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Wednesday, 5 Jan 2011
Dollar Advances Ahead Of ADP Non-Farm Payrolls Release
The dollar gained against most of its major currency rivals yesterday, partly due to expectations that this week's labor reports will provide further evidence that the U.S. economy is recovering. The first of these reports is the ADP's forecast for the past month's Non-Farm Employment Change. Large volatility is likely to take place due to this release, and traders are advised to be prepared.
USD - Dollar Soars as Risk-Aversion Increases
The U.S. dollar strengthened yesterday against most of the major currencies. The dollar began yesterday's session with a down trend against the euro, but was able to reverse by midday. The EUR/USD pair reached as low as the 1.3285 level by the end of the session. The dollar also saw a 200 pip appreciation against the Swiss franc.
The USD gained yesterday following a drop in the Standard & Poor's 500 Index, which boosted demand for safer assets. In addition, significant bearish trading for commodities, such as crude oil and gold, also increased demand for the dollar as a safe haven. Gold dropped about 4,000 pips in yesterday's session and crude oil fell from $92.00 a barrel to $88.35.
The dollar's bullishness was also supported by forecasts that U.S. reports on jobs and services, which are expected later on this week, might provide further evidence that the economy is recovering.
As for today, several economic releases are scheduled from the U.S. economy. The most significant reports are likely to be the ADP Non-Farm Employment Change, and the Non-Manufacturing Purchasing Managers' Index. The ADP report is a forecast for the Non-Farm Payrolls data, which is scheduled for Friday, and is considered to be quite reliable. Thus, its result tends to have a large impact on the market.
EUR - Euro Falls vs. the Majors amid Commodities Bearishness
The euro weakened against most of its major currency counterparts in Tuesday‘s trading session. The euro saw a 150 pip drop against the U.S. dollar and about a 100 pip loss against the British pound. The euro also fell about 120 pips vs. the Japanese yen.
The currency fell yesterday in response to a sharp decline in commodities trading. Crude oil erased all of Friday's gains, and a barrel of crude oil is once again trading below $90. In addition, gold saw a sharp decline, falling from $1,415 an ounce to as low as $1,374 an ounce. The fall in commodities trading took place due to reduced risk-appetite in the market.
The euro also fell vs. the dollar after a report showed that Factory Orders in the U.S. rose by 0.7 percent in November, beating expectations for 0.1% decline. The positive data has further boosted the dollar, and as a result weakened the euro.
Looking ahead to today, the most significant economic release from the euro-zone looks to be the European Industrial New Orders. This report measures the change in the total value of new purchase orders placed with manufacturers. A positive figure, following a 4.2% decline in the previous report, might support the euro.
JPY - Yen Sees Mixed Results against the Majors
The Japanese yen saw an extremely volatile session during yesterday's trading. The yen began yesterday's trading with a 60 pip gain against the U.S. dollar, which was subsequently erased by the end of the session. The yen also a 120 pips gain vs. the euro and a 150 pips loss vs. the British pound.
The yen's bullishness vs. the euro took place as a result of lower risk-appetite in the market. The euro has weakened against most of the major currencies, and the yen was no exception.
On the other hand, the yen fell against the dollar following a better than expected Factory Orders figure. The report showed that factory orders in the U.S. have increased by 0.7% in November, beating projections for a 0.1% decline. As a result, the dollar gained against most of the major currencies.
As for today, no significant data is expected from the Japanese economy. Traders are advised to follow the Japanese and the U.S. equity markets as they are likely to have a large impact on the yen's trading.
Crude Oil - Crude Oil Falls From 27-Month High to $88.36 a Barrel
Crude oil fell yesterday from a 27-month high and reached as low as $88.36 a barrel. Crude opened yesterday's session with a 60 pip gain, only to see a remarkable 360 pip fall. Crude is currently trading near $89.00 a barrel.
Crude oil prices fell sharply yesterday after traders sold long contracts to secure profits. In addition, a drop in the Standard & Poor's 500 Index has led to reduced risk-appetite in the market, which has weakened oil prices as well. Another commodity that was largely influenced by it was gold, which fell by 4,000 pips yesterday to $1,375 an ounce.
Looking ahead to today, the U.S. Crude Oil Inventories figure is scheduled for 15:30 GMT. This report measures the change in the number of barrels of crude oil held in inventories by commercial firms during the past week. The currently projection is that supplies have contracted by 1.4M over the past week. Such a result might support oil prices.
The EUR/USD pair saw a sharp bearish move yesterday, and dropped about 160 pips. Currently, in the 4-hour chart we are seeing what seems to be the beginning of a “M” pattern, which suggests that the pair has potential to fall down to the 1.3100 level.
The cable gained about 190 pips yesterday, and the pair is currently trading near the 1.5560 level. Nevertheless, as a bearish cross has completed on the 4-hour chart's Slow Stochastic, it seems that a correction might take place today. Going short with tight stops might be the right strategy today.
The USD/JPY continued with the bullish reversal yesterday, and is currently trading above the 82.00 level. In addition, as the RSI on the daily chart has crossed the 30-line and continues to point up, it seems that another bullish session might take place today. Going long appears to be the preferable choice today.
The USD/CHF saw a bullish correction yesterday, and reached as high as the 0.9515 level. Currently, as the MACD on the 4-hour chart continues to provide bullish signals, the upward move looks to continue with the potential to reach the 0.9600 level.
The Wild Card
Gold saw a rather abnormal trading session yesterday, and dropped about 4,000 pips in a single-day. In addition, as a bearish cross has been completed on the daily chart's Slow Stochastic, and the RSI continues to point down, the bearish move looks to proceed. This might be a great opportunity for forex traders to join a very popular trend.
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