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Thursday, 27 Nov 2008
Dollar Traders Look to Next Week as they Respond to a Release of Global Economic Data
The U.S. Dollar has been behaving bullish in recent trading days against the EUR and JPY. Nonetheless, traders expect the foreign exchange market to be quieter than usual today as the U.S. market is closed for holidays. Investors are advised however to pay close attention to the Fed, as analysts forecast Interest Rates may be slashed. As a result, this may help determine the strength of the Dollar today as the market is set for lower trading volume
USD - Dollar Expects Low Volatility During U.S Thanksgiving Holidays
The USD has moderately strengthened against most of its major counterparts, continuing to prove that, for the time being, this is the solid currency that traders can rely on to provide them with steady profits. The EUR/USD stopped the upside move at a resistance level of 1.3080, and from then on it fell more than 150 pips back to the 1.29 level. The USD also gained steadily against the GBP and CHF on Wednesday.
The U.S. Unemployment Claims data was released yesterday, providing better-than-expected figures. Analysts envisage that this adds extra support to the bullish trend that the USD has been experiencing in recent days. The number of U.S. workers filing new claims for jobless benefits fell by 14,000. Initial claims for state unemployment insurance benefits were a seasonally adjusted 529,000 in the week ended from an upwardly revised 543,000 the previous week.
Moreover, the greenback has proven that it can rise despite release of negative economic data as well. Analysts say that the upwards trend may continue as long as the Dollar's major rivals are stuck in a similar predicament. For example, U.S. consumers cut spending during October at the steepest rate in more than 7 years. This was a 4th straight monthly fall in spending and underlined how a credit crunch, falling home prices and steady job losses were sapping consumers' will and ability to spend.
Looking ahead, the Forex market is set to be relatively quiet as Americans celebrate Thanksgiving holidays. Nevertheless, with energy prices and the U.S. stock market driving much of the financial speculation worldwide, analysts predict the Dollar to contribute to at least some of today's market volatility.
EUR - EUR's Strength Likely to be Determined by Upcoming Economic Developments in Germany
The EUR experienced a bearish trading session yesterday, losing ground against most of its currency crosses. The only major economic event that came out of the Euro-Zone yesterday was the German Prelim CPI, which was slightly lower than analysts had forecasted, helping to keep volatility to a minimum.
The German data provided the first insight into inflation trends in the Euro-Zone. Germany's Price Index makes up close to 30% of the overall gauge for the single currency area. Slower German inflation could possibly encourage the European Central Bank (ECB) to loosen borrowing costs further, in order to counter the threat of a prolonged economic downturn. Germany's economy, Europe's largest; fell into recession in the third quarter after a global credit crunch and the EUR's gain to record levels stifled foreign demand. Gross Domestic Product (GDP) declined a seasonally adjusted 0.5% from the previous quarter, when it declined 0.4%.
European economists are increasingly pessimistic about regional prospects. With the financial sector's problems weighing directly on the broader economy, many economists say Europe is already in recession, and is unlikely to recover until the third quarter of 2009
Looking ahead to today, the most important financial indicator scheduled to be released from Europe is German Unemployment Change. Analysts forecast the figure to decrease from its previous reading. Traders will be paying close attention to today's German Unemployment Change announcement, as a stronger than expected result may bolster the EUR.
JPY - Yen Experiences Mixed Results against Major World Currencies
The JPY finished yesterday's trading session with mixed results versus the major world currencies. The JPY fell against the GBP, pushing the GBP/JPY level to 146.67. The Japanese Yen experienced similar behavior against the USD as the USD/JPY closed at 95.16. The JPY saw steady bullishness throughout yesterday's trading against the EUR, as EUR/JPY pair finished the day at 122.97.
With the rise in the Yen Japanese products are less competitive abroad. Additionally, the value of overseas sales are hurt when converted back into the Japanese currency. Amid steady gains primarily against the Dollar, much of the Yen's bullish movement may possibly be contributed to the repatriation of overseas earnings by Japanese companies into the local economy. On the other hand, the Yen's strength in recent months has had a positive effect on major JPY currency pairings, as the rising turmoil in the global market is leading to more investment in the Japanese currency.
Looking ahead to today, Japan is expected to provide some significant economic news. Traders are advised to follow the release of the Retail Sales Report, which is set for release at 11:50pm GMT. This report is one of the most influential economic indicators in Japan and is forecasted by analysts to decrease by -0.9% this month, in comparison to a -0.4% drop in the month of October. Traders are strongly advised to pay attention to today's Japanese economic indicators, as a stronger than expected result may strengthen the JPY.
OIL - Will Crude Oil Continue its Slide?
Crude Oil Prices fell in New York after the latest economic reports in the U.S. showed a deepening recession that may lead to a cut in fuel demand in the world's largest oil consumer. Much of the bearish movement in Crude Oil has been 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, Crude Oil may continue depreciate.
The Organization of the Petroleum Exporting Countries (OPEC) may cut output for the second time in recent months as OPEC ministers meet on November 29 in Cairo, Egypt. The OPEC ministers look ahead to find a solution to the continued drop in Oil prices, as the global economic recession in the U.S. has recently pushed Oil prices to below $50 a barrel. Last month, OPEC agreed to cut production by 1.5 million barrels a day.
The pair has been traded in a range of 1.2880 to 1.3000 for a while now, while no distinct signals have been received by now on the hourly chart. The 4 hour chart is showing mixed signals yet the Bollinger Bands on the daily chart are getting much tighter which indicates that a volatile breach might be quite imminent. Traders are advised to wait for a significant breach and swing in on any direction.
There is a wide opening bullish channel forming on the 4 hour chart as the pair now floats within its upper barrier. After breaching the key 1.5370 resistance level yesterday, the Slow Stochastic oscillator on the 4 hour chart shows that the momentum is bullish and a breach through the 1.5450 will probably validate a bigger bullish move into the 1.5900 levels again.
The 4 hour chart shows that the pair continues its recent bearish correction within a wider flat channel on this chart. The Slow Stochastic on the 1 hour chart supports the recent bearish momentum. Next target price might be around 94.60, and if breached we should see a stronger bearish move being validated
According to the hourly chart the pair is still in bearish configuration. The Slow Stochastic on the 4 hour chart implies that the bearish trend is likely to extend even further. However, on the 1 hour chart the same indicator suggests that the pair is headed towards a possible bullish correction. Therefore, in a short time frame, going long with tight stops appears to be the preferable strategy.
The Wild Card
There has been a very significant breach through the upper level of the channel on the 4 hour chart. On the daily chart the Slow Stochastic is moving above the 20 level and may ascend further. This could be a great opportunity of forex traders to take advantage of a strong technical indicator that implies a bullish momentum and holds a good profit potential.
|EUR||French Bank Holiday||-||-||-|
|EUR||German Bank Holiday||-||-||-|
|07:00||JPY||BoJ Monthly Report||-||-||-|
|17:00||USD||FOMC Member Fisher Speaks||-||-||-|