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Tuesday, 1 Jun 2010
Dollar Awaiting Release of U.S. Manufacturing PMI
Today's U.S. Manufacturing PMI data release is set to dominate trading between the Dollar and its major currency pairs. A number of other factors are also likely to impact the forex market today, such as the German Unemployment Change and Canadian Overnight Rate at 7:55 GMT and 13:00 GMT respectively. Traders may find good opportunities to enter the market following these vital announcements
USD - ISM Manufacturing PMI on Tap
The Dollar was little changed against most of its major counterparts during yesterday's trading session on a renewed bout of risk aversion. This comes prior to the release of a key government report on the U.S. labor markets due this Friday. As a result, the USD fell slightly against the EUR, pushing the oft-traded currency pair to 1.2300 levels. The dollar experienced similar behavior against the GBP and closed at around 1.4510.
As the U.S. economy stabilizes, currency traders have started to focus more on fundamentals such as economic growth and short-term interest rates. That shift, just getting underway, could weaken the soaring USD in the coming months. A stronger currency is important to the U.S. because it entices foreign investors to invest in U.S. bonds that finance the nation's record budget deficit. The downside is that it may restrain profit growth at companies with international sales by making U.S. exports more expensive.
Looking ahead to today, the most important economic indicator scheduled to be released from the U.S. is the ISM Manufacturing PMI at 14:00 GMT. Traders will be paying close attention to today's announcement as a stronger than expected result may boost the USD in the short-term. Traders should pay close attention to the market as there is an opportunity for traders to capitalize on the fluctuations which are likely to follow this release.
EUR - EUR Keeps Steady Rates against U.S Dollar
The EUR stabilized against the dollar on Monday but remained under downward pressure after Fitch Ratings downgraded Spain's credit rating, refueling concern about Europe's debt woes hurting the global economy. By yesterday's close, the EUR rose slightly against the USD, pushing the oft-traded currency pair to 1.2300 levels. The 16-nation currency did see some bearishness as well as it lost around 80 pips against the GBP and closed at 0.8460.
Spain's downgrade by Fitch ratings agency on Friday followed a similar move by S&P last month, and analysts said the reaction from currency markets had been limited as the move had been widely expected. But many say the EUR is poised for more losses after its dramatic tumble this month given that structural problems remain in some euro zone countries, while uncertainties about the scope of the debt crisis in the region will keep investors jittery.
The European single currency is on track for a hefty 7.7% decline against the dollar in May, in what would be its sixth straight monthly fall and the biggest percentage drop since January 2009.
JPY - Yen Trades near a One Week Low versus the USD
The yen traded near its weakest level in more than a week against the dollar as gains in stocks spurred demand for higher-yielding assets and after Japan's Social Democratic Party left a three-way coalition government.
The Japanese currency, which rose against most of the major currencies this month as Europe's credit crisis drove investors to safe haven assets, declined earlier yesterday after a poll showed more than half the nation's voters want Prime Minister Yukio Hatoyama to resign.
Overall, the JPY dropped about 70 pips vs. the Dollar and the USD/JPY pair has peaked at the 91.48 level. The Yen also saw a downtrend against the Euro and the Pound as well. Yet by the end of the day, the Yen managed to correct some of its losses.
OIL - Oil Recovers, Climbing Above $75 a Barrel
Crude oil rose above $75 a barrel after the dollar declined slightly against the EUR, bolstering the appeal of commodities as a hedge against inflation. Oil, like other commodities, is priced in dollars so when the U.S. currency weakens, commodities become cheaper for investors holding other currencies.
Oil dropped on May 28 after Fitch Ratings' decision to strip Spain of its AAA credit rating pushed the euro lower. A report tomorrow in the U.S., the world's biggest energy user, will probably show the nation's manufacturing expansion slowed for the first time in three months.
The pair has experienced a bit of a consolidation since reaching a low of 1.2150 last week. As such, the price has climbed close to the bearish channel that has formed on the daily chart. A trade setup to go short on the EUR/USD is forming as the price moves closer to the upper boundary of the channel. Going short at a trend line can be one of the best ways to enter into a trending market.
The price of the pair is approaching the daily chart's downward sloping trend line that began in late April. This also coincides with the 20-day simple moving average. This may be a good time to enter short on the pair with a price target at the swing low on the daily chart of 1.4230.
Currently the pair is testing the daily chart's 91.30 resistance level. This level is also close to the 20-day moving average line which could make this resistance level even more significant. Traders may find this a good price to enter short on the pair.
The 4-hour chart shows a descending triangle pattern has formed on the 4-hour chart. The pattern begins at the swing high on the 4-hour. As the previous trend was a bullish, we can expect the pair to break out of the consolidation pattern to the upside.
The Wild Card
A resumption of the bullish trend can be seen on the daily chart by drawing a sharper sloping speed line from the long term upward sloping trend line. The price has paused at the resistance level of 1217.50 level. A break of this price level could propel the pair to its next resistance level of 1225. This may be a good opportunity for forex traders to go long on gold.
|08:00||CHF||UBS Consumption Indicator||1.73||-||-|
|08:00||EUR||GfK German Consumer Climate||10.1||10.2||-|
|08:01||EUR||German Retail Sales||m/m||-||-||-|
|10:30||GBP||Net Lending to Individuals m/m||m/m||3.1B||3.0B||-|
|10:30||GBP||M4 Money Supply||m/m||0.5%||0.4%||-|
|12:00||GBP||CBI Realized Sales||29||31||-|
|16:00||USD||Pending Home Sales||m/m||0.9%||1.2%||-|
|16:30||USD||Crude Oil Inventories||2.5M||-||-|
|20:00||USD||Federal Funds Rate||<0.25%||<0.25%||-|
|EUR||German Prelim CPI||m/m||-0.1%||0.2%||-|
|01:50||JPY||Prelim Industrial Production||m/m||-2.1%||0.4%||-|