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Wednesday, 13 Apr 2011
Declining Price of Commodities Pulls Down on Stock Market
The most pressing concern in the commodities market lately has been a fear that the global economy cannot sustain sufficient growth with oil prices reaching above $100 a barrel. Investors witnessed the price of oil drop from as high as $113 last week to around $106.50 this morning. But adding into this downturn was a weakness in raw-materials prices seen over the last two trading days that inflicted pain on the stock market yesterday as commodity-linked companies felt losses as a result of this decline.
USD - US Dollar Suffers as Fed Budget Balance Falls Short of Expectations
The US dollar's short-term bullish run seems to have met resistance following the release of the US Federal Budget Balance yesterday at 19:00 GMT. The EUR/USD fell to as low as 1.4377 by mid-day on Tuesday as risk aversion in the global economy helped spur growth in both the USD and JPY. However, a report which showed the federal deficit shrinking much less than expected halted the greenback's movement and pushed the EUR/USD back towards 1.4480 by yesterday's close.
Risk aversion present in the market was initially driving the USD higher yesterday morning. Towards the end of trading, however, the greenback had shifted into a bearish posture whereas other safe havens, such as the Swiss franc and Japanese yen, continued to soar.
Economic optimism in the United States also appears to have waned these last several days as the IBD/TIPP report came in at its lowest point since July 2008. Technical pressure also appears to be weighing on the buck as many investors have added momentum to this latest downtick.
Today's retail sales figures out of the United States may help the USD regain some of its lost strength from yesterday's budget balance data, but risk aversion appears to be moving out of favor with the greenback. Traders may want to anticipate a continuation of the dollar's recent slump, especially considering the economic data on today's calendar appears to be expecting a decline in American output and optimism.
EUR - EUR Bullish Despite Weak ZEW Readings
The euro continues to make gaping strides against its currency rivals despite poor fundamentals arriving from out of the euro zone. The ZEW economic data out of Germany and the broader region both disappointed market watchers yesterday, falling significantly short of forecasts.
Regardless of these negative figures, the EUR soared against the British pound (GBP), reaching upwards of 0.8916 this morning before settling near 0.8906. Against the US dollar, the euro reached upwards of 1.4480 as of this morning. Inflation appears to be on track in the euro zone, which could help explain the steady growth of the 17-nation currency.
This morning's inflationary figures from Germany and France may help the euro hold its recent gains, though the added weight will likely be insignificant for day traders. The afternoon's publication of Industrial Production data could carry a slightly higher impact than it has in the past.
The persistent nuclear crisis in Japan, and rapidly climbing oil prices, has many investors concerned about industrial output figures around the globe. Europe is no exception. Should the data fall short of expectations the EUR may see a minor corrective blip, though few are expecting a reversal in value any time soon.
JPY - Unwinding Carry Trades Fuel JPY Growth
The Japanese yen appears to have maintained its steady growth from yesterday due to heightened risk aversion in the global market. A dip in US stocks yesterday, along with growing pessimism about Japan's nuclear crisis, have helped push many investors into safe haven assets such as the yen and Swiss franc.
The island currency has gained roughly 1% against the US dollar since yesterday, and has reached towards 83.50 from the 85.50 mark touched last Wednesday. Injecting momentum into the yen's bullishness was an unwinding of carry trades yesterday as investors felt over-exposed in the US dollar and decided to buy back into the JPY and CHF. Traders may want to watch for any additional shifts such as yesterday's, especially considering that no impactful news will be published from Japan today.
Crude Oil - Stock Market Decline Pulls Down on Crude Oil Prices
A disconnect between oil prices and the US dollar were felt by investors yesterday. The greenback came tumbling down after a bearish report on the Federal budget balance was released, but oil prices also fell around $3 a barrel yesterday as speculators assessed weakness in the black gold's recent bullish run.
The most pressing concern in the commodities market lately has been a fear that the global economy cannot sustain sufficient growth with oil prices reaching above $100 a barrel. Investors witnessed the price of oil drop from as high as $113 last week to around $106.50 this morning. Adding into this downturn was a weakness in raw material prices seen over the last two trading days that inflicted pain on the stock market yesterday as commodity-linked companies felt losses as a result of the decline.
At the moment, little news appears to be sufficient to bring oil prices back higher, though a turn-around in the global stock market could help fuel the growth needed to bring oil prices back into a bullish posture. Traders will want to watch the global equity markets to get a feel for where oil prices may go in the days ahead.
The Stochastic Slow on the daily chat has formed a bearish cross, indicating that downward movement is likely to occur today. This theory is supported by the Relative Strength Index on the 8-hour chart, which is currently in overbought territory. Going short may be the wise choice today.
The GBP/USD has gone bearish yesterday, and currently stands at the 1.6255 level. The daily chart's Slow Stochastic supports this currency cross to fall further today. However, the 4-hour chart's Stochastic Slow signals that a bullish reversal will take place today. Entering the pair when the signs are clearer seems to be the wise choice today.
The pair has been range-trading for a while now, with no specific direction. The Daily chart's Slow Stochastic providing us with mixed signals. All oscillators on the 4 hour chart do not provide a clear direction as well. Waiting for a clearer sign on the hourlies might be a good strategy today.
This pair has recorded much bearish behavior in the past several days. However, the technical data indicates that this trend may reverse anytime soon. For example, the 8-hour chart's RSI signals that a bullish reversal is imminent. An upward trend today is also supported by the daily chart's Stochastic (slow). Going long with tight stops may turn out to pay off today.
The Wild Card
Technical indicators are providing us with strong signals that this pair is likely to face a downward pressure today. A bearish cross on the daily chart's Slow Stochastic and the Relative Strength Index (RSI) on the 8-hour chart are just two examples showing a likely downward correction will occur. Forex traders have an excellent opportunity to short their positions at a great entry price, before the correction takes place.
|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%||-||-|