.44|1.5||-||-|