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Tuesday, 24 Aug 2010

Dollar and Yen Rising on Market Uncertainty and Slowing Growth

A consensus seems to be forming that risk aversion is returning to the market. Despite the sporadic release of positive data in various parts of the world, the overall trend appears to indicate a slow-down in recovery and growth. This has led to an increase in fears about the potential for a speedy recovery, which in turn has fueled the mass flight away from riskier assets and into the safety of the US dollar and Japanese yen.

EUR/USDGBP/USDUSD/JPYUSD/CHFAUD/USDEUR/GBP
Daily Trenddowndowndownupdowndown
Weekly Trenddowndowndowndowndowndown
Resistance1.27331.553685.921.04980.89510.8259
1.26981.549885.601.04630.89240.8232
1.26651.546585.291.04410.88950.8214
Support1.26021.540184.691.03810.88450.8163
1.25711.536984.331.03500.88150.8135
1.25401.533684.011.03200.87860.8108

Economic News

USD - US Dollar Making Strong Gains on Flight from Risk

The US dollar has been on the upside for the past several trading days. Against its primary rivals, the greenback has made modest growth. The EUR/USD pair has slid from its recent high of 1.2900 to currently trade just over 1.2600, and there doesn't seem much in the way of slowing this movement. Against the British pound, the dollar has made remarkable gains to push the pair back towards 1.5400 from recent highs around 1.5700.

A consensus seems to be forming that risk aversion is returning to the market. Despite the sporadic release of positive data in various parts of the world, the overall trend appears to indicate a slow-down in recovery and growth. This has led to an increase in fears about the potential for a speedy recovery, which in turn has fueled the mass flight away from riskier assets and into the safety of the US dollar and Japanese yen.

Today's news events from the United States are focused primarily on existing home sales and minor manufacturing data from the Richmond Federal Reserve office in Virginia; covering the District of Columbia, Maryland, North and South Carolina and the Virginias. Both of these figures are forecast to show a decline, which will likely feed the sentiment of risk aversion currently dominating trading, pushing the USD higher against its rivals.

EUR - Euro Positive Even in Adverse Market; But Will it Last?

The euro has recently made an upward movement against many of its currency rivals, except for the US dollar and Japanese yen. The 16-nation single currency gained over 130 pips against the British pound, and is currently trading at 0.8181. Against the Aussie, the EUR is up from a recent low of 1.4140, presently trading at 1.4230.

While the euro appears to have made some solid gains this morning, many analysts do not expect the momentum to hold. Sentiment in the euro zone has taken a dive from recent estimates showing an expected stall in regional and global growth. These pessimistic reports have begun to weigh on the euro, and this morning's gains should be understood in that context.

Today's news cycle appears to have only two important economic events emanating from the euro zone. The first is an industrial orders figure, which is expected to highlight the stall in economic growth with a weak reading. The second is a business sentiment report from Belgium which is also predicted to present a negative reading. This news only highlights the recent weakness of the EUR and potential for a reversal of recently earned gains.

JPY - Does Recent JPY Boost Raise Probability of BOJ Intervention?

The Japanese yen has made strong gains against all of its currency rivals these past few trading days. This growth is likely due to the sudden spike in risk aversion, similar to the growth being witnessed in the US dollar currently. Market forecasts, which have been consistently predicting a global slow-down, have scared investors away from riskier assets and back into the safety of the dollar and yen.

The result of this risk flight has been to pull the JPY in the direction of record highs against its counterparts, which only increases the possibilities of a Bank of Japan (BOJ) intervention. Speculation is running high at the moment, but with little news being released from Japan speculation seems to be the only game in town. For the time being, risk aversion and the safe-haven status of the yen appear to be in control of the JPY's value.

OIL - Oil Price Persists in Downward Movement on Strengthening USD

The strengthening US dollar has been putting steady pressure on the value of commodities this past week. Spot crude oil prices have been falling since August 6th, and little news events appear to be capable of slowing this movement. Most forecasts this week are predicting a continued decline in market sentiment, pushing more and more traders into safety assets like the greenback. As a result, the price of commodities, such as oil, is expected to remain in a bearish pattern.

With the price currently hovering just under $73 a barrel, down from as high as $83 a barrel, the market would require a sharp reversal in recent data to bring the price of oil back towards the $80 mark. As already mentioned, without such momentum-shifting news, oil is likely to persist in its downtrend.

Technical News

EUR/USD

The pair continues to move lower, crashing through support at the 23.6% Fibonacci retracement level from the December to June bearish trend which lies at 1.2640. Yesterday's low was set just above the 50% Fibonacci retracement at 1.2610 for the June to August bullish correction. Downward movement looks set to continue as the daily Momentum (14 ) is pointing to the downside. Supports of 1.2520 and 1.2470 should be tested in the near term. Resistance comes in at 1.2730.

GBP/USD

The Cable fell sharply yesterday, finding support in the area of 1.544 just above the 50-day exponential moving average. The pair looks to continue its move lower with a short term target the support level of 1.5330, the 38.2% Fibonacci retracement from the May low to the high in August.

USD/JPY

The bearish trend continues for the pair as yesterday's trading ended with the pair at the 85.00 level. Selling opportunities may appear close to the 20-day exponential moving average. Traders should be targeting the near term low of 84.70.

USD/CHF

The USD/CHF cross experienced bullish behavior yesterday. However, there is technical data that supports a bearish move for today. The RSI of the daily and 4-hour charts indicates that the pair floats in the overbought territory, leading to the conclusion that a downward correction is imminent. Going short with tight stops may turn out to pay off today.

The Wild Card

Oil

Crude oil prices have dropped significantly in the last 3 weeks with a low at $72.75 per barrel. However, on the daily chart the RSI is floating in oversold territory which suggests that a bullish correction is impending. This might be a great opportunity for forex traders to enter the trend at a very early stage.

Current Time: 08/30 23:44 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
08/31
23:45USD+ Overseas Trade Index 1.8%--3
00:30AUD+ AIG Manufacturing Index50.7--1
00:50JPY+ Capital Spending y/y7.4%--3
09/01
02:30AUD+ MI Inflation Gauge m/m0.2%--1
02:30AUD+ Company Operating Profits q/q3.1%--3
02:35JPY+ Final Manufacturing PMI52.4--1
07:00EUR+ German Final GDP q/q-0.2%--1
07:30AUD+ Commodity Prices y/y-12.1%--1
08:15EUR+ Spanish Manufacturing PMI53.9--3
08:30CHF+ SVME PMI54.3--1
08:45EUR+ Italian Manufacturing PMI51.9--3
09:00EUR+ Final Manufacturing PMI50.8--1
09:30GBP+ Manufacturing PMI55.4--5
09:30GBP+ Net Lending to Individualsm/m2.5B--3
09:30GBP+ M4 Money Supplym/m0.1%--1
09:30GBP+ Mortgage Approvals67K--1
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