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Wednesday, 13 May 2009
Dollar tumbles to a 4 month low
Growing optimism about the easing of the financial crisis is leading trading. Pay attention today to the releases of the Core Retail Sales and Crude Oil inventories to see if the trend continues. Positive news from the U.S and increase in the oil prices will further hurt the Dollar's appeal.
USD - U.S Retail Sales on Tap
The dollar fell yesterday to a 4-month low against most of its major currencies, as growing optimism about the global economy boosted investors' risk appetite and curbed demand for the U.S. currency as a safe haven. The greenback hit a seven week low against the EUR above 1.37 level, and a four-month low against the sterling as the pair closed around 1.5290.
Yesterday, government reports showed that the U.S. trade gap widened in March for the first time in eight months, as oil imports jumped and weak overseas demand took a bite out of exports. Both U.S. imports and exports have fallen sharply since last year, as the global finance crisis has tightened credit and caused consumers and businesses to cut spending. However, in a sign the U.S. economy could be nearing a turnaround, imports declined at a slower rate, down 1% in March compared with a 5% drop in February and even bigger declines in some preceding months.
Looking ahead to today, there are several important news releases coming out of the U.S. These include the Retail Sales and Crude Oil inventories at 12.30 GMT and 14:30 GMT respectively. Better-than-expected results may help the Dollar recover some of yesterday's losses against some of its crosses such as the EUR and GBP. On the other hand, if the results turn out to be lower than forecasts, then the Dollar may record a fairly bearish session in today's trading. Traders should pay close attention to the market as there is an opportunity for traders to capitalize on the fluctuations which are likely to follow these releases.
EUR - The EUR Continues to Strengthen against the USD
The 16 nation currency extended gains against the dollar yesterday after the European Central Bank Governing Council member Axel Weber said there is no need for the ECB to buy further private assets to support lending. Yesterday, the EUR hit a seven week high against the dollar reaching above 1.37.
European countries should improve coordination of economic stimulus plans and go further in integrating financial regulation than they are now considering, the International Monetary Fund said. The IMF advice comes the day after data showed industrial production in France and Italy fell more than economists forecast, indicating that European growth may have suffered more than expected in the first quarter. In addition, the European Central Bank last week cut its benchmark interest rate to a record low 1% and President Jean- Claude Trichet indicated borrowing costs could go lower. Trichet said the ECB would also buy as much as 60 billion euros ($80 billion) of covered bonds, effectively printing money to reflate the economy.
Looking ahead to today, the most important economic indicator scheduled to be released from the Euro-Zone is the Industrial Production at 9:00 GMT. Analysts are forecasting this figure to increase from its previous reading. Traders will be paying close attention to today's announcement as a stronger than expected result may continue to bolster the EUR in the short-term.
JPY - JPY Makes Big Gains on Dollar, EUR
The Japanese yen strengthened against most of its major currencies yesterday as a slump in stock prices due to increased profit taking reduced demand for higher-yielding and riskier assets. The yen climbed to multi-day highs against its major counterparts. The JPY ended yesterday's trading up at 96.15 against the USD, and has continued to hold these gains through today's early trading hours.
Japan's current-account surplus narrowed for a second month in March as exports tumbled amid the global recession. Any revival of demand for the country's cars and electronics may be slow, even after the drop in shipments to the U.S. and China, Japan's two largest markets, eased in March. The International Monetary Fund (IMF) says the global recession will be deeper and the recovery slower than earlier predicted as financial markets take longer to stabilize.
It will be interesting to see how the local Japanese data will interact with equity market movement for the rest of the week in relation to the JPY's recent behavior
Crude Oil - Oil Prices Hit 6-Month High
Crude oil prices yesterday rose to more than $60 a barrel, their highest level in six months, on hopes that the world economy would soon bounce back and demand for oil may recover. Oil had risen in response to a global rebound in stocks. Weakness in the dollar had also spurred the oil price, which tends to rise when the dollar falls.
The Organization of Petroleum Exporting Countries (OPEC) isn't expected to take any actions to upset current prices when it meets later this month in Vienna. Oil prices are likely to remain below the $75 a barrel price targeted by Saudi Arabia, OPEC's dominant member. Most observers believe the cartel is wary of letting prices rise too quickly for fear it would imperil an economic recovery.
After a few days of bullish momentum, it seems that the pair has hit a strong resistance level placed at the 1.3740 level. Furthermore, the daily chart's RSI has changed direction, and is currently approaching the 70 line, signaling that a bearish correction might take place. It appears that a slide beneath the 1.3600 level could trigger a bearish correction.
There is a very distinct bullish channel formed on the daily chart, as the cable is currently floating in its upper level. However, as the pair is trading near the Bollinger Bands' higher boarder, it seems that a modest technical correction might take place. Going short with tight stops might be the right choice today.
After reaching the 96.00 level, the daily chart shows that the pair has completed an "M" formation. Currently it seems that the hammer candle on the 4-hour chart is signaling a bullish move, which has the potential of reaching the 97.50 level.
The pair saw a very strong bearish trend over the past couple of weeks, dropping over 600 pips to the 1.1000 level. However, a doji formation in addition to a bullish cross on the 4-hour chart's Slow Stochastic, suggests that a bullish reversal is imminent. Going long seems to be the preferable choice today.
The Wild Card
Gold continues with its strong bullish momentum as it is currently traded for $925 an ounce. As all oscillators on the 4-hour chart are pointing up, it appears that if Gold will breach through the $930 resistant level, it has the potential of reaching towards the $940 level. This might give forex traders a great opportunity to join a very popular trend.
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