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Wednesday, 27 Oct 2010
Dollar Recovers Ahead of Heavy News Day
The U.S. dollar gained against most of its major rivals yesterday, for the first time in three days. The dollar's recovery came due to speculations that the Federal Reserve will increase debt purchases. Investors believe that this step will spark inflation in the U.S. and will strengthen the greenback as a result. As for today, several news releases are expected from the U.S. and the euro-zone. This is likely to create large volatility in the market in what promises to be a very exciting trading day.
USD - Dollar Strengthens On Speculations Fed Easing Will Accelerate Inflation
The U.S. dollar gained against most of the major currencies on Tuesday. The dollar strengthened against the euro for the first time in 3 days, and the EUR/USD fell as low as the 1.3825 level. The dollar strengthened against the Japanese yen as well, gaining about 100 pips in a single trading day.
The dollar rose against most of the major currencies on speculations that an increase in debt purchase by the Federal Reserve will spark inflation. The current sentiment in the market is that the Federal Reserve will manage to accelerate inflation, and as a result demand for the greenback has increased.
In addition, a positive U.S. Consumer Confidence release supported the dollar yesterday. Confidence among U.S. consumers rose in October from a seven-month low. The index increased to 50.2 from a revised 48.6 in September, beating expectations for 49.3. The recovering confidence came despite disappointing labor market figures which were recently released. This has increased optimism that the U.S. economy is recovering, and as a result boosted the dollar.
Looking ahead to today, a batch of data is expected from the U.S. economy. The most significant releases look to be the Durable Goods Orders figure and the New Home Sales report. Analysts have published positive forecasts for both reports. If the end results will indeed show positive signals, the dollar might strengthen for the second day in a row.
EUR - Euro Drops On All Fronts
The euro fell against all of the major currencies during yesterday's trading session. The euro dropped about 140 pips against the U.S. dollar, and the EUR/USD reached the 1.3825 on Tuesday. The euro fell about 140 pips against the British pound as well, and the EUR/GBP has reached the 0.8730 level.
The currency dropped yesterday as investors became unwilling to boost the euro further due to the uncertainty of U.S. elections and Federal Reserve meetings. Analysts claim that the market feels unease with the EUR/USD trading at the 1.40 level, especially during such an uncertain period, and a technical correction was simply a measure of time. Another reason for the euro's depreciation is speculations regarding an increase in debt purchases by the Federal Reserve, which may cause inflation to accelerate in the U.S. This has increased demand for the dollar, and as a result damped demand for its major rival, the euro. It currently seems that as long as the U.S. economy will continue to provide recovery signals, the euro might fall as a result.
As for today, several interesting economic indicators are scheduled from the euro-zone. Special attention should be given to the German Preliminary Consumer Price Index and the M3 Money Supply report. Both indicators are expected to provide positive figures. This will show that the euro-zone's economic condition is improving as well, and may support their currency.
JPY - Yen Drops On Fears of another BOJ Intervention
The Japanese yen fell on Tuesday against most of its major counterparts. The yen dropped about 100 pips against the U.S. dollar, and the USD/JPY pair rose to the 81.60 level, from a 15-year low on Monday. The yen's most notable fall came against the British pound, as it fell about 200 pips, and the GBP/JPY cross reached above the 129.00 level.
The yen fell yesterday due to comments made by Japanese officials, which some refer to as “verbal intervention”. The Japanese Vice Finance Minister Fumihiko Igarashi said yesterday that Japan cannot make an announcement in advance that it will act, but on the other hand, Japan can't say that it won't act either. It appears that despite public criticism made by the G20 regarding the Bank of Japan's former intervention, investors still fear yet another intervention. For now this appears to be enough to halt the yen's bullishness, and to weaken it from record highs.
Looking ahead to today, the most significant news release from the Japanese economy looks to be Japan's Retails Sales report. This report measures the total value of sales at the retail level. Analysts have forecasted that retail sales in Japan rose by 3.3% in September. If the end result comes in as predicted, the yen might strengthen as a result.
Crude Oil - Crude Oil Remains Steady Around $82.50 a Barrel
Crude oil saw a very volatile trading session yesterday. Crude began yesterday's trading with a bearish trend, and dropped to almost $81.80 a barrel. However the commodity managed to rebound later on and by the end of the day was trading above $82.80.
Crude oil began yesterday's trading with a downtrend due to the dollar's appreciation. The dollar gained against most of the major currencies, especially the euro, and as a result dollar dominated commodities, such as crude oil, were weakened. Crude corrected losses later on in the day following the U.S. Consumer Confidence report. The report showed that confidence among U.S. consumers rose in October from a seven month low, and boosted speculations that demand for energy will increase in the U.S.
As for today, traders are advised to follow the major economic releases, especially from the U.S. as these are likely to have a large impact on oil trading. Traders should also follow the U.S. Crude Oil Inventories release, which is scheduled for 14:30 GMT, as this report usually has an instant impact on the market.
The EUR/USD pair dropped sharply yesterday, after peaking at the 1.4080 level on Monday. At the moment, the Slow Stochastic and the MACD on the 4-hour chart continue to provide bearish indications, suggesting that the downward movement will continue today.
The cable saw a bullish correction yesterday, and has reached as high as the 1.5895 level. However, the RSI on the 4-hour chart has now dropped below the 70-line, indicating that a bearish move may be impending. Going short with tight stops might be the preferable strategy today.
The USD/JPY pair gained about 150 pips over the past couple of days, and is currently trading near the 81.70 level. Currently, the pair is testing the 82.00 resistance level. If it manages to breach it, the pair may rise towards the 83.00 level. Otherwise it may drop back towards the 80.80 level.
There is a very distinct bullish channel formed on the 4-hour chart, and the pair is now floating at the middle of it. In addition, the MACD on the daily chart continues to point up, suggesting that the uptrend has more steam in it. Going long might be the right choice today.
The Wild Card
Crude oil trading was very still over the past three days, and has remained around $82.20 a barrel. However, as a bearish cross takes place on the daily chart's Slow Stochastic, and the 4-hour chart's RSI has dropped below the 70-line, a bearish move appears to be imminent. This might be a good opportunity for forex traders to catch the trend at its beginning.
|01:00||AUD||CB Leading Index||m/m||0.1%||-||-|
|01:00||EUR||German 10-y Bond Auction||1.41|1.6||-||-|
|01:30||AUD||MI Leading Index||m/m||0.2%||-||-|
|09:30||GBP||MPC Meeting Minutes||0-0-9||0-0-9||-|
|10:00||CHF||ZEW Economic Expectations||2.2||-||-|
|15:30||USD||Crude Oil Inventories||2.5M||-||-|
|19:00||USD||FOMC Economic Projections||*||*||*|
|19:00||USD||Federal Funds Rate||<0.25%||<0.25%||-|
|19:30||USD||FOMC Press Conference||*||*||*|