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Wednesday, 18 Nov 2009
Dollar, Yen Up on Increased Risk Aversion
Comments by Fed Chairman Ben Bernanke surprised many investors as he joined the rallying cry for a stronger Dollar, which may lead to strength for the USD in the days ahead. On the other hand, the USD still faces downward pressure from sudden spikes in risk appetite following positive news reports as its safe-haven status has not yet diminished. After last week's drop in consumer confidence, safe-havens like the USD and JPY have begun to regain some of their strength.
USD - Bernanke Statements Diminish USD in Short-Term; Strength Ahead?
Following the USD's minor slide in yesterday's trading, it appears the greenback has started to regain some of its previously lost ground, but the market is still shaky. The Dollar spent most of yesterday's trading gaining ground on the EUR and JPY, hitting levels of 1.4807 and 89.52 respectively. By the end of the trading session however, the USD had reversed course and started losing against its primary rivals.
Comments by Fed Chairman Ben Bernanke surprised many investors as he joined the rallying cry for a stronger Dollar, which may lead to strength for the USD in the days ahead. On the other hand, the USD still faces downward pressure from sudden spikes in risk appetite following positive news reports as its safe-haven status has not yet diminished.
As the US prepares to enter its holiday shopping season, retail sales will become a major factor in currency valuation through the last half of November and the entirety of December. Traders should take note of these reports in the weeks ahead as they will drive the market during this time of year.
Looking at today, forex traders have two primary reports from the United States which will be released simultaneously at 13:30 GMT. The first is Building Permits which will reveal the status of a portion of America's housing sector. The second is the monthly CPI data, which highlights the level of inflation among consumer prices over the previous month. Today may be a volatile trading day due to these reports as well as the release of Britain's monetary policy statement a few hours earlier.
EUR - EUR Bearish following Consumer Confidence Drop
The 16-nation European currency appeared to be on the downside in recent trading after statements from a number of central bankers called for a strengthening of the US Dollar. Interest rates do not appear to be getting raised by many banks in the nearest future, and this news has helped keep downward pressure on the European currencies while bankers strive to boost economic growth.
The EUR weakened as far as 1.4807 against the greenback, while also dropping below 132.50 against the Yen. This latest weakness may simply be highlighting the return of risk aversion in the market following last week's drop in consumer confidence and major trade balances.
Britain's Monetary Policy Committee (MPC) is due to release the Minutes from their recent policy meetings later this morning. Results are expected to show little change from Mervyn King's statements a week ago regarding steady interest rates and the option for further bond purchases remaining open. Britain's central bankers have hinted that their economy is not growing as they would like, and measures are being left on the table to combat any additional weakness.
As for other reports today, European Central Bank (ECB) president Jean-Claude Trichet is set to speak at a relatively less significant meeting on insurance and occupational pensions in Frankfurt. While it should not be a volatility-creating event, the possibility remains open for some movement following his statements.
JPY - JPY Gaining from Rising Risk Aversion
With a surge in risk aversion, the JPY appeared to be a growing favorite in recent trading. Climbing as high as 132.44 against the EUR and 82.47 against the AUD following trade liquidation, the Yen may be poised for further strength against these currencies without any significant news to correct this recent behavior.
After last week's drop in consumer confidence, safe-havens like the USD and JPY have begun to regain some strength. With the holiday season in Europe and the United States approaching, the possibility remains that this strength may drop as investors pull money out of safe-havens to purchase holiday gifts, but this movement may not reflect true market conditions, only short-term cosmetic changes.
Crude Oil - Oil Prices Defy Strengthening USD, Breach $80
The price of Crude Oil climbed back above $80 a barrel in today's early trading hours despite the sudden rise in USD strength. Speculators view the sudden increase in risk aversion to be a signal that commodity prices will continue rising as a hedge against inflation. Gold prices are still climbing, and even Silver has broken through its significant psychological price level of $18 per ounce.
With commodity prices climbing, Crude Oil appears set to maintain its current price level, with the option to go even higher as the northern hemisphere prepares for the winter months ahead. Supply remains in doubt and demand still appears weak, but speculators continue to assume that oil prices are going to rise which suggests optimism for further industry growth going into 2010. Investors will have to wait and find out if these speculators were right in their assessment.
The hourly chart displays the Relative Strength Index trading in the over bought zone, potentially signaling a downward price movement. The chart's Bollinger Bands are also tightening, indicating the potential for an imminent breach of the bands. Traders may want to be short on this pair.
The Cable's hourly chart shows a move that began from the pair's lower Bollinger Band and has the potential to climb to its upper Bollinger Band. A limit order to take profit may be preferred at the pair's upper Bollinger Band price level of 1.6835. This price level may also be preferred to enter the market with an entry limit sell at the same price.
The USD/JPY 4-hour chart and hourly chart shows a tightening of the pair's Bollinger Bands, indicating the potential for an imminent breach. The hourly also shows a short term trend that began at the pair's upper Bollinger Band, crossing the 20 day average line. This run could have the potential to reach the pair's lower Bollinger Band. Traders may be inclined to take a limit order at 89.08 or enter long at the same price level.
Yesterday the pair showed bullish strength, touching a significant resistance level of 1.2007 and then reversed course. The hourly chart displays a tightening of the pair's Bollinger Bands, indicating the potential for an imminent breach. The chart also shows the pair's Relative Strength Index floating in the oversold zone. This may show the pair could be in for another upward price move. Traders may want to be long on this pair today.
The Wild Card
Wild Card - Gold
Gold touched a new high yesterday of 1143.15, though the charts are showing bearish trends today. The daily chart displays a bearish cross has formed on the commodity's Slow Stochastic Oscillator, indicating for a potential downward price movement. Further evidence of a potential downward correction could be supported by the pair's Relative Strength Indicator trading in the overbought zone. This could give commodity and forex traders a reason to go short on gold today.