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Monday, 23 Aug 2010
Dollar and Yen Strengthen As a New Trading Week Begins
After four days in which the euro and British pound had dominated the market, the trend markedly reversed by last Thursday. Several negative economic reports from the U.S. have added to concerns regarding the global economic recovery, boosting risk aversion. Both the U.S. dollar and yen saw gains as a result. Will the dollar and the yen continue to strengthen this week as well?
USD - Dollar Finishes Volatile Week with Green Signals
The U.S. dollar finished a rather volatile trading week with modest gains against most of the major currencies. The dollar began last week's trading down about 150 pips against the euro, but eventually closed the session with a 70 pip gain. A similar trend took place against the British pound.
The dollar weakened against most of the major currencies until last Thursday, as reports showed that the U.S. economy is recovering faster than expected. The global demand for long-term U.S. financial assets rose in June from a month earlier as investors abroad bought treasuries and agency debt and sold stocks. Net buying of long-term equities, notes and bonds totaled $44.4 billion for the month, beating expectations for $36.3 billion, and well above $35.3 billion in May. In addition, the U.S. Producer Price Index (PPI) rose for the first time in 4 months in July. This has eased concerns for deflation in the U.S. and was interpreted as another signal that the U.S. economic recovery is advancing, and that a global recovery might quicken it's pace as well. As a result, investors looked for higher-yielding assets, such as the euro and the pound.
However, disappointing data from the U.S. economy released on Thursday had turned the trend around. The weekly Unemployment Claims showed that 500,000 individuals filed for unemployment insurance for the first time during the past week, failing to reach expectations for 478,000 requests. In addition, the Philly Manufacturing Index showed that manufacturing in the Philadelphia region unexpectedly shrank in August for the first time in a year. These reports have crated uncertainty regarding the recovery of the U.S. economy, and as a result turned investors to open long positions on the safe-haven dollar.
As for the week ahead, many interesting economic releases are expected from the U.S. Traders are advised to focus on the Existing Home Sales, Core Durable Goods Orders, New Home Sales, weekly Unemployment Claims and the Preliminary Gross Domestic Product publications, as there are likely to have the largest impact on the dollar.
EUR - Euro Tumbles Due To Disappointing Data
The euro dropped against most of its major counterparts during last week's trading session. The euro began last week with a rising trend, yet finished it with a 70 pip loss against the U.S. dollar and a 120 pips loss against the Japanese yen.
The euro fell last week as negative data from the euro-zone's leading economies have increased concerns regarding the pace of recovery for the region. The German ZEW Economic Sentiment, a survey of German institutional investors and analysts who are asked to rate the 6-month outlook for Germany, dropped more than expected, and reached a 16-month low. This has been the 4th consecutive decline for this survey, suggesting that German economic growth may be slowing down. In addition, the euro-zone's Current Account, an indicator which measures the difference between imported and exported goods and services was released with a negative figure, the 3rd in a row. The negative report has decreased risk-appetite in the market, and turned investors to look for safe-haven currencies such as the yen.
Looking ahead to this week, traders are advised to follow the major economic releases from Germany, as it is the biggest economy in the euro-zone. Special attention should be given to the German Business Climate report, which will also try to detect the German economic outlook for the next 6 months. This week's euro trading will be largely affected by the result of this publication.
JPY - Yen Rises to 7-Week High Vs. The Euro
The Japanese yen rallied against most of the major currencies during last week's trading session. EUR/JPY tumbled about 100 pips, causing the pair to hit a 7-week low. The yen gained about 100 pips against the British pound as well.
The yen strengthened last week as economic reports from the U.S. and the euro-zone have signaled that the global economic recovery is slowing. Reports showed that the unemployment situation in the U.S. continues to deteriorate, as 500,000 people have filed for unemployment insurance for the first time during the past week. The euro-zone has provided negative data as well, as the German ZEW Economic Sentiment report, which attempts to predict the economic outlook of Germany for the next 6 months, has declined for the 4th consecutive time.
