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Monday, 11 Jan 2010
Dollar Tumbles Following Negative Non-Farm Payrolls Data
After a relatively peaceful trading week, the shock took place on Friday. Very disappointing U.S. Non-Farm Employment Change data has created mayhem in the market, and took the EUR/USD pair above the 1.4500 level. The main question for this week is whether the Dollar will continue to weaken? Cam the EUR/USD reach the 1.4600 level once again?
USD - Dollar Drops on Disappointing Employment Data
The Dollar's bullish trend failed to proceed last week, and the Dollar dropped against most of the major currencies. The Dollar's most significant drop was against the Euro. The EUR/USD pair rose over 200 pips, and is currently traded at the 1.4500 level.
The Dollar's downtrend began on Tuesday, as the Pending Home Sales delivered a very negative figure. While expectations were that the number of homes awaiting the closing transactions has dropped on November by 2.3%, the report showed that is has dropped by 16.0%. This has created pessimism regarding the recovery of the U.S. economy. Then on Friday, the Dollar dropped on all fronts due to the extremely negative Non-Farm Employment Change figures. This report measured the change in the number of employed people during December, excluding the farming industry. Analysts forecasted that merely another 3,000 individuals has joined the unemployment circle during December, whereas the end result showed that 85,000 people have lost their jobs. This has ignited serious doubts regarding the U.S. economy and its ability to recover from the recession. The Dollar's bearish trend was then inevitable.
As for the week ahead, several interesting publications are expected from the U.S. economy. Traders are advised to pay special attention to 3 leading publications; The Trade Balance on Tuesday, the Retail Sales reports on Thursday and the Consumer Price Indices on Friday. If the disappointing figures will continue to arrive from the U.S. the Dollar is likely to weaken further.
EUR - EUR Rises on All Fronts
The Euro saw an extremely bullish session during last week's trading. The Euro gained over 200 pips against the Dollar, over 100 pips against the Pound, and the EUR/JPY has reached above the 134.00 level.
The Euro rose as a result of two different factors. The first reason is that the Euro-Zone continues to provide relatively solid economic data. The German economy, the largest and strongest economy in the Euro-Zone, in particular continues to show that it is indeed recovering. The German employment condition continues to improve, and on Tuesday, the German Unemployment Change showed that there were 3,000 more employed people in November as opposed to October. The second reason for the strengthening Euro is the poor U.S. employment data which were published on Friday. The U.S. Non-Farm Payrolls have delivered very disappointing figures, which have promptly weakened the Dollar. Considering that the Euro is the strongest rival of the Dollar, when the Dollar drops sharply, the Euro tends to soar in accordance.
Looking ahead to this week, a batch of data is expected from the Euro-Zone. Nevertheless, the most intriguing data will surely be the Minimum Bid Rate expected on Thursday. The Minimum Bid Rate is in fact the Euro-Zone Interest Rates for January. Analysts currently expect the European Centra1 Bank (ECB) to leave rates at 1.00%. However if the ECB will surprise and hike rates, it has the potential to strengthen the Euro even further.
JPY - Yen Sees Mix Results against the Majors
The Yen saw a very volatile session during last week's trading, rising against the Dollar and the Pound but dropping against the Euro.
The Yen's bearish trend from the past month was halted last week, much due to the positive data from the Japanese economy. The Monetary Base, which measures the change in the total quantity of domestic currency in circulation and current account deposits held at the Bank of Japan (BoJ), rose by 5.2%. Usually, when this indicator rises, it turns the BoJ to hike rates, in order to preserve the value of the Yen. Speculations regarding this issue have strengthened the Yen. In addition, the Leading Indicators, which is an index designed to predict the direction of the economy rose by 91.2%, also stating that the Japanese economy is showing signs for recovery. If the Japanese economy will continue to provide positive data, it is likely to support the Yen.
As for this week, many interesting news publications are expected from the Japanese economy. The most impacting data looks to be the Core Machinery Order on Wednesday. This is a leading indicator of production, and if the end result will be positive, it is likely to support the yen.
OIL - Crude Oil Reaches 15-Month High
Spot crude oil continues to rise on full steam. Crude oil rose significantly this week, and is currently trading at $83.50 a barrel, marking a 15-month record high for crude oil.
Oil is rising on speculations that fuel demand will increase as imports by China, the world's second largest energy consumer, has reached a record annual total of oil consumption during December. In addition, the ongoing sentiment that a global economic recovery is in the making, creates speculations for rising demand for energy.
In addition, the weakening Dollar also contributes to the strengthening crude oil. Oil is traded in Dollars, and thus tends to rise is response to a weak Dollar.
As for the week ahead, traders are advised to follow the main publications from the U.S. and the Euro-Zone. Special attention should be given the Euro-Zone Interest Rates announcement on Thursday. In addition, traders should follow the Crude Oil Inventories report on Wednesday as this has proven to have an imminent impact on the market.
The pair looks to have resumed its long term bullish trend, breaking a bearish correction that was seen during the month of December. The weekly RSI has broken above the lower border and rising, indicating a potential buy signal. Traders who want to go long may want to do so with a target at the 1.4615 resistance line. We also see on the 4-hour chart a bearish cross on the Slow Stochastic and the RSI approaching the overbought zone. Traders may also want to take advantage of the potential short term correction before the pair resumes the bullish trend.
The pair has stalled repeatedly at the 1.6110, but the pair is showing bullish signals on the daily chart. The Momentum oscillator has just crossed the 100 level and is pointing upwards. This leads us to believe the trend is accelerating and the pair could be poised for further gains. Traders may look to go long with a limit order to take profit at the 1.6250 resistance line.
From the 4-hour chart, the pair looks to be correcting lower from its long term bullish trend. The pair began at the upper limit of the Bollinger Band and has crossed the middle line, indicating the potential to reach the lower band. The Bollinger Bands are also tightening, indicating the potential for a breach of the borders. Traders may want to go short with a limit at the lower Bollinger Band line, and then long at the same price as the pair could resume its long term bullish trend.
The 4-hour chart is showing some bullish signals after the pair failed to break the 1.0130 support level. We could see a correction in the pair with a bullish cross forming on the chart's Slow Stochastic, indicating the potential for an upward price movement. The Relative Strength Index has also moved into the oversold territory, supporting the potential rise in price.
The Wild Card
Being long on Spot Crude Oil has been one of the best trades as of recently but the bullish trend shows few signs of slowing. The 10-day Momentum indicator on the weekly chart continues to float above the 100 level, signaling the bullish trend may have some room to grow. However, the histogram on the MaCD/OsMA indicator on the daily chart is downward sloping. This tells commodity and forex traders the uptrend could continue, but the trend may begin to weaken.
|15:30||USD||Crude Oil Inventories||10.1M||-||-|
|19:00||USD||Federal Funds Rate||<0.25%||<0.25%||-|
|20:00||NZD||Official Cash Rate||3.50%||3.50%||-|
|20:00||NZD||RBNZ Rate Statement||-||-||-|
|23:00||AUD||CB Leading Index||m/m||-0.2%||-||-|
|EUR||German Prelim CPI||m/m||0.0%||-0.8%||-|
|00:00||EUR||Italian 10-y Bond Auction||1.89|1.3||-||-|
|08:55||EUR||German Unemployment Change||-27K||-9K||-|
|09:00||EUR||M3 Money Supply||y/y||3.1%||3.6%||-|
|11:00||GBP||CBI Realized Sales||61||-||-|
|15:00||USD||Pending Home Sales||m/m||0.8%||0.6%||-|