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Monday, 10 Aug 2009
Dollar Continues to Rise on Jobs Boost
The movements we saw during Friday's trading session may have been exaggerated and may be reversed. Today is a quiet news day for the U.S. as there are no major economic data releases on the calendar today. However, Britain and Euro-zone appear to be releasing the bulk of today's news, which means we may see a day of trading with low liquidity and therefore increased volatility. Day-traders can take advantage of these intense trading days by swinging within the larger-than-normal price fluctuations.
USD - USD's Bullish Spike at an End?
Last Friday's release of the US Non-Farm Payroll figures drastically altered the forex market with a sharp uptrend for the US Dollar. Ending the week at 1.4181 against the EUR, down from the weekly high of 1.4447, and dropping the GBP/USD rate back towards the 1.6600 level, the greenback is beginning to benefit from positive economic news. Should forex traders go long on the USD? Not necessarily.
As was anticipated by many analysts, when economic recovery comes online, the first result will inevitably be a weakening of the USD versus its currency counterparts. As the world's number one safe-haven investment, the USD must by this definition suffer a significant loss as banks and investors dump their Dollar reserves for riskier assets and portfolio diversification. The immediate effect of the NFP report was a strong bullish movement priced in for the greenback, but the long-term trend will likely be a continuation of the bearishness experienced over the previous two weeks.
While some analysts claim that the recovery began prior to last week, and thus the USD may be reacting positively to favorable economic news, this is less likely to be the case. It may be more likely that global investors saw the sudden decrease in American unemployment as a sign that the US may be a calmer market to invest in, and not just as a safe-haven.
After the hectic news week experienced for the first week of August, this week may appear mild in comparison. With hardly any significant news being released from the United States until at least Wednesday, forex traders are advised to follow the British Pound as it may end up being this week's focal currency.
EUR - EUR Reaches near 2009 High against JPY
The EUR was one of the primary victims of Friday's Non-Farm Payroll release from the United States. After the release, which showed employment shrinking much slower than expected, and witnessing the first drop in the Unemployment Rate since May of 2008, the EUR saw a sharp sell-off with investors' protective strategies adding downward pressure on the EUR as the price fell below significant resistance levels, triggering massive Stop Orders.
Good news for the EUR is that it was not the biggest loser on the day last Friday. It managed to cling to a few of the gains made Thursday against the Pound, and reached a year high of 138.69 against the JPY. While the bearish move experienced against the USD appeared to be a reversal to the EUR's bullishness, many analysts actually claim that this spike merely represents values which had been priced in before the NFP release. Now that the market is on the path to recovery, the safe-haven USD should enter a sell-off phase of its own and push its rival currencies to new highs in the near future.
For the days ahead, forex traders should focus their attention away from the Euro-Zone for their economic news, primarily as there will be very little news coming from Europe this week. Most attention will be placed on Great Britain following its announcement of the increase in quantitative easing from 125B Pounds to 175B. This week's announcements from the UK will no doubt assist traders in determining the direction of the GBP for this week and next.
JPY - JPY Drops from Surging Risk Appetite and Dollar Strength
What most analysts are now calling Friday's biggest loser, the Japanese yen suffered more than any other currency following the release of America's Non-Farm Payroll data. The JPY indeed plummeted to price levels near 2009 lows against the EUR and GBP, prices of 138.69 and 163.08, respectively. Against the USD, the JPY dropped to 97.76, a price level unseen since mid-June.
The surge in risk appetite, and the sudden spike of the USD combined to put insurmountable pressure on the island currency last Friday, causing major breakouts to occur in the moments after the release of the NFP report. With a surprisingly heavy news week for the Japanese currency ahead of forex traders, there is the possibility for this bearishness to continue, since many are expecting positive results which may likely boost the appetite for risk in the market and thus put additional selling pressure on the traditional safe-havens like the JPY and USD.
Crude Oil - Crude Oil Hits 10-Month High, then Tumbles
The price of Crude Oil spiked on Friday, following the sudden surge in market volatility after the release of US Non-Farm Payrolls. Prices climaxed at a 10-month high of $72.81 before tumbling back towards the $70 price level. Much of the market pressure and volatility was correlated with the strength of the US Dollar.
The sell-off of the USD following the report pushed oil prices higher, however, the sudden rapid sell-off of all other currencies directly thereafter led to a surprising surge in the value of the Dollar. Considering the greenback's relationship to commodities, the price of Crude Oil mirrored the movements of the EUR/USD almost perfectly, with a strong upward surge followed by an even more rapid decline. Now that the market appears to have stabilized, the growth pattern forecast by many economists may very well be underway. If predictions are correct, the USD should drop in the coming weeks and oil prices should climb as a result.
The daily chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, the 4-hour chart's RSI is already floating in the over-sold territory, suggesting an upward correction may be imminent. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
The price of this pair appears to be floating in the over-sold territory on the 4-hour chart's RSI, indicating an upward correction may be imminent. The upward direction on the Slow Stochastic also supports this notion. Going long with tight stops might be the right strategy today.
A bearish cross on the 4-hour chart's Slow Stochastic implies that a downwards correction might take place in the nearest time frame. The daily chart's RSI is floating in the overbought zone suggesting that the upward trend might be out of steam. Going short with tight stops appears to be the right strategy today.
There is a bearish cross forming on the daily chart's Slow Stochastic indicating a bearish correction might take place in the nearest future. The downward direction on the 4-hour chart's Momentum oscillator also supports this notion. When the downward breach occurs, going short with tight stops appears to be preferable strategy.
The Wild Card
Gold prices are once again dropping, and it is currently traded around $956 per ounce. And now, the 4-hour chart's Slow Stochastic is giving bullish signals, indicating that gold prices might go up. This might give forex forex traders a great opportunity to enter a very popular trend.