The disappointing economic data from both the U.S. and the euro-zone are the main reason that concerns regarding the global economic recovery are taking place. These concerns are driving investors to open long position on the yen, which is considered to be a relatively safe investment. As long as the leading economies will continue to provide negative signals, the yen is likely to strengthen further.
As for this week, a batch of data is expected from the Japanese economy. Traders are advised to follow the Japanese Trade Balance and the Tokyo Core Consumer Price Index, as these reports tend to have a large impact on the yen.
OIL - Crude Oil Drops To $73.45 a Barrel
Crude oil continued to tumble during last week's trading session. A barrel of crude oil was trading at around $75.70 at the beginning of the week, and eventually dropped to around $73.85 a barrel by Friday.
The main reason for crude oil's decline seems to be the negative data from the U.S, the biggest oil consuming nation. The weekly Unemployment Claims rose by 12,000 to 500,000 in the past week, the highest figure since November 2009. In addition, the Federal Reserve Bank of Philadelphia said that its general economic index slipped to -7.7 on August, also signaling a possible contraction of the U.S. economy. It seems that as long as the U.S. economy continues to provide negative data, demand for gasoline in the U.S. is likely to decrease, and as a result crude oil prices will continue to decline.
Looking ahead to this week, traders are advised to continue following the major economic updates from the U.S. and the euro-zone, as these seem to have the largest impact on oil prices. Most significantly, traders should follow the U.S. Crude Oil Inventories report, scheduled for Wednesday, as this publication tends to have an instant affect on crude oil prices.
The pair has been experiencing some very bearish behavior in the past week, as it currently stands between the 1.2700-1.2730 levels. The main oscillators of the daily chart indicate this trend may continue into the near future. However, the 4-hour Slow Stochastic reveals that a bullish cross is about to occur anytime soon, indicating that a bullish correction may be imminent. Now may be a ripe time to take advantage of the situation at an early stage.
The cross has received increasing support as of late, as this pair approaches new highs. The continuation of the bullish trend is supported by the 1-day and 1-week charts' MACD. On the other hand, the 4-hour and 1-day charts' Slow Stochastic seems to contradict this. It may be wise to open a long position with tight stops before the bullish trend comes to an end.
The pair has been going through much bearish behavior in the past several days. The MACD of the 1-hour chart fails to show a clear signal as to the future direction of this pair. However, the 1-day Stochastic Slow and RSI show that this pair is still likely to go lower before making a bullish correction. Traders should take advantage of this bullish trend now while it still carries steam.
This pair's recent drop has pushed the price into the over-sold territory on the RSI of both the hourly and 4-hour charts, signaling an upward correction could be in the making. With a bullish cross recently occurring on the 4-hour chart's Slow Stochastic, this move may indeed be imminent. Going long might be a good choice.
The Wild Card
Gold prices have been increasing rapidly lately, as they stand at over $1229per ounce. The 1-day and 1-week chart shows that this bullish trend is set to continue. This is also supported by the 1-hour and 4-hour MACD oscillator. It may be a wise move for forex traders to enter this very popular trend.
|10:00||CHF||ZEW Economic Expectations||19.0||*||7.0|
|10:34||EUR||German 10-y Bond Auction||1.58|1.6||*||1.49|1.3|
|13:00||USD||FOMC Member Stein Speaks||*||*||*|
|13:30||CAD||Foreign Securities Purchases||1.09B||4.57B||-|
|14:15||USD||Capacity Utilization Rate||78.4%||78.8%||-|
|15:00||CAD||BoC Monetary Policy Report||*||*||*|
|15:00||CAD||BoC Rate Statement||*||*||*|
|15:30||USD||Crude Oil Inventories||4.0M||-||-|
|16:15||CAD||BOC Press Conference||*||*||*|
|17:15||USD||Fed Chair Yellen Speaks||*||*||*|
|18:25||USD||FOMC Member Fisher Speaks||*||*||*|
|01:30||JPY||BOJ Gov Kuroda Speaks||*||*||*|
|02:30||AUD||NAB Quarterly Business Confidence||8||*||-|