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Thursday, 22 Oct 2009

Dollar Tumbles as Investors Turn to Riskier Assets

Witnessing a steady decline during this week's trading sessions, the USD became weakened as traders unwound their Dollar-buy positions in exchange for riskier assets, such as stocks. The global stock rally seen yesterday may have been one of the leading causes in the Dollar's depreciation. With recent market optimism, traders may continue to see a small downward trend in the U.S. Dollar as its positions are unwound in exchange for higher yielding assets.

EUR/USDGBP/USDUSD/JPYUSD/CHFAUD/USDEUR/GBP
Daily Trendupupupdownupdown
Weekly Trendupupupdownupdown
Resistance1.51001.670092.001.01500.93500.9105
1.50651.667591.651.01250.93250.9085
1.50301.665091.351.01000.93000.9055
Support1.49751.660090.851.00300.92250.9000
1.49501.657090.501.00000.92000.8975
1.49201.654090.200.99750.91750.8950

Economic News

USD - U.S. Unemployment Claims on Tap

The dollar hit a one-month low against the sterling pound on Wednesday and the EUR broke above $1.50 for the first time in 14 months as expectations that U.S. interest rates will be kept low continued to weigh on the greenback.

Though the U.S. economy is expected to have exited the recession in the third quarter, investors fear rising unemployment will keep the Fed from lifting interest rates quickly. That would diminish the dollar's appeal and encourage investors to buy higher-yielding, higher-risk currencies and assets instead.

Analysts have suggested that central banks outside of the United States are considering winding down programs that have flooded their economies with money. If the U.S. Federal Reserve doesn't follow suit and holds interest rates at record lows, that would diminish investor desire to hold dollars.

Today's Unemployment Claims release is expected to have a strong impact on the U.S currency. Any result could be a surprise, and the Dollar could go either way as a result. In any case, traders are unsure how the market will react to today's data. A weak report could feed risk aversion, boost Treasuries and actually aid the U.S Dollar. Then again, a better than expected result might be seen as a sign of relative U.S. economic strength, and lift the Dollar. Or it could also encourage risk-taking and aid commodities and higher-yielding currencies at the Dollar's expense.

EUR - EUR Reaches 2009 High against USD

The EUR topped $1.5030 for the first time since August 2008 on optimism that the global economic recovery is gathering momentum, increasing demand for riskier assets at the expense of the greenback.

The EUR was affected by the global stock market rally and the bearish Dollar. The U.S. stock market rally led investors to buy-back into the EUR, as they looked for returns on buying commodity-linked and higher-yielding currencies in Wednesday's trading.

The British pound also jumped, hitting a high of 1.6631 against the US dollar as investors grew more confident that the Bank of England's (BOE) rate-setting committee may halt, at least temporarily, a controversial program of buying bonds to boost the economy. The rise followed the release of Minutes from the BOE's October meeting that showed policymakers were in agreement on limiting the central bank's bond-buying program.

As the global economy stabilizes, currency traders have started to focus more on fundamentals such as economic growth and short-term interest rates. That shift, just getting underway, could take the shine off the soaring EUR in the coming months.

JPY - Yen's Bearish Sentiment Continues

The Japanese Yen saw a bearish trading session yesterday, losing ground against most of its currency crosses. The JPY fell broadly against the EUR and closed at 1.3650, while the GBP/JPY cross also rose to around 151.43. The only economic events out of Japan yesterday were the trade balance figures; the result was lower than forecast as volatility kept to a minimum.

The JPY's trends will be affected by the rallies of its primary currency pairs today. It seems that the USD and EUR are expected to continue a volatile trading session today, especially against the Japanese currency. Traders should keep a close look on the news coming from the U.S. and Europe as these economies will be the deciding factors in the JPY's movement today, especially the U.S Unemployment Claims at 12:30 GMT. It is also advisable for traders to follow any unexpected comments coming from key Japanese governmental figures, as this is also likely to lead to further JPY volatility.

Crude Oil - Crude Oil Boosted by Dollar's Weakness

Oil prices hit new highs for the year Wednesday just as the dollar fell to new lows against the EUR, showing how much the weak U.S. currency has come to dominate energy markets. The run-up in prices came within minutes of a government report showing that crude supplies in the United States are growing and that refiners are producing very little gasoline because consumers aren't using as much.

Even though the amount of crude oil in storage is well above normal for this time of year, it seems any movement in the dollar pushes more value into oil, raising prices further. Crude is priced in dollars, so it gets more expensive as the USD falls.

Technical News

EUR/USD

It appears as if a few significant bearish crosses have occurred on the hourly and 4-hour MACD for this pair. The price also hovers near the over-bought territory on the daily RSI, suggesting a downward correction may be imminent. Going short may not be a bad idea today.

GBP/USD

There seem to be fresh bearish crosses on the 4-hour and daily Slow Stochastic, suggesting a bearish correction may be due. The price also floats in the over-bought territory on the 4-hour and daily RSI, suggesting strong downward pressure. Going short may be a wise tactic today.

USD/JPY

The price of this pair has recently entered the over-bought territory on the 4-hour RSI, but remains in an upward direction, suggesting the notion that there may be some upward momentum remaining. An imminent bearish cross also appears to be forming on the hourly Slow Stochastic, which supports the notion of a future downward movement. Waiting for the downward correction and then going short appears to be today's preferable strategy.

USD/CHF

There appear to be very large bullish crosses on the hourly and 4-hour MACD, indicating a future upward movement. As the price has just entered the over-sold territory on the daily RSI, there seems to be a strong chance of an upward correction today. Going long may not be a bad choice.

The Wild Card

USD/ZAR

After sustaining a very sharp upward movement, the technical indicators for this pair are unanimously showing signs of an impending downward correction. There are bearish crosses on the hourly and daily Slow Stochastic, and the price is floating in the over-bought territory on the hourly and 4-hour RSI. Forex traders have a great opportunity to catch this very predictable movement by entering short positions on this pair as early as possible and riding out the fall.

Current Time: 10/31 15:33 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
11/03
JPY+ Bank Holiday1
01:30AUD+ ANZ Job Advertisementsm/m0.9%3
01:30AUD+ Building Approvals m/m3.0%-0.9%-5
03:45USD+ Final Manufacturing PMI56.256.1-1
04:00USD+ ISM Manufacturing PMI56.656.5-5
04:00USD+ Construction Spending m/m-0.8%0.8%-1
04:00USD+ ISM Manufacturing Prices59.558.3-1
04:00USD+ Total Vehicle Sales16.4M16.6M-1
06:30AUD+ Commodity Prices y/y-16.8%--1
09:15USD+ Spanish Manufacturing PMI-52.6-52.4-3
09:30CHF+ SVME PMI50.451.3-1
09:45EUR+ Italian Manufacturing PMI50.750.6-3
10:00EUR+ Final Manufacturing PMI50.750.7-1
10:30GBP+ Manufacturing PMI51.651.55
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