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Monday, 11 Oct 2010
Dollar Continues To Slide Amid Disappointing Jobs Data
The U.S. dollar continues to slide on almost all fronts. As a result, during the past week the euro reached a 5-month high against the dollar and the Japanese yen saw a 15-year high vs. the greenback. Dollar-dominated commodities soared as well during the process; gold saw an all-time high of $1,364 an ounce, and crude oil marked a 5-month high of $84.40 a barrel. Can this trend continue this week as well?
USD - Dollar Closes another Bearish Week
The U.S. dollar continued to drop against most of the major currencies during last week's trading session. The dollar fell about 300 pips against the euro and the EUR/USD pair crossed the 1.4000 level for the first time in 5 months. The dollar continued its depreciation against the Japanese yen as well, falling to a 15-year low against the yen.
The dollar's ongoing devaluation is the result of positive indications from the U.S. economy, which supports risk appetite in the market. Economic reports from the past week show that the number of contracts to purchase previously owned homes increased by 4.3% in August, following a 4.5% rise in July. In addition, the Non-Manufacturing Purchasing Managers' Index report showed on Tuesday that service companies in the U.S. have expended at a faster pace than projected in September, indicating the economic recovery is picking up. The disappointing Non-Farm Payrolls results, which showed that the U.S. lost more jobs than forecast in September, should have corrected the bearish dollar. However, it was the unemployment rate, which stayed at 9.6%, and didn't rise to the expected 9.7%, that maintained the dollar's fall.
Looking ahead to this week, the most significant news releases from the U.S. look to be the inflation reports. The Producer Price Index (PPI), which is scheduled for Thursday, and the Consumer Price Index (CPI), which is scheduled for Friday are likely to have a large impact on dollar's trading. Positive results will show that the economy is indeed recovering, and the dollar might drop further as a result.
EUR - Reduced Risk Aversion Boosts the Euro
The euro strengthened against most of the major currencies on last week's trading. The euro gained about 300 pips against the dollar, and the EUR/USD was traded over 1.40 for the first time in 5 months. The euro continued to strengthen against the British pound as well, gaining about 100 pips last week.
The positive economic releases from Germany continue to support the euro-zone's currency. German factory orders rose more than expected in August, the nation's economics ministry said Wednesday, as seasonally-adjusted orders increased by 3.4% in August. In addition, the German industrial production expended as well in August, at by 1.7%. Germany holds the strongest and largest economy among the EU nations, and thus recovery signals from the German economy are supporting the local currency. Another motive for the euro's appreciation is the recovery indications from the U.S. economy. Various reports which were released last week showed that the U.S. economy is recovering, and isn't likely to enter yet another recession. All this reduces risk-aversion and drives investors to look for relatively riskier assets, such as the euro.
As for the following week, traders are advised to follow the leading publications from the German and French economies, as these are likely to have the largest affect on the euro this week. Traders should also watch the euro-zone's Consumer Price Indices, which are scheduled for Friday. Further positive reports from the euro-zone have the potential to boost the euro farther against the dollar to the 2009 December low at the resistance level of 1.4210.
JPY - Yen Continues To Rise on All Fronts
The Japanese yen rallied against all of its major counterparts during last week's trading session. The yen's most notable appreciation came against the U.S. dollar. The USD/JPY fell to the 81.40 level, marking a 15-year low. The yen gained almost 150 pips against the euro and the British pound as well.
The yen continued to strengthen last week due to speculations that despite Japan's desire to devaluate the national currency in order to aid exports, the international criticism following its last intervention will prevent the Japanese government from acting again. Over the weekend Japan escaped overt criticism from the G7 and G20 for its yen selling intervention. Yet it seems that the Japanese leadership understands that the industrial world isn't accepting its unilateral intervention, and that investors' bets that Japan will not interfere in the currency trading have so far been fulfilled.
As for the week ahead, traders are advised to keep following Japanese statements regarding their currency intervention plans. For the moment it seems that Japan will reluctantly abandon their wish to devaluate the yen. If this occurrence will indeed take place, the yen might strengthen even further during the upcoming week.
OIL - Crude Oil Recovers To $83 a Barrel
Crude oil saw an extremely volatile session during last week's trading. Crude gained on a daily basis up until Friday, and reached as high as $84.40 a barrel. This was followed by a sharp fall, and crude was traded for $80.30 a barrel. However, crude prices promptly corrected the bearish move, and are now trading around $83.0 a barrel.
Crude is constantly rising over the past three weeks due to growing speculations that the Federal Reserve will need to start debt purchases to prevent the U.S. economy from falling back into recession. This has weakened the U.S. dollar, and as a result boosted demand for dollar-dominated commodities, such as crude oil and gold. It currently seems that as long as the dollar continues to slide against its major rivals, especially the euro and the Japanese yen, crude might face further bullishness.
As for this week, traders are advised to continue following the major news releases from the U.S. and the euro-zone, as these usually have significant impact on crude oil trading. Traders should also follow the U.S. Crude Oil Inventories release on Thursday as this report tends to have an instant impact on the market.
There is a very accurate bullish channel formed on the 4-hour chart, as the pair is now floating in the middle of it. As the RSI and the MACD are still pointing up at the daily chart, the pair looks to rise further, with potential to reach the 1.4050 level.
The cable closed a rather volatile week around the 1.5940 level. A bearish cross on the daily chart's Slow Stochastic suggests that a bearish trend might take place this week. Going short might be the preferable strategy today.
The USD/JPY pair saw a 15-year low last week, and yet it continues to drop further. The MACD and the Slow Stochastic on the weekly chart indicate that the bearish move has more room to go, with key target level of 81.35.
The USD/CHF continued to drop on Friday, yet it begins to provide correction signals. A bullish cross of the 4-hour chart's MACD and the daily chart's Slow Stochastic indicate that the pair might see a bullish correction today. Going long with tight stops might be a good strategy.
The Wild Card
The pair saw a mild bullish correction until Friday and reached as high as the 1.0235 level. However, it has already corrected most of the bullish movement and is now trading around the 1.0100 level. And now, as all the oscillators on the 8-hour chart are pointing down, the pair looks to prolong the bearish trend. This might be a good opportunity for forex traders to join a very popular trend.