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Monday, 18 Jan 2010
Dollar Bearishness Halts, Is a Bullish Reversal Impending?
After consistently dropping last week, the Dollar's downtrend appears to be halted. The Dollar is currently rising against the Euro, and considering Crude Oil's surprising drop, it seems that the Dollar has the potential to rise further. However, as a week packed with economic publications from the U.S. begins, it seems that the direction of the Dollar will be determined by the results of this data.
USD - Dollar Closes a Bearish Week Due to Poor Data
The Dollar dropped against most of the major currencies during last week's trading session. The Dollar saw a 200 pips slide against the Yen, and a similar drop against the Pound. Throughout most of the week, the Dollar fell against the Euro as well. Yet it managed to rebound close to the weekend.
The Dollar's bearish trend came as a result of several poor U.S. economic indicators. The U.S. Trade Balance showed that the U.S. deficit has widened more than expected in November, mainly due to increased Oil imports. This shows that the imports are climbing in a faster pace than exports. Investors saw this result as a warning sign that the economy is yet to be recovering, and thus the Dollar began to slide. The U.S. Retail Sales data which were also released last week showed that the total sales at the retail level have decreased by 0.3%, failing to reach expectations for a 0.4% rise. This has added to investors woes that the American economy might not reach out of recession as soon as expected. In general, it appears that the Dollar becomes more fragile than usual lately, and the impact of each news release from the U.S. economy is becoming greater than usual.
As for the week ahead, several major economic publications are expected from the U.S. Traders are advised to follow the Long-Term Purchases on Tuesday, the Building Permits and the Producer Price Index on Wednesday and the weekly Unemployment Claims on Thursday.
EUR - Euro Drops as ECB Reluctant to Hike Rates
The Euro slid against all the major currencies during last week's trading. The Euro started the week with a rising trend vs. the Dollar, however as the week progressed the trend reversed, and the Euro fell. The Euro also dropped over 300 pips against the Yen and about 200 pips against the Pound.
The main reason for the Euro's drop appears to be the European Central Bank (ECB) decision to leave Interest Rates at 1.00%. This is clearly shown on the EUR/USD pair. Until Thursday, the day of the Minimum Bid Rate announcement, the Euro kept strengthening against the Dollar. However, as soon as the ECB announced that the Euro-Zone Interest Rates for January remains at 1.00%, the EUR/USD began to fall, and dropped from 1.4515 to 1.4335. It seems that many investors have expected the ECB to hike rates, mainly due to the extraordinary German economic recovery lately, and when the rates remain at 1.00%, they have closed EUR/USD long positions. This has also led the Euro to drop against the rest of the major currencies as well.
Looking ahead to this week, the most interesting news publication from the Euro-Zone seems to be the German ZEW Economic Sentiment on Tuesday. This is a survey of German institutional investors and analysts who are asked to rate the next 6-month outlook for Germany. If the end result will reach over 50.0 it is likely to support the Euro.
JPY - Yen Rising as EUR and Dollar Declines
The Yen saw an extremely bullish session during last week's trading. The Yen rose close to 200 pips again the Dollar, and gained over 300 against the Euro. The Yen strengthened against the Pound as well.
Two main reasons have lead to the Yen's recovery this week. The first one was the relatively positive data that was released from the Japanese economy. The most significant data was the Current Account, which showed that during November, the Japanese surplus grew by 76.9%. The Japanese economy relies greatly on its exports, and thus extremely positive data such as that one is very likely to support the Yen. The second reason that led to the Yen's bullish trend was the weakening of its rivals. The Dollar and the Euro have dropped against most of the major currencies last week, and when the Euro and the Dollar are dropping, their main counterpart - the Yen - is likely to strengthen as a result.
As for this week, a batch of data is expected from the Japanese economy. The most interesting publication that traders are advised to focus on is the Tertiary Industry Activity on Tuesday. This report measures the change in the total value of services purchased by businesses during November. A positive figure will be another indication that the Japanese economy is recovering, and is likely to support the Yen.
Oil - Crude Oil Drops Below $78 a Barrel
Crude Oil continued to tumble during last week's trading session. A barrel of Oil was traded for $84 as last week took off, yet by Friday, crude oil saw a steep drop, and a barrel of crude oil is now traded for $77.80.
It seems that speculations claiming that supplies are more than enough to complete the enhanced demand for energy due to the global recovery. For several weeks Crude Oil saw a bullish trend as demands for energy kept increasing. However, as a barrel of Oil reached $84, it seemed that supplies have reached over the demands, and thus a decline in Oil's value was imminent. In addition, the strengthening of the Dollar against the Euro also contributed to the weakening Oil. Crude Oil is valued in Dollars, and thus when the Dollar rises, Crude Oil usually drops as a result.
As for the following week, traders are advised to follow the main publications from the U.S. and the Euro-Zone as they are likely to impact Oil's value. In addition, traders should also focus on the Crude Oil Inventories scheduled for Thursday, as this indicator tends to have an immediate impact on the market.
A reversal of the recent bearish trend for the pair may be expected today as the 4 hour RSI is floating in the oversold territory and an impending bullish cross is evident on the 8 hour and daily Slow Stochastic. Furthermore, the 8 hour RSI is floating near the oversold territory. Going long for the day may be advised.
The pair maybe experiencing some bearishness today as the hourly and 8 hour RSI are floating in the overbought territory and the hourly and daily charts' Slow Stochastic is exhibiting a fresh bearish cross. Going short for the day may be advised.
The daily and 8 hour charts' Slow Stochastic is exhibiting a fresh bullish cross and the 4 hour and 8 hour RSI are floating in the oversold territory. Going long for the day may be a good choice.
The pair may be seeing a bearish correction today as the 4 hour and 8 hour RSI are floating in the oversold territory and the 8 hour chart's Slow Stochastic is exhibiting a fresh bearish cross. Going short for the day may be advised.
The Wild Card
The pair's hourly, 4 hour and 8 hour RSI are floating near the overbought territory while a bearish cross is evident on the daily and 8 hour charts' Slow Stochastic. Furthermore, an impending bearish cross is evident on the hourly and 2 hour MACD. Forex traders are advised to go short for the day.
|09:30||GBP||MPC Meeting Minutes||0-0-9||0-0-9||-|
|10:00||CHF||ZEW Economic Expectations||2.2||-||-|
|15:30||USD||Crude Oil Inventories||2.5M||-||-|
|19:00||USD||FOMC Economic Projections||*||*||*|
|19:00||USD||Federal Funds Rate||<0.25%||<0.25%||-|
|19:30||USD||FOMC Press Conference||*||*||*|
|01:00||EUR||Spanish 10-y Bond Auction||4.52|2.5||-||-|
|01:00||USD||CB Leading Index||m/m||0.6%||0.2%||-|
|05:30||CHF||SNB Financial Stability Report||*||*||*|
|08:00||EUR||French Flash Manufacturing PMI||46.4||47.1||-|
|08:00||EUR||French Flash Services PMI||44.3||45.0||-|
|08:30||CHF||SNB Monetary Policy Assessment||*||*||*|