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Tuesday, 6 Jan 2009
Dollar Expects High Volatility Today
A potential $300 billion tax cut that includes business incentives proposed by the incoming Obama administration sparked hefty gains for the Dollar. The new economic package could provide a much needed spark for the U.S. economy.
USD - U.S. Tax Cut Boosts Dollar across the Board
Now that the holidays are over and the New Year past, trading desks are beginning to operate close to full staff and trading is beginning to behave as normal. The large price jumps that were seen during holiday hours have given way to systematic price movements driven by market events.
Yesterday the Dollar rose across the board, posting gains in almost all major pairs. A potential $300 billion tax cut that includes business incentives proposed by the incoming Obama administration sparked hefty gains for the Dollar. The new economic package could provide a much needed spark for the U.S. economy.
Today's gains continue a rally for the Dollar that started at the beginning of trading for the New Year. The EUR/USD touched at its lowest level since December 15th, at one point in the day falling to 1.3545. The rally of the Dollar may continue as negative economic pressure may weigh on EUR. The Euro-Zone economy is slipping into a recession and traders feel there may be room for further easing of Interest Rate policy in Europe. With this in mind, the Dollar may see more gains as the week goes on, possibly to the 1.3350 level.
EUR - New Interest Rate Cuts get Priced In to EUR
The EUR has started the New Year in a complete reversal from where it ended. The European currency has shown considerable weakness against both the Dollar and the Pound. The last two days of trading have seen sharp reversals in both the EUR/USD and the GBP/EUR. Yesterday the EUR/USD closed the day sharply lower at 1.3546, while the EUR/GBP also saw heavy losses to end the day down at 0.9290.
Fundamentals are once again driving the depreciation of the EUR. Speculation is mounting that continued economic weakness in the Euro-Zone economy will force the European Central Bank (ECB) to cut Interest Rates at its next meeting on January 15th. ECB Vice President Lucas Papademos spoke of easing European Interest Rates as the ECB will look for a continued drop in inflation when making their decision.
Today the EUR may be influenced by indicators due to be released from Great Britain and the U.S. From Britain, the Services PMI index will be released, and from the U.S. the Pending Home Sales. Traders should look to the Home Sales report to potentially beat market expectations for an influence on the EUR/USD price.
JPY - Equity Markets Drop the Yen
The JPY has significantly weakened against the USD since the start of the New Year. Yesterday's trading session was no exception with USD/JPY ending the day up at 93.05. The Obama economic stimulus plan and a rally in equity markets contributed to the appreciation of the pair.
Each of these factors had a hand in influencing one another along with the USD/JPY. The economic stimulus plan proposed by the Obama administration increased market sentiment for an economic recovery in the U.S. economy. The Nikkei 225 Average rose 2.1% yesterday on hopes of the economic recovery plan. Stronger equity markets may result in a lower Yen as investors seek higher profits in higher yielding assets. Japanese finance officials can now take a deep breath as the Yen has depreciated and solidified itself with a support line at the 93.00 level. The Bank of Japan had previously expressed concern that a strong Yen was not good for the country's exports and threatened to sell Yen in the open market to drop the value. Traders may be able to rule out this market intervention by the Japanese government.
Oil - Gaza and Russian Conflicts Elevate Crude Prices
Oil climbed for a fourth consecutive trading day on concerns that the conflict in Gaza may not be short lived while Russia and Ukraine argue over gas prices. Crude Oil climbed as high as $49.23, only to close the day at $47.90.
The nearly 3 percent gains were seen as fighting between Israel and Hamas terrorists in the Gaza Strip continued for the 11th day, and both sides showed no signs of a willingness to cease its operations.
Also contributing to the rise in Crude prices has been Russia reducing fuel supplies to its European neighbors. Eastern European countries are suspected of siphoning off gas supplies before reaching its intended destination. These two factors may lead to a continuation of elevated Crude prices in the short term. Look for Crude to potentially break the $50 mark.
The hourly chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, the daily chart's RSI is already floating in the oversold territory indicating that a bullish correction might take place in the nearest future. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
A bullish cross on the hourly chart's Slow Stochastic implies that an upwards correction might take place in the nearest time frame. The hourly chart's RSI is floating in the oversold zone suggesting that the downward trend might be out of steam. Going long with tight stops appears to be the right strategy today
The bullish trend is loosing its steam and the pair seems to consolidate around the 93.00 level. The daily chart's RSI is already floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. Going short with tight stops appears to be preferable strategy.
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 overbought territory indicating that a bearish correction might take place in the nearest future. When the downwards 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 $848 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 traders a great opportunity to enter a very popular trend.
|08:45||EUR||French Consumer Spending||m/m||-0.6%||0.4%||0.1%|
|09:00||CHF||KOF Economic Barometer||89.5||90.3||93.1|
|09:00||EUR||Spanish Flash CPI||y/y||-0.6%||-0.5%||-0.2%|
|10:00||EUR||M3 Money Supply||y/y||4.6%||4.9%||-|
|11:00||EUR||Italian Prelim CPI||m/m||0.3%||0.1%||-|
|14:30||USD||Prelim GDP Price Index||q/q||-0.1%||-0.1%||-|
|16:00||USD||Revised UoM Consumer Sentiment||95.9||90.0||-|
|16:00||USD||Revised UoM Inflation Expectations||-||2.5%||-|