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Thursday, 19 Feb 2009
Dollar Rises on Fed Statement while JPY Continues its Bearish Correction
The U.S. Dollar is increasingly being chosen over the Yen as the choice currency during times of heightened risk aversion. The contracting global economy helped to strengthen the Dollar yesterday as the Yen begins to lose favor as a safe haven currency.
USD - Dollar Jumps on Safe Haven Trading
After a relatively negative news day, the USD still managed to appreciate against most of its currency counterparts. Analysts have declared a decreased risk appetite and market uncertainty as the culprits. The loss of risk appetite means that most traders are waiting for more steady market conditions before taking a position in higher yielding currencies. There is too much uncertainty right now with the various bailout plans. This factor has produced the recent "wait and see" attitude in the forex market. On top of that, we have negative figures such as yesterday's Building Permits, which also adversely affect the market.
The price contraction has brought new fears after the cheapening of Oil and other raw materials because it could trigger deflation. In yesterday's FOMC Meeting Minutes, Fed officials said that they lack the ability to counteract a deflationary spiral because Interest Rates are already too low. Deflation is considered for many as a danger to the economy. The resulting fall in prices may lead to consumers and businesses holding off on further purchases in expectations of even lower prices, sending the economy down a dangerous path. In addition, the Fed also pointed during its meeting that the committee held its Interest Rate near zero to prevent further damage to the already weak economy
USD trading will be interesting today as another batch of important economic data is expected to be released. Similar to yesterday, the news will start at 13:30 GMT with a series of economic indicators being released starting with PPI figures, unemployment claims and the Philly Fed Manufacturing Index. Surprisingly, almost all of these releases are expected to be higher than their previous figures meaning the USD could continue to show further bullishness today. Traders should stay close to the market today, as there is a strong chance to capitalize on the fluctuations which will likely follow these releases.
EUR - EUR Suffers from European Banking Woes
The EUR saw very little change in its overall value against the other currencies yesterday. While continuing with its recent downward trend, it has managed to remain rather calm in light of recent news from the Euro-Zone market. The EUR fell against the USD for a fourth day as the pair closed at 1.2500 levels. The 15 nation currency experienced similar behavior against the GBP as the pair dropped from 0.8920 to 0.8810 by days end.
Western European banks may be more severely hurt by an economic slowdown in Eastern Europe. These banks have lent to companies in Eastern Europe, investments that were sound as Eastern Europe's economy grew at robust rates during the boom period of 2003-2005. But now recessions in these nations will threaten debt service capabilities, hurting Western Europe's banks, which will weigh on the EUR and GBP
There will only be one data release from EZ today as the Italian Trade Balance will be announced during early trading. This indicator tends to have a relatively small impact on the market. A rising trend will have a positive effect on the nation's currency. In addition, traders should pay close attention to the response of equity market to determine how to continue with EUR positions.
JPY - JPY Corrects as the Currency Falls out of Favor with Traders
The Yen continued to depreciate as investors are choosing the Dollar over the Yen for a safe haven trade. The JPY fell against the USD and closed around 93.65. Moreover; the Japanese Yen lost almost 150 pips versus the EUR, closing at 117.70 and just around 200 pips versus the GBP.
The world's second-largest economy shrank at the steepest pace since the 1974 oil shock last quarter as a global slowdown triggered record declines in exports and output. Gross domestics' product dropped an annualized 12.7% last quarter, more than twice as fast as declines in the U.S. and Europe. The economy may suffer a bigger contraction in the current quarter, which could weigh on the JPY.
Looking ahead today, the Japanese market should have a heavy effect on the JPY versus its major currency counterparts, as the Overnight Call Rate will be announced today The rate is expect to remain unchanged but traders should pay close attention to the BoJ Press Conference that will follow to look for expectations of Japan's economic future. Later tonight, the monthly All Industries Activity Index is expected to be released with a negative figure. This should add bearish momentum to the Yen against its counterparts. If Crude Oil prices change drastically following the Crude Oil Inventories release, expect some more volatility on the JPY.
OIL - Crude Oil Traders Await U.S. Inventory Data
Crude Oil prices experienced another day of depreciation as the oft-traded commodity dropped below $38 in this morning's early trading session. Oil prices traded down for the second straight day. Much of the bearish movement in Crude Oil can be attributed to fears of a drop in fuel consumption due to poor economic outlook in the major world economies.
With economic growth slowing in the U.S. and Europe, and another month of falling service industry numbers, Crude Oil may continue to see a depreciating value. As for today, the U.S. Crude Oil inventories figures will be released. Expectations show a drop to 2.9M from last week's excessive 4.7M. Traders can, and should, expect wide market volatility around the 14:00 GMT release of these inventories figures because of Crude Oil's recent drop below the $40 price level.
There appears to be a bullish cross forming on the daily chart's Slow Stochastic, indicating that an upward correction is expected in the near future. However, almost all other oscillators are stuck in neutral territory, signaling that this pair may be less volatile than expected. Going long with tight stops might be the right strategy today.
A bearish cross on the 4-hour chart is forming, signaling a potential price drop, while the Bollinger Bands are also tightening, pointing to an imminent volatile price movement. However, the daily chart's Slow Stochastic indicates a recent bullish cross, signaling a possible upward movement. In the short-term traders may expect a downward correction, but longer-term traders may want to maintain their long positions today.
The price of this pair appears to be floating in the over-bought territory on the 4-hour chart's RSI and there appears to be an imminent bearish cross on the Slow Stochastic, indicating a downward correction may occur soon. The price also appears to be floating in the over-bought territory on the daily chart's RSI which also lends support to this notion. Going short might be the right choice today.
The pair has been range-trading for a while now with no specific direction. The daily chart's Slow Stochastic is providing us with mixed signals, however it's Bollinger Bands are tightening, implying that a violent breach may take place. Until that will happen, 4 hour chart reflects quite a stable fluctuation within a flat channel thus providing traders a chance to make profits from buying on dips and selling on highs.
The Wild Card
This commodity has been trying to massively correct the intensive bullish move, and is now trading around the 977 level. The sharp bearish channel is in a high spot at the moment and together with a bearish cross of the 4 hour chart's Slow Stochastic it provides forex investors quite a good potential for short positions.
|13:30||USD||Challenger Job Cuts||y/y||-22.5%||-||42.7%|
|14:15||USD||ADP Non-Farm Employment Change||201K||212K||237K|
|15:45||USD||Final Manufacturing PMI||53.4||53.4||-|
|16:00||USD||ISM Manufacturing PMI||52.8||53.2||-|
|16:00||USD||ISM Manufacturing Prices||49.5||52.1||-|
|16:30||USD||Crude Oil Inventories||-4.9M||-1.9M||-|
|01:00||EUR||French 10-y Bond Auction||-||-||-|
|01:00||EUR||Spanish 10-y Bond Auction||-||-||-|
|03:00||NZD||ANZ Commodity Prices||m/m||-4.7%||-||-|
|05:45||JPY||10-y Bond Auction||0.45|2.7||-||-|
|09:00||EUR||Spanish Unemployment Change||-118.0K||-||-|