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Monday, 8 Feb 2010
Dollar Rises to 8-month high on U.S. Non-Farms Report and European Worries
The dollar climbed to an eight month high versus the EUR on Friday after the release of the U.S. jobs report. Credit concerns in Europe are weighing on the market as traders have moved out of riskier currencies and into the safety of the dollar and yen.
USD - Unemployment Rate Improves
The greenback was significantly stronger across the board at the end of Friday's trading with the lone exception coming against the Japanese yen. Driving the dollar higher was a combination of a strong U.S. jobs report and European economic sovereign debt fears.
At the end of Friday's trading, the EUR/USD was trading at 1.3677 from an opening price of 1.3741. The pair shed 1.3% of its value from the previous week. The GBP/USD was also trading lower, trading at the price of 1.5639 after opening at 1.5733.
The release of the U.S. Non-Farm Jobs report by the department of labor helped to continue the bullishness of the dollar's most recent rally. Despite the loss of 20K jobs for the previous month after expectations of an increase of 10K, the unemployment rate dropped to 9.7%. This shows U.S. employment conditions are improving from their low point in the recession. An expectation for the next month may be positive job growth.
The jobs report capped off a strong week for the dollar. This trend may continue for the upcoming trading week as traders will be looking for further positive economic data to verify the trend of an improving U.S. economy. Traders should be eyeing both Wednesday's U.S. Trade Balance and Thursday's Core Retail Sales numbers for confirmation.
EUR - Sovereign Debt Fears Sinks the EUR
The EUR fell sharply as concerns over European sovereign debt pressured the currency. Economists focused on the budget deficits for the nations of Greece, Portugal, and Spain. Investors sold off riskier assets in general with the EUR being hit particularly hard. The EUR/USD fell at one point to a 12-month low.
Some investors are anticipating a potential default on sovereign debt payments, or a possible bailout by the European Central Bank (ECB). The President of the ECB, Jean-Claude Trichet, said no new steps would be taken at this time by the bank to aid the struggling nations. A last resort could be rescue loans by the International Monetary Fund. However, this could bring with it tough economic requirements as conditions of acceptance, creating uncomfortable social ills for the accepting nations.
An expectation of a potential bailout of the struggling nations has eliminated much of the demand for the EUR. This could also eliminate any potential economic growth the Euro-Zone economy was expected to produce this year. This could further hurt the EUR against the dollar as the U.S. may begin raising interest rates well before the ECB begins tightening monetary policy, creating an interest rate differential that traders may exploit.
JPY - Sovereign Debt Fears Boost the Yen
The yen was the lone major currency to appreciate against the dollar during Friday's trading. The yen was boosted this past week due to the sovereign debt issues in the Euro-Zone. The flight from risky assets was a positive for the yen as risk aversion took center stage. As risk sentiment tumbles, the yen benefits.
The USD/JPY was trading lower against the dollar at 89.24 after opening Friday's trading at 90.89. The EUR/JPY was also lower at 122.06 from 122.93. The currency fell 2.4% this week on European sovereign debt concerns.
Fundamentally, the fiscal concerns that shook the markets this past week should carry over into this week's trading of the yen, driving the EUR/JPY lower. Technically, the EUR/JPY sits very close to its next major support level at 120.00. We could see the pair's bearish run stall at this price level.
Oil - Spot Crude Oil Prices Plummet
The price of spot crude oil plunged this week after the dollar climbed to an 8-month high on European sovereign debt concerns and a better than expected U.S. jobs report. Fiscal problems in the nations of Greece, Portugal, and Spain threaten to disrupt the recovery of the European economy and affect the future demand for crude oil.
Despite the U.S. jobs report that showed a drop in the unemployment rate to 9.7%, crude oil prices found little support.
Spot crude oil prices finished Friday's trading at $71.79 after opening the day at $73.71. Prices were down 1.3% for the week.
Traders this week will be focused on the developments in Europe surrounding the potential for a bailout of the struggling nations. The commodity markets need somewhat of a fundamental boost in order to find some support that has been lacking in the previous week.
The EUR/USD cross has experienced a bearish trend for the past 3 weeks. However, it seems that this trend may be coming to an end. The RSI of the daily chart shows the pair floating in the over-sold territory, indicating that an upward correction will happen anytime soon. Going long with tight stops might be a wise choice.
The price of this pair appears to be floating in the over-sold territory on the daily chart's RSI indicating an upward correction may be imminent. The upward direction on the 4-hour chart's Momentum oscillator also supports this notion. When the upward breach occurs, going long with tight stops appears to be preferable strategy.
The hourly chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, the 4-hour Chart's RSI is already floating in the oversold territory indicating that a bullish correction might take place in the nearest future. Going long might be a wise choice.
The USD/CHF cross has been experiencing much bullish behavior in the past 3 weeks. However, there is much technical data that supports a bearish move for today. The RSI of the daily and 4-hour charts indicates that the pair floats in the overbought territory, leading to the conclusion that a downward correction is imminent. Going short with tight stops may turn out to pay off today.
The Wild Card
Crude oil prices are once again dropping, and it is currently traded around $71.40 per barrel. And now, the 4-hour chart's RSI is giving bullish signals, indicating that crude oil prices might go up. This might give forex traders a great opportunity to enter a very popular trend.
|10:00||EUR||Italian Monthly Unemployment Rate||12.3%||12.4%||12.6%|
|11:00||EUR||CPI Flash Estimate||y/y||0.3%||0.4%||0.4%|
|11:00||EUR||Italian Prelim CPI||m/m||-0.3%||-0.1%||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%||-||-|