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Monday, 13 Dec 2010
Debt Concerns Continue To Weigh On Euro
The main topic for this week's trading session continues to be the European debt crisis. It is now broadly accepted that the Irish financial bailout has failed to calm markets and the possible debt contagion continues to out bearish pressure on the euro.
USD - Dollar Rises amid Positive Economic Data
The U.S. dollar strengthened against most of its major currency rivals during last week's trading session. The dollar gained over 200 pips vs. the euro, and the EUR/USD pair is now trading below the 1.3200 level. The dollar gained about 100 pips vs. the Japanese yen, and the USD/JPY pair is trading above the 84.00 level.
The dollar's bullish trend came as a result of several economic releases, which indicated that the economic recovery is advancing. The weekly Unemployment Claims report showed that the number of Americans filing for their first week of unemployment benefits fell last week to 421,000, down 17,000 from a revised 438,000 claims filed the week before. In addition, the trade deficit in the U.S. shrank more than forecasted in October. The gap narrowed by 13% to $38.7 billion, well below the expected $43.5 billion deficit. The deficit reduced as exports were the strongest since August 2008 due to Mexican and Chinese record import amounts from the U.S.
Looking ahead to this week, the busiest trading day appears to be Tuesday, as several leading economic releases are scheduled. The U.S. Retail Sales reports, the Producer Price Indices and the Federal Funds Rate are expected, and are likely to initiate heavy volatility. Traders are also advised to follow the Consumer Price Indices and the Long-Term Purchases reports on Wednesday, and the Building Permits and the Philadelphian Manufacturing Index on Thursday, as they are likely to have a significant impact on the greenback as well.
EUR - Euro's Fall Continues as Debt Woes Remain
The euro fell against most of the major currencies in last week's trading. The euro dropped about 200 pips vs. the U.S. dollar, and the EUR/USD pair is currently trading near the 1.3180 level. The euro also fell about 150 pips against the British pound. The euro's correction against the Japanese yen has also expired, and the EUR/JPY pair has reached as low as the 100.50 level.
The euro's downfall proceeded last week due to ongoing concerns that the European debt crisis will worsen. The market fears from a possible spread of the debt contagion, which was meant to be contained by the financial bailout of Ireland. The greatest concern is that Portugal or even Spain will seek financial support as well, which could not be provided by the European Union.
Yesterday, Germany and France have pledged to take any action necessary in order to defend the currency. The German Chancellor Angela Markel and French President Nicola Sarkozy have stated that the euro's survival is not negotiable. They have also ruled out joint bonds and have rejected any increase in the size of a rescue funds set up in May.
As for this week, traders are advised to follow every development regarding the European debt woes, as this issue is likely to dominate the market during the near future. Traders are also advised to follow the leading European economic releases, especially from Germany, as these will have a large impact on the euro as well.
JPY - Yen Closes a Bearish Weekly Session
The Japanese yen fell against most of its major counterparts during last week's trading session. The yen fell about 100 against the U.S. dollar, and the USD/JPY pair is now trading near the 84.00 level. The yen also saw a 200 pip fall vs. the British pound, as the GBP/JPY cross reached as high as the 133.00 level.
The yen fell last week as positive indications from the U.S. economy have turned investors to look for risker assets, such as the British pound. It was reported last week that the American trade deficit surprisingly shrank during November. In addition, the amount of individuals in the U.S. that filed for unemployment benefits for the first time has also decreased during the past week. These have supported optimism that the U.S. economy is indeed recovering, and has reduced risk-aversion in the market.
As for the following week, traders are advised to follow the Tankan Manufacturing Index and the Tertiary Industry Activity report, as these are likely to have a large impact on yen's trading. Traders should also follow the leading economic updates from the U.S. and to take under consideration that further positive results from the U.S. economy may weaken the yen further.
OIL - Crude Oil Drops Below $88.00 a Barrel
Crude oil saw a relatively calm trading session during the past week, yet by Friday crude dropped about 200 pips and reached as low as $87.10 a barrel. During most of the week crude oil was traded between $87.60-90.70 a barrel.
Crude oil fell on Friday after China raised bank reserve requirements to fight inflation. Chinese inflation rose to a 28-mont high of 5.1% in November, from 4.4% in October. In addition, OPEC has agreed to keep production targets unchanged, forecasting demand growth will slow.
Looking ahead to this week, traders are advised to follow the leading economic publications from the U.S. and the euro-zone, as these are likely to have a significant impact on crude oil trading. Traders should also follow the U.S. Crude Oil Inventories report on Wednesday, as this release usually has an instant impact on the market.
Ever since the pair rose to the 1.3410 level it has been dropping almost constantly, and is currently trading near the 1.3180 level. As the 4-hour chart's RSI is reaching below the 30-line, the pair looks to drop further, with potential to reach the 1.3100 level.
The cable's bullish correction seems to have reached its peak at the 1.5860 level. Both the daily chart's Slow Stochastic and the 4-hour chart's MACD have completed a bearish cross, indicating that a downtrend is impending. Going short might be the right choice today.
Despite a mild bearish correction, the USD/JPY pair continues to rally, and is now trading above the 84.00 level. The next significant resistant level is located at the 84.40 level, if the pair will manage to breach through it, the USD/JPY might reach as high as the 85.50 level.
The pair has been trading within a restricted range over the past week, between the 0.9725 and the 0.9910 levels. The pair is likely to proceed with volatile trading today and might test the 0.9910 level. If the pair will manage to breach the resistance level the pair might rise towards the 1.0000 level. Otherwise, it is likely to drop back towards the 0.9800 level.
The Wild Card
Gold has reached an all-time high of $1,431 an ounce last week, yet a technical correction wasn't late to come, and gold is now trading near $1,385 an ounce. Currently, as the MACD on both the 4-hour and the 1-day charts is pointing down, it appears a bearish trend may proceed. This might be a good opportunity for forex traders to join a popular trend.
|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%||-|
|13:30||USD||Employment Cost Index||m/m||0.7%||0.6%||-|
|14:55||USD||Revised UoM Consumer Sentiment||86.4||86.4||-|
|14:55||USD||Revised UoM Inflation Expectations||2.8%||-||-|