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Wednesday, 10 Nov 2010
Dollar Rally Sinks Commodities
The US dollar strengthened considerably yesterday moving past stops during the New York trading session and dragging commodity prices lower after gold and crude oil reached new highs.
USD - Dollar Strengthening on all Fronts
Another trading day passes and the dollar continues to rally against the majors. Momentum continues to build behind dollar strength with the currency making significant gains against the euro and the pound. The strengthening dollar also had an effect on the price of commodities. Spot gold and spot crude oil prices pushed to new highs before moves in the dollar helped to move the prices of gold and spot crude oil lower on the day.
The EUR/USD was down sharply at 1.3750, from an opening day price of 1.3869. The GBP/USD traded significantly lower at 1.5980, after opening the day at 1.6125 The USD/JPY was higher at 81.65, after beginning the day at 80.94. Equities were down on the day as the Dow Jones Industrials Average was down by 0.53%.
Yesterday's trading lacked significant economic news. However, the New York trading session should see heavy action surrounding today's news events. At 13:30 GMT the US trade balance and weekly unemployment claims will be released. A result that posts better than expected numbers for both economic reports should propel traders to continue to buy the dollar against the majors. EUR/USD support comes in at the October 19th low of 1.3697.
EUR - Peripheral Nations Worry Markets
The broad rally in the dollar has done little to boost prospects for the euro. The euro slumped versus the major currencies yesterday as market participants expressed renewed fiscal worries in the nations of Ireland, Spain and Greece. The problems that were largely forgotten during the 5-month rally in the value of the EUR/USD have begun to reemerge this week. Looking at the price action of the major euro pairs shows just how much traders shied away from the 16-nation currency.
The EUR/USD was down sharply at 1.3750, from an opening day price of 1.3869. The EUR/CHF was trading lower at 1.3325, after opening the day at 1.3408. The EUR/GBP was even on the day at 0.8600.
The pound also suffered against the dollar, falling as low as 1.5950. But the pair found support at the 20 day moving average which coincides with a trend line rising from the June 8th low. This should serve as a short term support level in the near term. Further declines in the pair could drag the cable as low as 1.5650.
JPY - USD/JPY Fails at Key Resistance Level
The yen faced technical selling yesterday as a broad rally in the dollar had the yen on the defensive. Buying of the USD/JPY was capped at a previous long term trend line that begins at the high in May. The USD/JPY traded as high as 81.95, marking the third time in less than a month the pair has climbed but failed to break above the 82 level. As the trading day ended the USD/JPY finished up at 81.60, after opening the day at 80.94.
Traders may be able to take advantage of the defined resistance level by initiating a sell position close to the resistance level at 82. This would be in-line with the long term downtrend of the pair while targeting the all-time low at 79.70. A stop can be placed above the resistance level should the pair breach through the line that has held for the past three weeks.
Crude Oil - Crude Oil Sets 2-Year High
Commodity prices rose to their highest levels before falling back to close down for the day. A rally in the dollar helped to cut the floor out from underneath the commodity rally, but not before spot crude oil reached a high not seen since October of 2008. Spot crude oil rose as high as $87.62, only to end the day lower at 86.50. Trading began with spot crude oil prices at $86.83.
Spot crude oil was not the only commodity to post a new high. Spot gold rose to a new record high of $1,240.10 before finishing the day lower. Silver prices also reached a new high of $29.34.
The rally in commodities doesn't look to be over as any sign of improvement in the global economy will help to push commodity prices even higher.
While the long term trend remains to the upside, broad selling has occurred in the pair with the price falling past most short term support levels. Currently the pair is supported by the 50-day simple moving average with further support at the recent low of 1.3697. A breach below this level could take the pair lower to the 100-day simple moving average which coincides with the August high at 1.3330.
A sharp drop in the value of the pair has the GBP/USD trading as low as 1.5950 which coincides with the 20-day simple moving average and a previous trend line rising from the June 8th low. Further declines in the pair could drag the cable as low as 1.5650.
The USD/JPY traded as high as 81.95, marking the third time in less than a month the pair has climbed but failed to break above the 82 level. Traders may be able to take advantage of the defined resistance level by initiating a sell position close to the resistance level at 82. This would be in-line with the long term downtrend of the pair while targeting the all-time low at 79.70. A stop can be placed above the resistance level should the pair breach through the line that has held for the past three weeks.
A bearish flag pattern has formed on the daily chart indicating further moves to the downside may be near. By measuring the height of the flagstick, we can expect the pair to move roughly 350 pips from the price that it breaks below the flag pattern.
The Wild Card
A correction in the bearish trend looks to have ended at a high of 115.40. A significant support level at 111.50 has been tested multiple times. The pair should test and break this line. Forex traders should be short on the pair with the next support level resting at the tweezer formation from late August and early September at a price of 109.50.
|07:00||JPY||BoJ Outlook Report||-||-||-|
|08:00||EUR||German Retail Sales||m/m||2.5%||-0.8%||-|
|08:45||EUR||French Consumer Spending||m/m||0.7%||-0.3%||-|
|10:00||EUR||Italian Monthly Unemployment Rate||12.3%||12.4%||-|
|11:00||EUR||CPI Flash Estimate||y/y||0.3%||0.4%||-|
|11:00||EUR||Italian Prelim CPI||m/m||-0.3%||-0.1%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|13:30||USD||Employment Cost Index||m/m||0.7%||0.6%||-|
|14:55||USD||Revised UoM Consumer Sentiment||86.4||86.4||-|
|14:55||USD||Revised UoM Inflation Expectations||2.8%||-||-|