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Monday, 12 Jan 2009
Dollar Set to Strengthen as Oil Prices Foresee Decline
The Dollar is likely to record increases against its major currency pairs this week, as the Euro-Zone and Britain are expected to release more negative economic figures. Additionally, the deteriorating price of Oil is likely to support a bullish Dollar in the coming week.
USD - Detroit Auto Show Adds Confidence to the U.S. Economy
The big news for the USD this week appears to be the continuation of its recent rally. Approaching 1.3400 against the EUR in today's early trading hours, there is potential for the Dollar to remain in this bullish slide until other fundamental news shifts attention elsewhere. Also, while not absolutely certain, there is a distinct possibility that the USD has broken its recent downtrend against the British Pound and may be on the rise there as well.
Two important events occurred this weekend which had a significant impact on the greenback: the release of important employment data and the start of a major auto show in Detroit, Michigan. On Friday, markets anticipated the announcement of employment data which carried the potential to spoil the cheery mood floating throughout the American economy last week. Not surprisingly, this employment data painted a dreary picture, but baffling some economists was the lack of impact this news carried. It was as if expecting negative news meant no news actually occurred, highlighting once again how important speculation is in the movement of the market.
The second event was the starting of an important auto show which takes place every year in Detroit and lasts for a number of days. The beginning of the North American International Auto Show (NAIAS) yesterday highlighted the transition the world of automotives is taking towards building electric cars. As some economic analysts forecasted, such news had a positive impact on countries with large automotive industries despite the actual impact these announced vehicle products created. The speculation that alternative energies are right around the corner is enough to propel markets into small rebounds. The recent slight increase to the American stock market supports this notion.
Looking ahead this week, most data coming from the U.S. will reflect the level of retail sales and consumer confidence in the American economy. After last week's less-than-impactful employment figures, however, it's difficult to assess what impact this week's data will actually have. As such, traders are advised to pay close attention to any sharp movements this week as it may signal the start of a more clear-cut trend.
EUR - German and French Production Data Create Downward Pressure on EUR
The EUR appears to be in a depreciation cycle as it lost value to most of its currency counterparts last week, and has continued to do so throughout today's early trading hours. Dropping to as low as 1.3400 against the USD, and falling further away from parity with the British Pound, the EUR is experiencing an economic weakness thought to be near its end, but now apparently stronger than ever.
Fear that the recent energy crisis in Eastern Europe may spread farther as the winter cold front takes hold has analysts predicting a cold, dark and dreary economic output in the days ahead. Last week saw a continuation to Germany's declining industrial output and climbing unemployment, which leads many to believe that the Euro-Zone is much further from economic recovery than many other parts of the world.
The inter-connectedness of the countries in the Euro-Zone means that the powerful economies like France and Germany have to be able to produce surplus when its smaller member states falter. Yet, lately, every economy in the region has fallen short of its required output. Decrying the collapse of the European Monetary Union (EMU) may be a step too far, but it doesn't prevent some analysts from doing so. As the smaller economies go bankrupt, the larger economies must pick up the slack, or face a larger economic meltdown. This puts much more pressure on France and Germany than they would prefer, especially considering that they are not producing the necessary figures to prevent such a catastrophic outcome. Could we be witnessing the beginning of the end for the EUR? Such a prediction is still too far away to be anywhere near accurate.
Glancing at this week's economic news it will be important for traders to pay close attention to the various speeches European Central Bank (ECB) President Jean-Claude Trichet will be giving in the run-up to Thursday's decision on regional short-term Interest Rates. It is being forecast that the ECB will slash its Minimum Bid Rate from 2.50% to 2.00%, continuing with the recent reduction to global Interest Rates.
JPY - Yen Finds Support from Weakening EUR
The Yen once again finds itself strengthening from a loss of confidence in other global currencies. With the lowest Interest Rate yield in the global market, the JPY is often used to fund the purchase of other, higher yielding currencies. However, with last week's poor economic news from Europe and the United States, these positions were either cut back or unwound as investors bought back into the JPY funds they were borrowing for such investments, driving the price of the JPY higher across most of its currency counterparts.
