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Wednesday, 3 Nov 2010

Dollar Weakens Ahead of Election Results

The U.S. dollar dropped against most of the major currencies, especially the euro, ahead of the Congressional Election results. The main reason for the dollar's fall is the speculation regarding asset purchases by the Federal Reserve. In the mean-time, several significant economic releases are expected from the U.S. today, and along with the ripple effect of the elections results, harsh volatility is likely to be observed.

EUR/USDGBP/USDUSD/JPYUSD/CHFAUD/USDEUR/GBP
Daily Trenddownupdownupnodown
Weekly Trendupnoupdownupup
Resistance1.41201.615581.750.99001.00700.8830
1.40851.612581.300.98751.00350.8795
1.40501.608581.000.98501.00000.8765
Support1.39901.600080.350.97750.99500.8700
1.39501.597080.000.97350.99150.8670
1.39001.593579.700.97000.98750.8625

Economic News

USD - Dollar Falls vs. Euro Ahead of Heavy News Day

The U.S. dollar fell sharply against the euro on Tuesday. The dollar dropped about 150 pips vs. the European currency, and the EUR/USD has peaked at the 1.4055 level as of this morning. The greenback also fell against most of the major currencies, including the Australian dollar and the Swiss franc.

The dollar weakened yesterday on speculation a resumption of asset purchases by the Federal Reserve will lead to higher inflation and extend the dollar's bearish trend. Investors seem to be uncertain about holding the dollar due to the expectations that the Fed is likely to introduce a new stimulus. As a result, the dollar saw an unclear trend over the past few days, especially vs. the euro, its greatest counterpart.

The dollar's ups and downs might continue into the near future, until the Fed puts an end to rumors and declares the amount of debt it is planning to purchase.

Looking ahead to today, an extremely heavy news day is expected from the U.S. economy. The biggest event is of course the results of the Congressional Election, and traders are advised to keep a close eye on the updates from the elections. In addition, ADP is scheduled to release its forecast for Non-Farm Payrolls at 12:15 GMT.

The ADP's forecast is considered to be very reliable, and thus tends to have a significant impact on the market. Traders are also advised to follow the Federal Funds Rate announcement. The effect of the announcement is likely to be muted as the Fed is expected to leave rates at a record low of less than 0.25%. Nevertheless, traders should be prepared for the possibility that the Fed will manipulate rates, as this is likely to have an unusual impact on the market.

EUR - Euro Strengthens on All Fronts

The euro rallied yesterday against all of the major currencies. The euro gained about 150 pips vs. the U.S. dollar, and the EUR/USD has reached the 1.4055 level as of this morning. The euro gained about 100 pips vs. the British pound and about 150 pips against the Japanese yen, as well.

The euro gained yesterday as the U.S. Federal Reserve began a two-day meeting regarding a possible stimulus to the economy. The Fed is expected to issue a statement by the end of the meeting, and investors expect it to include a large bond-buying program to support the sluggish U.S. economy. This is expected to spur inflation, and to weaken the greenback. As a result, the euro, which is the dollar's greatest rival, is strengthening, despite resurgent worries about the euro-zone's more indebted countries such as Greece, Spain, Ireland and Portugal.

As for today, there aren't any significant news releases scheduled from the euro-zone. Traders are advised to focus on the major publications from the U.S. and the British economies, as these are likely to have a great impact on the euro as well. In addition, the U.S. Congressional Elections are likely to affect all markets today, and traders should follow the results.

JPY - EUR/JPY Trading Near 1-Week High

The Japanese yen saw a bearish trend against most of its major rivals during yesterday's trading session. The yen dropped about 150 pips against the euro, and the EUR/JPY is trading near a weekly high. The yen also saw modest losses vs. the U.S. dollar and the British pound.

The yen weakened during yesterday's trading as U.S. stocks rose, and on speculations that global economic recovery is likely to proceed at a faster pace. This has increased risk appetite in the market, and as a result declined demand for the yen. It currently seems that investors have more confidence in the recovery of western economies, and as a result are reducing demand for safe-havens, such as the yen. If the leading economies will continue to provide positive data, the yen might see further bearishness versus its rivals.

