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Tuesday, 15 Jun 2010
Dollar Tumbles as Investors Turn to Riskier Assets
The Dollar slid against its major currency counterparts following a rally in global equity markets. The rally prompted investors to turn to higher yielding riskier assets and away from the USD. 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.
USD - Dollar Drops on Renewed Risk Appetite
The U.S dollar fell against most of its major currency rivals yesterday, hitting its lowest level in nearly a week against the EUR, as gains in stocks and commodities prompted investors to wade into riskier currency trades. By yesterday's close, the USD fell against the EUR, pushing the oft-traded currency pair to 1.2250. The Dollar experienced similar behavior against the GBP and closed at 1.4740.
There was a quiet day of news from the U.S. as there were no major economic data releases on the calendar yesterday. However, FOMC Member Bullard spoke about the state of the U.S. economy. He pointed out that the U.S. economy is likely to have achieved "complete recovery" in the third quarter, though employment growth will continue to lag behind. This has caused investors to buy commodity-linked and higher-yielding currencies.
Investors may look for the unusual price volatility to continue in the EUR/USD as the pair attempts to stabilize and find new support and resistance lines. Large price jumps such as these are not common place and present terrific opportunities to take advantage of the price swings for large profitable gains.
Today's TIC Long Term Purchase 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 dollar. Then again, a better than expected result might be seen as a sign of relative U.S. economic strength, and lift the dollar.
EUR - EUR Gains as Stock Market Rallies
The EUR rallied yesterday against the dollar as gains in global stock markets lifted risk appetite and prompted traders to pare back bets against the single euro-zone currency. The EUR moved further away from a recent four-year low to trade above $1.2250, its highest in more than a week. Stronger-than-expected euro zone industrial output further boosted the currency. Euro zone industrial output in April surged year-on-year more than in any month in almost two decades, reassuring investors the recovery could be gathering pace.
Sterling pound was also given a boost against the dollar as the UK's newly created Office for Budget Responsibility said it expected government borrowing to fall slightly faster than originally thought. The pound was up around 1.3% versus the dollar at $1.4740 and outpaced the EUR slightly to trade at 82.95 pence.
Today, there is plenty of economic news coming out of both Britain and the euro-zone that will determine the GBP and EUR levels by the end of today's trading. From the EU, there is the German ZEW Economic Sentiment figure. From Britain, the most important news will be the CPI figure and Inflation Report Hearing. All of these news events will be important in helping set the strength of the GBP and EUR in this week's trading.
JPY - BOJ Monthly Rate Report on Tap Today
The Japanese Yen completed yesterday's trading session with mixed results versus the major currencies. The JPY fell against the GBP yesterday, pushing the oft-traded currency pair to 135.10. The JPY was broadly unchanged vs. the EUR yesterday and closed its trading session at around the 111.95 level. The JPY did see some bullishness as well as it gained 40 points against the USD and closed at around 91.70.
The Japanese market should have a heavy effect on the JPY versus its major currency counterparts, as the Overnight Call Rate will be announced today. The rate is expected to remain unchanged but traders should pay close attention to the BoJ Press Conference that will follow to look for any predictions of Japan's economic future. A bullish statement could lead some traders to believe the BoJ is forecasting a rosier financial climate in Japan.
Crude Oil - Crude Prices Up on Improved Economic Outlook
Oil prices rallied by 2 % to around $75 a barrel during yesterday's trading session as renewed optimism about the global recovery boosted the outlook for fuel demand and sent Asian and European stock markets to their highest level in four weeks.
Oil received an early lift from data showing euro zone industrial production in April surged year-on-year more than in any month in almost two decades, giving investors renewed confidence about the global economy.
A weaker U.S. dollar tends to boost the price of dollar-priced commodities as it lowers the price to holders of other currencies and reduces the value of the currency oil producers receive for their product.
The Relative Strength Index on the 8-hour chart shows the pair trading well in overbought territory, indicating that a bearish correction could take place later today. This sentiment is echoed by the Stochastic Slow on the daily chart, which shows a cross forming above the upper resistance line. Traders are advised to go short with tight stops today.
According to the Relative Strength Index (RSI) on the 2-hour chart, the pair is overdue for a downward correction, as it has been trading in overbought territory for some time. Most other indicators, including the RSI on the 8-hour chart, show the pair approaching, but not quite in, the overbought region. Traders are advised to go short today.
Most technical indicators, including the Bollinger Bands on the daily chart and the Stochastic Slow on the 8-hour chart, show the pair currently trading in neutral territory. Taking a wait and see approach may be the preferred option for today.
According to the Stochastic Slow on the 2-hour chart, the pair is currently trading in neutral territory following last night's bearish cross and subsequent downward correction. Most other indicators do not give a clear direction for the pair at the moment. Traders are advised to wait for a clearer picture to present itself before entering into this pair today.
The Wild Card
The Stochastic Slow on the daily chart shows a cross forming above the upper resistance line, indicating a bearish correction is due to take place in the near future. This sentiment is confirmed by the Relative Strength Index on the 8-hour chart, which shows the CFD in overbought territory. Traders are advised to go short with tight stops today.
|16:00||USD||IBD/TIPP Economic Optimism||42.0||-||-|
|19:00||EUR||ECB President Draghi Speaks||-||-||-|
|23:30||USD||FOMC Member Williams Speaks||-||-||-|
|00:30||AUD||AIG Construction Index||53.8||-||-|
|01:01||GBP||BRC Shop Price Index||y/y||-1.4%||-||-|
|02:00||AUD||HIA New Home Sales||m/m||-1.8%||-||-|
|02:01||JPY||Monetary Policy Statement||-||-||-|
|08:00||EUR||German Industrial Production||m/m||0.7%||-||-|
|08:01||JPY||BoJ Press Conference||-||-||-|
|08:45||EUR||French Trade Balance||-3.3B||-||-|
|09:00||CHF||Foreign Currency Reserves||540B||-||-|
|10:30||GBP||Manufacturing Production m/m||m/m||-0.8%||-||-|
|10:31||EUR||German 10-y Bond Auction||0.69|1.2||-||-|