With very little news emanating from the island economy, it will be difficult to offer an accurate forecast for the movements of the JPY's pairs and crosses. However, as the U.S. economy receives a boost from the international auto show taking place in Detroit, and as investors prepare for another Interest Rate cut in the Euro-Zone, it is likely that the JPY could see depreciation against the USD and appreciation against the European currencies later in the week. Nevertheless, these moves may only highlight a growing trend that the global currencies are weakening in general, which will inevitably lead to a stronger JPY in the near future.
Oil - Weakened Global Energy Demand Returns Crude Oil to Previous Downtrend
As predicted in previous analyses offered by ForexYard, the sudden increase in the price of Crude Oil during the first days of the conflict in Gaza was more of a result of investor worries and speculation. Now, as commodity traders come to realize that the conflict between Hamas and Israel has very little influence over the production or shipping of oil, they start to price back in their previous forecast of weakened energy demand and a stronger USD. As such, traders are starting this week anew with fresh sell positions on Crude Oil.
Helping to support this notion was the psychological price barrier of $40 a barrel being breached just prior to the conclusion of the market's operating hours last Friday. This convinced some traders that a price deterioration was a reasonable expectation for the start of this week's trading. The fact that the gas crisis between Russia and Ukraine has done little to curb the falling price of Crude Oil merely highlights the weakness in global energy demand. Short of a significant, and acknowledged, production cut from OPEC and Russia, the price of Crude Oil will undoubtedly continue downward.
It is seems that the pair's bullish correction has ended after peaking at the 1.3730 level, and the bearish momentum has fully resumed. And now, as all oscillators on the 4-hour chart are pointing down, it appears that the bearish move has more room to go, with a potential price target of 1.3300.
This Cable is still in the midst of a steady uptrend which is not yet showing any sign of leveling out. The RSI and Momentum on the hourly chart are indicating that there is still plenty of steam left in this bullish move. Once this pair breaches the 1.5160 level it's likely to make another sharp break upwards.
The pair is in the middle of a very intensive downtrend that started a week ago and shows great momentum that on a bigger scale appears to have more room to run. Currently, all oscillators on the 4 hour chart are pointing down and it seems that going short will be the right choice today
On the daily chart the moderate bullish price movement continues within the upwards channel which still has yet to be breached. The 4-hour chart is also joining that notion with the Slow Stochastic pointing to the continuation of upwards momentum. Next testing point should be around 1.1250. Going long appears to be preferable today.
The Wild Card
There is still a bearish configuration on the daily chart, indicating that the momentum is still down. The RSI floats high supporting the notion that there is still room to run for this trend. In the shorter time frame there is a bullish cross forming on the 1 hour charts indicating that there might be a small bullish correction before the bearish move resumes. forex traders can maximize profits by selling on highs and taking advantage of a currently bearish trend.
|22:30||AUD||AIG Manufacturing Index||46.9||-||-|
|23:30||AUD||MI Inflation Gauge||m/m||0.0%||-||-|
|01:35||JPY||Final Manufacturing PMI||52.1||52.1||-|
|08:00||EUR||Spanish Unemployment Change||-64.4K||-32.4K||-|
|08:15||EUR||Spanish Manufacturing PMI||53.8||54.2||-|
|08:45||EUR||Italian Manufacturing PMI||48.4||49.3||-|
|09:00||EUR||Final Manufacturing PMI||51.0||51.0||-|
|13:30||USD||Core PCE Price Index||m/m||0.0%||0.0%||-|
|14:45||USD||Final Manufacturing PMI||53.7||54.1||-|
|15:00||USD||ISM Manufacturing PMI||55.5||54.9||-|
|15:00||USD||ISM Manufacturing Prices||38.5||40.1||-|