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Wednesday, 23 Jun 2010
Dollar Gains as Attention Turns to Fed Rates Meeting
The US currency recovered some earlier gains against the EUR yesterday as stocks turned notably lower in afternoon trading, indicating to fx traders that investors' appetite for riskier assets has diminished. The main piece of US economic news during today's session will be the Federal Funds Rate decision. At the end of their 2-day meeting Wednesday afternoon, the Federal Reserve is expected to keep interest rates at near-zero and to maintain its pledge to keep these low rates in place for an extended period of time.
USD - Dollar Up vs. EUR for 2nd Straight Day
The US dollar gained for its second straight day against the EUR on Tuesday as new concerns about the funding needs of European banks offset stronger-than-expected German economic data. Against the Japanese yen, the Dollar fell to 90.56, from 91.97 late Monday.
The greenback had been higher earlier in the session as a downgrade of a major French bank resurrected worries about the European economic outlook, and as enthusiasm over China's revised currency policy faded.
Also affecting the foreign-exchange market, analysts have said that investors trimmed their expectations that China's plans to loosen its so-called peg against the US dollar will boost global economic growth.
Beijing's weekend announcement had spurred a sharp rally in US stocks, commodities and currencies highly sensitive to economic growth, such as the Australian dollar, to start the trading week, while weighing on investments seen as safety plays -- including the US dollar. Now, however, the initial euphoria appears to have faded.
EUR - EUR/USD Pulls Back from 1-Month High
The European currency retreated from a one-month high against the US dollar on Tuesday, tracking a pullback in the yuan a day after China's pledge to allow its currency to trade more freely had spurred risk demand. The EUR barely reacted to the German Ifo business climate index, which came in slightly higher than expected at a two-year peak in June, while the expectations index fell.
The upward momentum seen on Monday in the EUR and higher-risk currencies, including the Australian dollar, petered out as investors acknowledged that a more flexible yuan policy would not lead to a sharp appreciation in the currency. The euro traded at $1.2271, down 0.2% on the day after falling to $1.2259. The EUR pulled back from $1.2490 hit on Monday, its strongest since May 24, after failing to break into the $1.25 region.
Analysts have said that a ratings downgrade of French bank BNP Paribas by Fitch, and Standard & Poor's announcement that it was raising its estimates for loan losses for Spain's banking sector on Monday, also weighed on the EUR. The single currency extended losses after Moody's Investor Services cut two Greek government sponsored ABS. Market players said the EUR would face more losses, but technical analysts said near-term support was seen at $1.2253.
JPY - Yen Rises vs. Major Currencies
The Japanese yen rallied against all 16 of its most-traded counterparts after a report showed existing-home sales in the US unexpectedly fell in May, spurring speculation that growth may be slowing in the world's largest economy. It rose 0.6% to 90.57 per dollar, from 91.11 yesterday.
Japan's currency also gained against the EUR in more than two weeks amid speculation that European banks will struggle to raise money. The JPY rose 1.2%, the most on an intraday basis since June 7, to 110.86 euro before trading at 111.14 up 0.9%.
Crude Oil - Oil Declines for First Time in 3 Days as US Home Sales Drop
Crude Oil prices dropped for the first time in 3 days as sales of existing US homes unexpectedly fell in May, signaling the economy is struggling to recover. The contract earlier hit an intraday high of $78.95 a barrel, but had gone down all the way to $77.79 prior to that.
After floor trading closed, a report by the Washington-based American Petroleum Institute showed a surprise increase in oil and oil-products inventories, ahead of a more closely watched report by the Department of Energy today at 14:30 GMT.
The Bollinger Bands on the hourly chart appear to be tightening in expectation of a volatile movement. The price seems to be floating in the over-sold territory on the 4-hour chart's RSI, and the weekly chart's Momentum oscillator is still pointing upward. The chance exists that the volatile movement will be upward as a result. Traders can take advantage by going long with tight stops in place.
This currency pair appears to be continuing its cyclical movement within the current bullish channel. After a recent upturn there is a chance that we will see some downward pressure on this pair to conform to the present trend. The price already looks to be entering the over-bought region of the daily RSI which gives us an indication that it is expected to depreciate in the near future.
After a modest downturn, the USD/JPY now appears to be expecting an upward correction. The current price of 90.50 seems to be a solid support level which this pair has found difficult to breach. The 4-hour Stochastic (slow) is showing a fresh bullish cross, and the weekly chart's Momentum oscillator has flattened out from its previous downward direction. It seems as if an upward shift could take place soon and traders can take advantage by entering long positions early.
The Stochastic (slow) indicator on the daily chart for this pair seems to be showing a recent bullish cross. After breaching the lower border of the daily chart's Bollinger Bands, this pair now appears to be undergoing its expected bullish correction. Going long with tight stops may not be a bad idea today.
The Wild Card
Following a modest increase in value, the price of this pair now appears poised for a bearish correction. The 4-hour Stochastic (slow) indicator is showing a fresh bearish cross, suggesting that the next major movement will be in a downward direction. The 4-hour RSI also shows the price being over-bought, which highlights the downward pressure already present on this pair. Forex traders can take advantage of this impending downward movement by entering their short positions now, and at a great entry price.
|14:45||USD||Flash Manufacturing PMI||55.8||55.7||-|
|15:00||USD||Existing Home Sales||5.04M||5.01M||-|
|15:00||USD||Philly Fed Manufacturing Index||23.9||20.3||-|
|15:00||USD||CB Leading Index||m/m||0.3%||0.6%||-|
|15:30||USD||Natural Gas Storage||78B||83B||-|
|ALL||Jackson Hole Symposium||*||*||*|