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Tuesday, 5 Jan 2010
Dollar Falls on Fed Comments and Better Manufacturing Data
The U.S. dollar dropped against the major currencies during in the first day of trading for the decade after better than expected economic numbers were released from the U.K. and the U.S. while upbeat comments from the Fed may signal low U.S. interest rates may be here to stay.
USD - Dollar Starts the New Year Down
The U.S. dollar fell during the first day of trading in the new decade after the release of manufacturing data from the U.S. Institute of Supply Management. This shows the manufacturing sector grew during the month of December for the fifth consecutive month, suggesting the U.S. economy may be emerging from the recession.
The EUR/USD climbed to a high today of 1.4455. The pair was unable to hold the gains above the significant 1.4450 resistance level; however, the pair is not trading far from this mark in the morning hours of today's Japanese trading session. Yesterday the pair opened at 1.4289.
Interestingly enough, we saw the dollar falling today against the EUR as positive economic data from the U.S. was released. The EUR/USD traded in this type of fashion for most of the previous year as traders would take on more risky, higher yielding assets with improved economic data from the U.S. This trend was reversed during the month of December, particularly after the release of the surprisingly better than expected November Non-Farm Payrolls. As of this release the pair fell on good U.S. economic data. Could we be looking at a return of the major trend, a rising EUR/USD on good U.S. economic results? If so, the EUR/USD may see some appreciation in the New Year as the U.S. economy is showing signs of improvement
EUR - EUR and Pound Begin the New Year Higher
The Pound was trading higher yesterday after the release of positive manufacturing data from Britain. The Manufacturing PMI which was released at 54.1 after market economists forecasted a release of 52.1 helped boost the currency against the dollar. This release could be very significant. It is the first major data pointing at an improving British economy. The data may very well give traders a new reason to go long on the cable after traders have shunned the pound as of recent.
The cable traded at a high today of 1.6239 but has settled at the end of the trading day near its opening price of 1.6089.
Also lending strength to the Pound and its European counterpart, the EUR, were two speeches on Sunday from Fed Chairman Ben Bernanke and Vice Chairman Donald Kohn. The two policymakers reinforced the low interest rate environment that exists in the U.S. and hinted that the tightening of monetary policy could be further in the future than expected.
Today traders will want to be focused on the European CPI Flash Estimate and the U.S. Pending Home Sales. CPI is an important measure when central bankers determine where to set their key interest rate. A higher than expected CPI could be a positive for the EUR as high inflation could factor in on the decision by the European Central Bank as to when they will begin to raise interest rates. Pending Home Sales are a key data release from the U.S. and shows forward looking data for the U.S. economy.
JPY - Yen off 4-Month Low versus the Dollar
The USD/JPY has come off of its four month high yesterday as the Yen strengthened against both the dollar and the Pound. The weakening of the pair may be attributed to technical selling, readjustment to asset manager's portfolios, and strength seen in equities.
The technical selling came at the resistance level of 93.19 and the pair now trades at 92.23. Year end adjustments to asset manager's portfolios helped the pair climb to a new high during the last week of trading, but at the start of the year, the pair has fallen from its high.
Also pushing the pair lower has been both higher equities in both Japan and in the U.S. Japanese equities are following the trend of American equities. In this morning's trading, the Nikkei 225 was up 0.7% while yesterday the Dow Jones Industrial Average climbed 1.5%.
A lack of economic data on the calendar from Japan may force traders to take their market cues from the U.S. Traders today will want to follow the Pending Home Sales release today. A better than expected result could take the USD/JPY back above the 93.25 level.
OIL - Crude Oil Rises above $81 on Manufacturing Data and a Lower Dollar
Spot Crude Oil prices moved higher by almost 2% during Monday's trading, surpassing the $81 mark. This is the first time in two months the price has reached this level. Driving the prices higher was better than expected manufacturing data from the U.S. and a dollar that traded lower.
The price of the commodity has been rising as hopes of a global economic recovery ensue. Adding fuel to the fire was a weaker dollar. The EUR/USD traded higher today, trading near the 1.4450 level. As the dollar weakens, crude oil prices typically rise as the price of crude is denominated in dollars. Another factor in the price rise of crude yesterday may have been the cold front that has moved into the Midwestern United States.
Today's trading may be determined by the release of the U.S. Pending Home Sales numbers. A reading above the expected 2.3% decline could help persuade traders of an improving U.S. economy with an increase in crude demands. Traders may want to be long on spot crude oil today.
This pair has witnessed a sustained upward movement for the past 2 days now. This movement has pushed the price of this pair into the over-bought territory on the RSI of the hourly chart, signaling that there may be a medium-term downward correction. However, the longer-term trends still appear to be pointing up. Going long appears to continue being the solid choice today.
This pair's strong bullish behavior has resulted in most oscillators indicating that a correction is imminent. The RSI on the hourly, and 4-hour charts all show this pair floating in the over-bought territory, and there are bearish crosses forming on the daily charts' Slow Stochastic. Waiting for the downwards breach and then entering the correction may be wise today.
It appears that the bearish trend may have run out of strength as the current price level has dropped the pair into the under-bought territory on the hourly chart's RSI. The pair also currently sits near the bottom border of the 4 hour chart's Bollinger Bands suggesting a correction may be imminent. Going long with tight stops may be the correct strategy today
A bearish formation on the daily chart is still intact; however the momentum is already quite low. The 4-hour chart is maintaining a slightly bearish indication yet with no distinct conclusion. The Bollinger Bands on the daily chart are tightening which indicates that the break might be imminent. Traders are advised to hold for the breach and then swing into it.
The Wild Card
The recent upward trend in this commodity appears to be running out of steam lately. The highs of the upswings have begun to diminish in size and the longer-term oscillators are beginning indicate an imminent correction. There appears to be a bearish cross on the 30 min. chart's Slow Stochastic, and the weekly Momentum oscillator has turned downwards. Forex traders have a great opportunity to enter this possible trend reversal at a fantastic price and capture the impending price swing
|23:50||JPY||M2 Money Stock||y/y||4.4%||4.4%||-|
|00:00||JPY||Monetary Policy Statement||*||*||*|
|00:00||JPY||BoJ Press Conference||*||*||*|
|00:00||GBP||10-y Bond Auction||2.73|1.8||*||-|
|00:01||GBP||BRC Retail Sales Monitor||y/y||3.9%||*||-|
|00:30||AUD||NAB Business Confidence||8||*||-|
|06:00||JPY||Prelim Machine Tool Orders||y/y||40.3%||*||-|
|07:00||EUR||German Trade Balance||18.5B||19.3B||-|
|10:00||GBP||Inflation Report Hearings||*||*||*|
|15:00||GBP||NIESR GDP Estimate||0.8%||*||-|
|23:30||AUD||Westpac Consumer Sentiment||-3.0%||*||-|