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Monday, 10 Jan 2011
Dollar Rallies vs. Euro as Unemployment Rate Falls To 9.4%
The dollar continued its rally against the euro on Friday, despite the weaker-than-expected increase in hiring in December, reflected in the Non-Farm Payrolls data. The dollar strengthened as the U.S. Unemployment Rate has dropped to 9.4%, its lowest level since August 2009.
USD - Dollar Closes a Bullish Weekly Session with Positive Labor Data
The U.S. dollar gained against most of the major currencies during last week's trading session. The dollar saw a 550 pip rise against the euro last week, and the EUR/USD pair has dropped below the 1.2900 level for the first time since September 2010. The dollar rallied against the Japanese yen as well, as the USD/JPY pair gained about 250 pips.
The dollar rallied last week amid positive economic data from the U.S. Institute for Supply Management's Non-Manufacturing Index. The index rose in December to 57.0, its highest level since May 2006, signaling that the economic revival is steadily increasing.
On Friday, the Non-Farm Payrolls report revealed that payrolls increased by 103,000, failing to reach analysts' expectations for gains of 159,000 jobs. However, the dollar was not heavily impacted by the somewhat disappointing data as the Unemployment Rate dipped to 9.4%, its lowest level since August 2009.
Looking ahead to this week, many significant economic indicators are expected from the U.S. economy. Special attention should be given to the U.S. Inflation indicators - the Consumer Price Index and the Producer Price Index. Traders should take under consideration that further positive signals from the U.S. economy are likely to extend the dollar's current bullish trend.
EUR - Euro Falls To a 4-Month Low against the U.S. Dollar
The Euro slipped against most of its major currency rivals during last week's trading session. The euro fell about 550 pips against the U.S. dollar, marking a 4-month low for the EUR/USD pair. The euro also fell about 300 pips against the British pound and about 200 pips against the Japanese yen.
The euro weakened last week due to the uncertainty about the use of euro zone bonds of peripheral countries for bank loans. As long as the uncertainty remains among several members of the euro zone, the euro's decline might proceed.
In addition, another reason for the euro's weakness is the positive signals from both the U.S. and the U.K economies. The U.S. is showing a continuous recovery in the labor sector, and a steadily improvement in the economic activity. The U.K. is providing steady signals of recovery as well, which has boosted the pound.
As for the week ahead, the most significant economic release from the euro zone will probably be the Minimum Bid Rate, which is the euro zone interest rates publication for January. Current expectations are that the European Central Bank will leave rates at a record low of 1.00%. Traders are advised to follow the release, as well as the press conference that will follow it, as heavy volatility is likely to take place during this time.
JPY - Yen Falls against Most of the Major Currencies
The Japanese yen fell against most of its major currency counterparts during last week's trading session. The yen fell about 250 pips against the U.S dollar, and the USD/JPY pair reached as high as the 83.65 level. The yen fell about 300 pips against the British pound as well. However, the JPY gained about 200 pips against the euro.
The Japanese currency was mostly impacted by movements of the major currencies during last week's trading. The yen fell against the dollar and the pound after both the U.S. and the U.K. economies provided positive data, signaling that they are recovering at a faster pace than expected. On the other hand, the yen strengthened against the euro due to increased uncertainty regarding several economic aspects of the euro zone, which has weakened the euro on all fronts.
As for this week's trading session, traders are advised to follow the Japanese Core Machinery Orders release, which is scheduled for Wednesday, as this report is likely to have a large impact on yen values. Traders should also notice that Japanese banks will be closed today in observance of Coming-of-Age Day, which might reduce the yen's volatility.
Crude Oil - Oil Rallies as Alaskan Pipeline Shuts Down
Crude oil fell last week from $92.00 a barrel to as low as $87.20 in Friday's session. However, in early trading Monday, crude corrected its losses, and the commodity is currently trading near $89.00 a barrel.
Crude oil prices are currently climbing for the first time in three days after a leak in an Alaskan pipeline caused that line to be temporarily shut down. The closure compelled companies such as BP Plc to suspend about 95 percent of production from the North Slope area, and as a result boosted oil prices.
Looking ahead to this week, traders should follow the developments regarding the Trans-Alaska Pipeline System, as this is likely to affect energy prices for the next few days. In addition, traders should follow the leading economic releases from the U.S. and the euro zone as these usually have a significant impact on crude prices.
The pair has recently dropped below the 1.2900 level, marking a 4-month low. In addition, both the Slow Stochastic and the RSI on the 4-hour chart are now pointing down. Going short seems to be the preferable choice today.
The past month's range-trading is continuing, and the cable is now near the 1.5540 level. Currently, with a bearish cross taking place on the 4-hour chart's Slow Stochastic, it appears that a downward move may be impending. Going short with tight stops might be the right strategy today.
On Friday, the USD/JPY pair saw a bearish correction and fell about 80 pips. Now, as a bearish cross is taking place on the 4-hour chart's MACD and the daily chart's Slow Stochastic, the downward movement will likely continue, with potential to reach the 82.20 level.
For the past several days the pair has seen very little volatility, and remains near the 0.9650 level. Currently, the Bollinger Bands on both the 1-hour and 4-hour charts are tightening, indicating that sharp movement may occur. As the RSI on the 4-hour chart has recently dropped below the 70-line, it seems that the movement might be bearish.
The Wild Card
Crude oil saw a sharp bullish move during morning trading, and the commodity is currently trading near the 89.30 level. In addition, as the 4-hour chart's RSI has peaked above the 30-line and the daily chart's Slow Stochastic has completed a bullish cross, it seems that further upward movement is expected. This might be a great opportunity for forex traders to join a very popular trend, and enter into buy positions now.
|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%||-|