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Friday, 17 Apr 2009
Dollar Gains Momentum as the EUR Flatlines; JPY Rallies
After some surprising data regarding U.S. jobless claims yesterday, the USD saw moderate gains against its primary currency rivals. The European Central Bank (ECB) appears to be slow to recognize the required solutions to their economic woes, and Japan has regained a level of safe-haven investment as China's growth diminished through the first quarter of 2009. Safe-haven currencies appear to be gaining strength as the rest of the world's currencies continue to suffer from the recession.
USD - U.S. Dollar Rises on Positive Economic Data
The greenback rose against most other major currencies on Thursday due to speculation that the U.S. economy is starting to show some tentative signs of stability, thus boosting demand for the USD. Early U.S. economic data showed a decline in initial jobless claims, a plunge in U.S. housing starts and a slower rate of decline in manufacturing in the Philadelphia region.
In late afternoon trading, the Dollar was up 0.4% versus the EUR to $1.3170 after rising to a session high of $1.3128. The USD was also high against the Pound gaining 0.4% to $1.4917. The greenback, however, gave up nearly all of its earlier losses against the Japanese Yen. It was last down less than 0.1% at 99.28 Yen.
The Dollar has tended to gain ground during periods of economic uncertainty and financial turmoil, benefiting from falling equities as investors flee into other Dollar-denominated assets. The Dollar tends to rise on bad news because it is often seen as a safer place to park money during periods of market uncertainty and heightened risk aversion. In a sign that the world economy is still struggling, figures on Thursday showed China's annual economic growth slowed to its weakest rate on record in the first quarter, while Euro-Zone industrial output plummeted in February.
This weak economic data from around the world has reduced confidence that the global economy would recover anytime soon, therefore boosting safe-haven flows into the U.S. currency.
EUR - The EUR Loses Momentum
The European currency pared most of its losses against the Dollar. It was last down 0.3% at 1.3177 versus the USD. Against the Yen, the EUR traded at 130.95, after depreciating yesterday as much as 1.6% to 129.37. The currency may extend its decline against the Yen even further, after falling to the lowest level this month on speculation that policy disagreement among the region's central bankers will undermine efforts to end the recession.
Separate figures showed Euro-Zone industrial output plummeted by a record 18.4% year-on-year in February and inflation halved to an all-time low, reinforcing expectations that the 16-nation economy is deteriorating and that interest rates may fall more. The European Central Bank (ECB) is due to announce on May 7th whether it will follow counterparts in the U.S. and the U.K. in pumping money into the economy by purchasing assets. ECB policy-makers have already indicated they may support cutting the 1.25% target rate below 1% and purchasing debt securities to pump money into the ailing economy.
Analysts have said that the EUR is likely to remain bearish due to market distrust of the European economic outlook. The European currency will probably fall below the strong support level of 1.2900 later in the month.
JPY - Yen Gains On China's Disappointing GDP
The Yen jumped against the Dollar and other major currencies on Thursday after data showed China's economic growth slowed to its weakest on record, disappointing market players who had bought higher-yielding currencies in anticipation of more upbeat numbers.
China's annual GDP growth slowed to 6.1% in the first quarter from 6.8% in the final three months of last year, prompting market players to reverse positions and buy the Yen back. The Japanese currency jumped 0.3% against the USD to 99.15 Yen, and 2% against the GBP to 148.63 Yen.
The Japanese currency's biggest gains yesterday were versus the Australian and New Zealand dollars on speculation that the slowdown in China's economic expansion will deepen the world's recession. The JPY rose as much as 2.4% against the Aussie to 70.69 yen, and versus the New Zealand dollar, it appreciated 2.9% to 56.05 yen. These gains may continue through the rest of April.
Crude Oil - Crude Oil Gains on U.S. Jobs Data
Crude Oil prices rose above $50 a barrel on Thursday, after the United States, the world's largest energy consumer, witnessed the number of workers filing for unemployment benefits unexpectedly fall last week, but continuing claims rose to a record as the recession struck hard. However, its gains remained limited as mixed data from the United States and China reminded investors that any signs of economic recovery were tentative.
Crude Oil trading remained volatile during the session, as investors also digested separate sets of gloomy economic data from the U.S. and other countries. Cautious trading in U.S. stock markets also weighed on Crude Oil prices. News that the Organization of Petroleum Exporting Countries' (OPEC) seaborne oil exports, excluding Angola and Ecuador, will fall 560,000 barrels per day in the 4 weeks to May 2, was also supportive for prices recently.
There appears to be a violent breach of the lower border on the hourly chart's Bollinger Bands, signaling a short-term upward correction may be imminent. However, the tightening of the Bollinger Bands on the 4-hour and daily charts signifies that another volatile movement may be in the works. Recent pressures have signaled that there remains downward pressure on this pair. Going short might be a wise choice today.
There appears to be a bullish cross forming on the hourly chart's Slow Stochastic, signaling an impending upward correction. As other oscillators are showing the price floating in neutral territory, and the Bollinger Bands tightening on all charts, there is a possibility of a volatile upward movement in the making. Going long with tight stops might be a good strategy today.
After yesterday's moderate upward movement, this pair now appears to be leveling off as all oscillators and indicators are displaying neutrality. It's possible a trend-reversal is in the making, but traders may want to wait for a clearer signal before going short on this pair today.
The recent volatile upward movement has pushed the price of this pair into the over-bought territory on the RSI of both the hourly and 4-hour charts, indicating a downward correction may be in the works. The recent bearish cross on the hourly chart's Slow Stochastic supports this notion. Going short might be wise today.
The Wild Card
The upward movement, which has sustained itself on this pair for over a week now, has finally pushed its price into the over-bought territory on the RSI of the hourly, 4-hour and daily charts. The weekly Momentum oscillator is showing a sharp downward direction and there appears to be a bearish cross forming on the daily chart's Slow Stochastic. All of these indications point to a future depreciation in this pair. Forex traders have a great opportunity to enter this impending trend at an early stage today.
|01:00||EUR||German Prelim CPI||m/m||0.9%||-||-|
|01:00||EUR||Italian 10-y Bond Auction||1.36|1.5||-||-|
|01:50||JPY||Prelim Industrial Production||m/m||3.7%||-||-|
|09:00||CHF||KOF Economic Barometer||90.1||-||-|
|09:00||EUR||Spanish Flash CPI||y/y||-1.1%||-||-|
|10:30||GBP||Net Lending to Individuals m/m||m/m||2.4B||-||-|
|10:30||GBP||M4 Money Supply||-0.8%||-||-|
|14:30||USD||Core PCE Price Index||m/m||0.1%||-||-|
|16:00||USD||Pending Home Sales||m/m||1.7%||-||-|