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Thursday, 14 May 2009
Dollar Volatility To Lead Today's Market
Today the U.S. economy is going to be in the driver's seat of today's market, whilst the Euro-Zone currency will take more of a backseat. Traders should pay close attention to the U.S. unemployment data and President Obama's economic reforms, as these 2 factors are expected to have the biggest impact on the optimism in the market in today's trading.
USD - Lowered Risk Appetite Drives USD Higher
After Monday's surprising plummet, the USD appears to be regaining a level of its previous strength. Dropping as low as 1.3720 against the EUR and 1.5350 against the GBP, the greenback has gone on a modestly bullish run as of yesterday. The only currency which appears to be outpacing the Dollar lately is the Japanese Yen, rising to as high as 95.15 against the American currency.
The question most traders are now asking is whether or not this bullishness will continue. Yesterday's trading behavior for the U.S. Dollar may have been heavily influenced by the negative retail sales figures which were released at 12:30 GMT and showed that sales from retail stores across the U.S. dropped by 0.4%, slightly lower than many were expecting. The negative data likely pushed investors away from riskier investments and back into USD-long positions to secure their portfolios from decreased risk appetite. Whether this trend will continue, on the other hand, is entirely dependent on today's news releases.
Expected for today are a number of reports which do not typically carry a high impact on the USD except for two. The first is the Producer Price Index (PPI) due to be released at 12:30 GMT today. This is a consumer inflationary gauge which measures the prices which producers are paying to finish their goods. Higher prices paid by producers are typically passed on to consumers through price mark-ups; as such, this indicator has an inverse relationship with consumer spending. The second important indicator is the weekly Unemployment Claims report which is forecast to show that unemployment has continued to rise since last month. If these reports show negative results we could see a continuation of the USD's recent bullishness. A target of 1.3300 against the EUR may not be too unfounded.
EUR - EUR Plummets from Sudden Risk Aversion
The EUR apparently faced a rough day of trading yesterday as it depreciated against all of its currency rivals. The USD and JPY both made significant gains against the 16-nation currency as they moved up towards the 1.3550 and 129.40 price level, respectively. If risk aversion continues to gain momentum, the EUR could see a continuation to its recent downtrend.
It's no mystery these days that the EUR typically does not perform well while economic figures come out worse than forecasted. Generally a rise in risk appetite, which stems from positive economic news, pushes traders away from the safe-havens of the USD and JPY and into riskier investments, such as those in Europe. However, yesterday's negative news cycle proved once more that the world economy is not yet out of the dark.
Despite inspiring signals that we may be witnessing the bottoming out of this recession, occasionally the market wakes us back up to the reality of the situation. Yesterday was just such a day. US retail sales and business inventories showed a slight dip, and European data failed to add any positive news on top of that. As such, investors pulled away from riskier investments and jumped back into the USD and JPY en masse; hence the sudden turnaround from Monday.
Traders shouldn't anticipate many positive signals to emerge from the Euro-Zone today considering most economic indicators about European GDP were pushed back to Friday. Today will be a relatively light news day for the Euro-Zone and the U.S. economy is going to be in the driver's seat of today's market. Traders should pay close attention to the U.S. unemployment data as it will likely have the biggest impact on the optimism in the market.
JPY - Yen Gains on Poor Economic Outlook
As an apparent safe-haven these recent months, the JPY has begun to strengthen once again due to risk aversion. Climbing to as high as 95.15 against the USD and 129.40 against the EUR, the Yen has performed surprisingly well these past 24 hours. As economic reports from the United States prove that the recession and economic downturn has not yet finished, traders yesterday began to exit their high-yielding investments in exchange for safe-haven assets, such as the JPY. The question is whether this bullish trend will continue.
