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Monday, 13 Apr 2009
Dollar Strengthens Amid Holiday Trading
The movements we saw during Friday's trading session may be have been exaggerated on Friday and may be reversed. Today many trading desks will be vacant during the European trading hours. Traders should be aware of the volatile price swings that are prone to happen when there is a lack of liquidity in the forex market.
USD - Volatile Week Expected Due To Batch of U.S Economy Publications
Last week the USD saw rising trends against most of the major currencies. The Dollar rose significantly against the EUR and the GBP; however it dropped against the JPY.
The greenback rose on relatively positive data from the U.S economy, which came over the past week. The most surprising indicator was the U.S Trade Balance. The Trade Balance measures the difference in value between imported and exported goods and services during the month of February. Expectations for this report suggested that the deficit should slightly expend from 36.0B to 36.6B. However, the real result was shocking and stated that the U.S deficit has dropped to a merely 26.0B, which makes a nine-year low for this indicator. The immediate reaction for this publication was of course a massive uptrend for the Dollar, in light of the stunning figure. However, in a wider perspective, traders should suspect a reversal of the trend.
The reason is simple; usually when the deficit shrinks it is due to expanding export activity, which signals a strong and healthy economy. The problem is, when looking more in-depth at the numbers, it's very easy to see that the real reason for this figure is not growth in exports, but rather a weakening of imports, which is the U.S leaders worst fear. A significant drop in demand for imported goods and services means that U.S consumers are tightening the belt more and more, in order to cut back on expenses, which is the recipe for the elongation of the recession. By the time investors will get a better look at the full picture of this report, the USD might reverse trends.
As for the week ahead, a batch of data is expected from the U.S. economy. Traders are advised to stay alert for the Producer Price Index, which is an excellent gauge for U.S inflation. It is also recommended to look for the Building Permits publication expected on Thursday 12:30 GMT. This is one of the first inflationary and economic reports released as opposed to the different housing sector reports. It is highly regarded in the market traders should take advantage of its impacts. We may see the Dollar trading in a tight range of 1.3100 to 1.3400 this week.
EUR - EUR Dropping In Light Of Poor Data
Last week, traders who went short on the EUR may have been required to boost their equity. The EUR saw downtrends against all the major currencies, as the EUR/USD dropped below the 1.3100 level, and the EUR/JPY dropped below the 131.00 level.
The EUR depreciated on some negative publications which took place last week from the leading economies in the Euro-Zone. European Monthly Retail Sales decreased by 0.6% in February as opposed to January, for the first time in 4 months. In addition, the German Factory Orders, a report which measures the change in the total value of new purchase orders placed with manufacturers, continued the negative trend line, and dropped by another 3.5% in February, completing six consecutive months of negative figures for this survey. Another poor publication from Germany was the German Industrial Production, which fell by 2.9%, in accordance to expectations. This publication was the sixth negative figure in a row as well, further emphasizing the poor production conditions in Germany. Being the largest economy in the Euro-Zone, investors are responding with fears to the worrying figures, and the drop in EUR value was just a matter of time.
Looking ahead to this week, traders are advised to follow the European Consumer Price Indices scheduled on Thursday at 09:00 GMT. Analysts expect both indices to show that the inflation level in the Euro-Zone continues to moderately rise. However, in case the release will reveal European nations are suffering from deflation, traders are likely to see another drop in the value of the EUR vs. its major currency counterparts. Traders are also advised to look for the two speeches from Jean-Claude Trichet, the European Central Bank President, later this week, as lately his performances turned a great deal of volatility in the market due to his announcements.
JPY - JPY Appreciates Against All the Majors
After a long while, the Yen may have signaled its recuperation week after strengthening on all fronts. The USD/JPY pair was traded above the 100.00 level throughout most of the week, and the GBP/JPY dropped beneath the 146.00 level.
Last week as predicted, the Bank of Japan (BoJ) decided to keep its Interest Rate at 0.10%, the lowest in the industrial world. The main objective of the low Interest Rate is to keep the JPY weak, as the Japanese leadership puts it faith in the hope that a weak Yen will support Japanese exports, which in turn may be the primary tool to pull the economy out of recession. However, it seems that the low Interest Rate's effect has diminished, and now the JPY might be strengthening again. In this case, the BoJ is likely to use every trick in the book in order to keep its local currency's value as low as possible, and traders who'll catch their plans on time, could gain significant profits from this.
As for this week, the most significant publication from the Japanese economy will come on Thursday, as the Tertiary Industry Activity is expected at 23:50 GMT. This survey, which measures the change in the total value of the services purchased by businesses, is expected to drop by 0.7%. Such a result is likely to generate bearish trends for the JPY's pairs and crosses, as a decrease in business activity usually signals a turn for the worst in the local economy. A breach of the 101 resistance level is possible for the second week in a row.
OIL - Crude Oil is reaching for $53 a Barrel
Crude Oil underwent an extremely volatile session over the past week. The week began with falling prices, as a barrel of Crude Oil was traded for less than $48 a barrel. However, it went straight up from there, and a barrel of Crude Oil is currently traded for more than $51.00 a barrel.
Crude Oil has initially dropped after the International Energy Agency said that during 2009, demand for Oil is likely to fall to its lowest level in five years, as factories shut down and car sales tumble in light of the global recession. Later on Crude Oil's price had increased mainly due to the fact that the USD has limited its bearish trend. Considering that Crude Oil is valued in Dollars. A change in trends for the USD on many occasions has had the same effect on Crude Oil.
Looking ahead to this week, traders are advised to follow the news from the leading economies, especially from the U.S, and to keep in mind that the value of Crude Oil is highly influenced by the value of the USD. Crude Oil may be slightly overvalued now. A target price for the commodity may be $50.
The charts have been displaying contradictory signals between them, giving traders a multitude of trading choices for the day. The 4-hour chart shows a bearish cross has formed on the Slow Stochastic Oscillator, indicating a potential depreciation of the price. However, the daily chart's Slow Stochastic shows a bullish cross. Day traders may look to go short, while swing traders may want to go long today.
The Bollinger Bands on the 4-hour chart appear to be tightening, indicating a violent breach may occur in the future. The direction may be distinguished by the signals on the hourly chart which displays a bearish cross on the Slow Stochastic, indicating that a downward correction might take place. The hourly chart also shows the pair trading at the upper border of its Bollinger Bands, which indicates that the pair may fall to its lower border. Going short may be the right move.
The pair has been holding steady today during the Japanese trading session, primarily range trading around the 100.40 price level. However, the daily chart has the pair trading in the upper zone on the Relative Strength Index, indicating the pair may be oversold. The hourly chart shows the pair has reached the upper border of the Bollinger Bands and may fall to the lower border. Going short could be the right play.
After dropping below the 1.1530 level this morning, the charts are displaying signals that may lend to two trading strategies today. The 4-hour chart shows a bullish cross has formed on the Slow Stochastic Oscillator, indicating the potential for an appreciation of the pair. On the daily chart, a bearish cross is displayed, indicating a potential downward move in the price. Going long early and then waiting for the reversal could be a profitable move.
The Wild Card
Crude Oil is holding at $51.30 and may be ready to make a move lower. The daily chart shows a bearish cross on the Slow Stochastic and the 4-hour chart has the pair trading in the overbought zone, signaling the pair could head lower. This may present forex traders with a good opportunity to go short on Crude Oil today.
|08:00||EUR||German Retail Sales||m/m||2.5%||-0.8%||-3.2%|
|08:45||EUR||French Consumer Spending||m/m||0.7%||-0.3%||-0.8%|
|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%||-||-|