Looking ahead to today, Japanese banks will be closed in observance of Culture Day. Traders are advised to follow the major updates from the U.S. as they are likely to have the largest impact on the market. Special attention should be given to the U.S. Congressional Elections results, as updates are likely to be released throughout the trading day.

Crude Oil - Crude Oil Soars to 6-Month High of $84.50 a Barrel

Crude oil prices rallied during yesterday's trading session. Crude began yesterday's trading around $83.20 a barrel. Crude oil's prices advanced throughout the trading day, and eventually peaked at $84.50, marking a 6-month high.

Crude oil rose on Tuesday following depreciation of the U.S. dollar and as U.S. stocks gained on expectations the Federal Reserve will purchase debts in order to support the economy. This has added to optimism that the U.S. economic recovery will proceed at a faster pace, and as a result will boost demand for energy. In addition, the dollar's fall has also supported crude, as it increased the appeal of commodities for an alternative investment.

As for today, traders are advised to follow the leading economic releases from the U.S, such as the ADP Non-Farm Payrolls forecast and the Federal Funds Rate announcements, as these are likely to have a large impact on crude oil prices. Traders should also follow updates regarding the U.S. elections results as these are likely to affect prices as well. In addition, traders should focus on the U.S. Crude Oil Inventories report, which is scheduled for 14:30 GMT, as this report tends to have an instant impact on crude oil trading.

Technical News

EUR/USD

The EUR/USD pair saw a rise of 150 pips yesterday, reaching as high as the 1.4055 level. However, a bearish cross has taken place on the 4-hour chart's Slow Stochastic, suggesting that a bearish correction might take place. Going short with tight stops might be the right strategy today.

GBP/USD

The cable began yesterday's trading with a sharp drop, yet the pair corrected most of its decline later in the day. Currently, as the 4-hour chart's MACD has completed a bearish cross, the pair might drop again, with potential to reach the 1.5950 level.

USD/JPY

The pair's peaceful trading that has characterized it for the past few days continued yesterday as well. Nevertheless, a bullish cross on the daily chart's Slow Stochastic suggests that a bullish move might be imminent. Going long might be the right choice today.

USD/CHF

The pair erased most of this week's gains during yesterday's trading. The pair dropped about 200 pips and reached as low as the 0.9755 level. And now, as the RSI on the daily chart has dropped below the 70-line, it appears that the pair might see further bearishness today, with a key target level of 0.9700.

The Wild Card

Crude Oil

Crude Oil rose to a 6-month high yesterday after climbing to $84.50 per barrel. Currently, all the indicators on the daily chart are providing bullish indications, suggesting that the bullish move could extend today. This might be a great opportunity for forex trader to join a very popular trend.

Current Time: 10/31 07:33 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
10/31
07:00JPY+ BoJ Outlook Report---3
08:00EUR+ German Retail Salesm/m2.5%-0.8%-3.2%3
08:45EUR+ French Consumer Spending m/m0.7%-0.3%-0.8%3
10:00EUR+ Italian Monthly Unemployment Rate12.3%12.4%-1
11:00EUR+ CPI Flash Estimate y/y0.3%0.4%-5
11:00EUR+ Unemployment Rate11.5%11.5%-3
11:00EUR+ Italian Prelim CPI m/m-0.3%-0.1%-1
13:30CAD+ GDPm/m0.0%0.0%-5
13:30USD+ Core PCE Price Index m/m0.1%0.1%-3
13:30USD+ Employment Cost Index m/m0.7%0.6%-3
13:30USD+ Personal Spending m/m0.5%0.2%-3
13:30USD+ Personal Income m/m0.3%0.3%-1
14:45USD+ Chicago PMI60.560.2-3
14:55USD+ Revised UoM Consumer Sentiment86.486.4-3
14:55USD+ Revised UoM Inflation Expectations2.8%--1
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