As Japan maintains a quiet approach to economic indicators, the Japanese economy typically does not lead the market or make much of an impact on trading behavior. However, the JPY does act as a type of safe-haven during economic downturns, as has already been mentioned, and since negative reports were seen across the board yesterday, the JPY appreciated. If today's indicators, such as U.S. Unemployment Claims and Japanese Core Machinery Orders turn out to be worse than forecasted, the JPY's recent uptrend may continue throughout the day. Traders should keep an eye on the economic calendar today to gauge the impending direction for the island currency.
Crude Oil - Oil Plummets after Demand Expectations Flounder
After failing to breach the $60 mark twice this week, the price of Crude Oil unexpectedly dropped during yesterday's trading. Due to a sudden drop in Oil imports, the price of Light Sweet Crude plummeted to just under $58 a barrel after peaking at $60.04 on Monday, the highest it's been since November.
According to economic analysts, two factors played an important role in the price of Oil these past days. The decreasing strength of the U.S. Dollar no doubt generated a moderate bullish run in the price of Crude Oil as market optimism reigned supreme. This optimism generated a perception of economic growth and the belief that demand for Oil would increase in the near future. However, when the demand side didn't materialize, the positive euphoria vanished and prices dropped to reflect their true value. As such, we may see a continuation in the bearish movement of the price of Crude Oil in the coming hours, but if optimism returns, the upward movement may continue.
There appears to be a fresh bearish cross on the daily chart's Slow Stochastic, signaling that the long-term trend of this pair may continue downwards. However, a bullish cross appears to be forming on the 4-hour chart's Slow Stochastic which indicates that today's movement may be bullish. Riding the upward movement and then selling at the pivot point of the swing may be a wise choice today.
After yesterday's sharp downward movement, the price of this pair may be searching for a new range. Most oscillators are indicating neutrality. However, the Slow Stochastic on the 4-hour chart shows an impending bullish cross forming. Once the recent movement bottoms-out, going long with tight stops might be a good strategy.
The sustained downward movement of this pair has pushed the price into the over-sold territory on the RSI of the hourly and 4-hour charts, indicating upward pressure. The fresh bullish cross on the 4-hour chart's Slow Stochastic supports this notion. Going long might be wise today.
The Bollinger Bands on the 4-hour chart appear to be tightening in expectation of a sharp movement later today. As the price is riding along the upper border of these Bollinger Bands, and with an impending bearish cross on the 4-hour chart's Slow Stochastic, the impending volatile movement may be downwards. Going short might be a wise choice today.
The Wild Card
The continuous downward movement of this pair has resulted in the price floating in the over-sold territory of the hourly and 4-hour charts' RSI. The 4-hour chart's Slow Stochastic also illustrates a recent bullish cross. All of these indications point in the direction of an impending bullish correction. Once the upward swing occurs, forex traders will have a great opportunity to enter the new trend at a fantastic entry price.
|00:30||JPY||Tokyo Core CPI||y/y||2.5%||2.3%||-|
|00:30||JPY||National Core CPI||y/y||3.0%||2.9%||-|
|00:50||JPY||Prelim Industrial Production||m/m||2.9%||-0.4%||-|
|01:00||NZD||ANZ Business Confidence||26.5||-||-|
|01:05||GBP||GfK Consumer Confidence||-2||-1||-|
|01:30||AUD||Private Sector Credit||m/m||0.5%||0.5%||-|
|08:00||EUR||German Retail Sales||m/m||-3.2%||1.7%||-|
|08:45||EUR||French Consumer Spending||m/m||-0.8%||0.2%||-|
|09:00||CHF||KOF Economic Barometer||99.8||100.1||-|
|10:00||EUR||Italian Monthly Unemployment Rate||12.6%||12.6%||-|
|10:00||EUR||Italian Quarterly Unemployment Rate||12.5%||12.4%||-|
|11:00||EUR||CPI Flash Estimate||y/y||0.4%||0.3%||-|
|11:00||EUR||Italian Prelim CPI||m/m||0.1%||-0.3%||-|