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Friday, 20 Feb 2009
Dollar Plunges and then Reverses Full Steam on Huge Equity Losses
The EUR/USD saw extremely high price volatility yesterday. When the pair reached its intra day high which coincided with the opening the New York trading session, it depreciated to its opening price for the day. Driving the appreciation for the Dollar was heavy losses in U.S. equity markets.
USD - Dollar Volatility continues as Dow Hits 6-Year Low
The Dollar recorded another day of volatile trading on Thursday, as the U.S. equity market took a beating. The Dow Jones Industrial Average reached a six year low yesterday. One of the main reasons for this was the U.S. banking shares hitting a 17 year low. The shares of banks, such as Bank of America and Citigroup slid by 14% respectively. Equity markets can be used to measure the amount of risk in currency markets. This was reflected in yesterday's trading of the USD.
Throughout the Japanese and European trading sessions, the EUR/USD steadily appreciated, touching on a high of 1.2759. But as the New York markets opened, the pair began a sharp reversal, ending the day near close to its opening level of 1.2591.
The Dollar also closed up vs. the Pound from 1.4269 to 1.4214. Britain's currency is still very sensitive to developments in the U.S. This was also helped by a recorded swell in Britain's money supply earlier today, and an increase in the U.S. PPI. Both of these therefore helped support the greenback. Against the JPY, the Dollar rose over 65 pips to close at 94.10 as investors continue to back the greenback's safe-haven status vs. the JPY.
Traders are advised to pay close attention to Core U.S. CPI figures that are set to be published at 13:30 later today. The results of this may help keep the Dollar's strength going into next week's trading. It is also advisable to follow how Obama's meeting with President Harper of Canada is displayed in the media prior to the opening of U.S. markets. The reason why this is important is because Obama spoke about his opposition of protectionism, contradicting his campaign remarks. Therefore, the Dollar may go bullish as investors realize he is even more of a capitalist than his Republican predecessor.
EUR - EUR Recovers from 3-Month Low against Dollar, then Reverses
The European currency made bullish gains against its major currency pairs in yesterdays trading. The most notable event in EUR trading was the European currency's recovery against the USD as it hit a 3-month low in Wednesday's trading. The EUR's strength in early Thursday's trading was owed to a number of factors, including German Finance Minister Peter Steinbruck tough rhetoric that Germany would back emergency measures to prevent the Euro-Zone economic situation from deteriorating further.
The EUR rose significantly but then reversed by nearly 160 pips against the USD to close at 1.2591. This was also helped by the Dow and U.S. banking stocks hitting lows not seen in over 6 years. The Pound lost over 60 pips against the EUR in yesterday's trading to close at the 0.8858 mark. Some of this may be owed to Britain's sensitivity to America's weak banking sector. Against the JPY, the EUR rose by nearly 100 pips to close at 118.52. This comes about as Japanese equities declined and Japanese exporters reported that they may be shipping jobs abroad.
Today, there are many news events coming out of the Euro-Zone and Britain. From the Euro-Zone, investors are advised to follow the release of the Flash Services PMI and the Flash Manufacturing PMI figures set to be released at 9.00 GMT. Britain is set to release Retail Sales figures at 9.30 GMT. The results of these data releases may set the pace for the EUR and Pound going into the beginning of next week's trading.
JPY - JPY Safe-Haven Status Comes under Threat
The JPY's safe-haven status came under threat again yesterday, as Japan's economy has become increasingly volatile to the global recession. Japanese equities slid yesterday as exporters reported more bad news owing to the strong Yen. Japanese carmaker Nissan said that it may export 130,000 jobs to Mexico. Additionally, the Yen also reacted negatively to the U.S. Stock Market dive, leading the Nikkei to dive 1.2% too. In the last few days of trading the Dollar has made some big gains against the JPY. This is mainly due to the fact that investors and forex traders are of the view that the Dollar will be the number 1 safe-haven currency during the current global recession.
The JPY dived against the Dollar by 60 pips to close at 94.10. The Yen lost over 100 pips vs. the EUR, marking its second straight loss against the European currency. Against the GBP, the JPY lost over 60 pips to close at 133.97. There is a possibility that the Yen's behavior against its major currency counterparts in recent days may be partly owed to a correction in the value of the Yen. Therefore, this may not be as bad as it first seems. If things continue like this, however, then the Yen may help Japan's economy recover quicker out of recession. Today, forex traders are advised to follow events coming out of Japan, the Euro-Zone, and the U.S., as these may help set a price level for the Yen against its major currency crosses going into the middle of next week.
OIL - Crude Oil Spikes on Better Inventory Data
Oil prices went to as high as $40.23 in yesterdays trading. However, by the close of trading the black gold was trading near $39.466, holding gains of nearly $2 from Wednesday's closes. One of the main factors contributing to Oil's gains was the U.S. Crude Oil Inventories Data. Crude stocks declined by 0.2 million barrels last week. Analysts had forecasted a rise in inventories by 2.9 billion. The other 2 factors that may have played in to Crude's strength on Thursday were the Dollar's weakness in early trading and a possible price correction in the black gold.
Crude prices may extend their gains today as investors may perhaps pursue take profits. This volatility of Oil in today's trading is strongly dependent on Euro-Zone and U.S. data releases. Also, Crude may go bullish if investors feel that President Obama can handle the complex U.S. recession. The highest that Oil prices could reach by the end of today's trading may be $41.00. If prices do hit this mark, they are likely to drop very quickly below $39 a barrel, as there is not enough confidence and physical demand to uphold this price level.
The Daily chart's showing that the pair is still in bearish configuration. However, a bullish cross on hourly chart's Slow Stochastic implies that an upwards correction might take place in the nearest time frame. When the upwards breach occurs, going long 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 1.4220 level. The hourly chart's Slow Stochastic is showing a fresh bullish cross suggesting that upwards correction might take place in the nearest time frame. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
The bullish trend is loosing its steam and the pair seems to consolidate around the 94.15 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 hourly chart is showing mixed signals with its Slow Stochastic fluctuating at the neutral territory. However, the hourly 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 rose significantly in the last month and peaked at $975 for an ounce. However, daily chart's RSI is floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage.
|15:00||USD||Philly Fed Manufacturing Index||9.0||9.6||-|
|15:30||USD||Natural Gas Storage||4B||35B||-|
|00:50||JPY||Tertiary Industry Activity||0.9%||0.2%||-|