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Monday, 8 Dec 2008
Dollar is Likely to Move on News Coming from Europe and Japan
In forex trading, the USD is set to have a relatively quiet news week. This lack of major news indicates that the other major currencies, such as the GBP, CHF, JPY, and EUR, may be the market movers this week and traders should pay close attention to each of their respective economic news releases.
USD - Friday's News Sets USD Back; Will it Continue Downward?
The end of last week dealt a heavy blow to the U.S. Dollar. With the Non-Farm Employment Change figure coming out much worse than anticipated, the value of the USD is now losing strength across the board. Closing against the EUR near the 1.2600 level on Friday, the greenback has risen towards 1.2800 during today's early trading hours.
Despite negative economic news, the USD has proven to be resilient in the face of this recent crisis. This may prove how powerful and attractive the U.S. economy is even during times of global recession. But it may also highlight the weakness in the other economies around the world considering that many foreign investors are buying up U.S. Treasury notes, as well as the Dollar itself, as safe-haven investments.
Hypothesizing about this turn of events has pitted economists against one another. One side claims that this bullish run in the USD will be short-lived seeing as the economic indicators from the U.S. economy are consistently negative. They claim it's only a matter of time before it reverses course. The other side claims that this bullish run will extend into mid-2009 as the other global economies will likely be hit worse than that of the United States. They state that the U.S. may even emerge from this crisis in a position better than when it went in as the rest of the world will be suffering worse economically at the conclusion of this recession. Traders should follow economic news from Canada, Europe, China, and Japan in order to compare the relative strength of each major economy with that of the United States to get an accurate measure of the upcoming movement of the USD.
As for this week in forex trading, the USD is set to have a relatively quieter news week. After last week's series of big announcements, this week will see the release of a few minor indicators towards Friday starting with the U.S. Trade Balance and Unemployment Claims on Thursday followed by data on retail sales on Friday. This lack of major news indicates that the other major currencies, such as the GBP, CHF, JPY, and EUR, may be the market movers this week and traders should pay close attention to each of their respective economic news releases.
EUR - New Members Joining the EUR?
Despite negative economic news, the EUR has gained the attention of some unlikely investors. What most people see in the news revolves around the major global economies such as the United States, the Euro-Zone, Great Britain, Japan, and China, yet few read about what is happening in the places in between. More specifically for the EUR, the places in between are the close-by neighbors which are not a part of the European Monetary Union (EMU) - the rest of Europe.
The 15-nation Euro-Zone represents some of the more advanced economies in Western Europe, yet these economies are interwoven with their non-member neighbors on more than one level. Since Iceland's economy collapsed earlier this year, and since some East European countries are close to doing the same, there is rumor floating about that the Euro-Zone may obtain some new members in the coming years.
Once ridiculed as a German-dominated economic system by some European countries, the EUR is now being looked upon as a potential safe-haven currency to adopt for some of the weaker economies which neighbor this monetary bloc. Countries such as Bulgaria, Iceland, and even the United Kingdom have all begun the preliminary discussions about potentially joining the EMU. The impact of such a move is yet to be seen, however, and could potentially damage these local economies and bring the Euro-Zone further into recession. Don't get too far ahead of yourself, though. Right now these talks are merely rumors.
This week, European news should have been considered the leading market mover, but may end up being just as flat as the U.S. With very little data being released, the only significant piece of information this week will be the decision by the Swiss National Bank (SNB) to cut its Interest Rates from 1.00% to 0.50% on Thursday, as forecast. This would mean the CHF will have the lowest Interest Rate in Europe and will most likely push its value even lower against its currency counterparts. Traders should follow this news closely as it will likely carry a significant impact on the valuation of the other European currencies.
JPY - JPY Expected to Continue Gaining Despite Today's Early Setback
While losing almost 100 points against the USD and EUR during today's early trading hours, the JPY is still being forecast by most analysts to gain strength throughout the coming week. It seems risk aversion and decreasing Interest Rates around the world are making the Yen a more attractive investment.
This may actually come as a shock, however, to those who have been following the recent economic news coming from Japan. It seems the Japanese economy is no better off than those of Europe or the United States. This ties back into the fact that the JPY acts as a counter-cyclical currency which is designed to strengthen as global economies falter, and weaken as the world gets stronger. This valuation strategy by the Bank of Japan helps boost the ability of Japanese companies to export around the world with greater ease, but retain purchasing power in times of economic crisis. As a result, the JPY may indeed continue to gain momentum in the coming weeks as the economic recession is far from over.
Oil - OPEC's Announced Production Cut Lends Support to Oil Prices
Starting today's trading off with the first sustained upward movement in weeks, the price of Crude Oil received proper support this weekend from the Organization of Petroleum Exporting Countries (OPEC). After OPEC announced that the upcoming meeting of oil ministers may have already produced a consensus on cutting oil production, the price began a slow rise. The news in itself brought about today's early reversal in the price of Oil.
Some speculators would claim, however, that this reversal is to be short lived considering OPEC has stated a production cut repeatedly since before September of this year and has yet to really follow through. Speculators are making early gains on the initial movement in the price of Crude Oil, yet there is talk that most are staying out of the game until the actual rate cut comes into effect. This could easily be toted as the savior of Oil prices, but end up being another false promise by the Oil cartel. We'll have to wait for their December 19 meeting, and afterwards, to see what will actually happen.
After several failed attempts to breach the1.3000 resistance level on the 4 hour chart, the pair is now consolidating around 1.2800 price level. The daily chart is showing mixed signals with its Slow Stochastic fluctuating at the neutral territory. However, the hourly charts' Slow Stochastic is showing a bearish cross suggesting that downwards correction might take place in the nearest time frame. Going short with tight stops appears to be preferable strategy.
Narrow range trading continues as the pair did not make a significant move in either direction, and is currently traded around the 1.4740 level. The hourly chart's Slow Stochastic is showing a bearish cross suggesting that downwards correction might take place in the nearest time frame. Going short with tight stops appears to be preferable strategy.
The hourly chart's showing that the pair is still in the bullish configuration; however, the RSI is already floating in the overbought territory. On the contrary, there is a fresh bullish cross on the daily chart's Slow Stochastic indicating that a bullish correction might take place in the nearest future. In that case traders are advised to swing in after the breach takes place.
The daily chart is showing that the pair is still floating within its bullish channel. On the 4 hour Slow Stochastic is showing a bearish cross, suggesting that a downtrend correction might take place in the nearest time frame. Going short with tight stops appears to be preferable strategy.
The Wild Card
Gold prices have rose significantly in the past two days and peaked at $768 an ounce. However, a bearish cross on the hourly chart's Slow Stochastic suggests that a bearish correction is impending. This might be a great opportunity for forex traders to enter the trend at a very early stage.
|09:00||CHF||Foreign Currency Reserves||498.4B||-||509.3B|
|10:30||GBP||Consumer Inflation Expectations||2.5%||1.9%|
|14:30||CAD||Labor Productivity q/q||q/q||0.1%||0.2%||-|
|14:30||USD||Non-Farm Employment Change||257K||241K||-|
|14:30||USD||Average Hourly Earnings||0.5%||0.2%||-|