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Wednesday, 12 Jan 2011
Dollar Weakness Continues for the Week
The euro came off its New Year's low following a rise in equities and a decision by Japan to buy European bonds that were being purchased as part of the European Financial Stability Facility. Spot crude oil prices finished the day above $90 after strong bids were noted for the commodity.
USD - Greenback Weakens but Still Up in New Year
The dollar was lower versus a basket of currencies today as risk sentiment decreased following a lack of US data releases from the economic calendar. December wholesale inventories disappointed investors, declining 0.2% on expectations of an increase of 1.1%. US economic data has recently turned out positive notes that have brought a strong bid for the dollar, particularly since the start of the year. The lone exception being the November payrolls data that failed to meet economists' expectations.
In China, the PBOC released its recent FX reserve data, indicating its FX reserves rose USD 199 Bn in Q4 2010 to come in at a record 2.847 Trn. The yearly increase in FX reserves grew by USD 448 Trn compared to USD 453 Bn the previous year and 472 Bn in 2007.
At the end of yesterday's trading day the EUR/USD was higher at 1.2966, up from an opening day price of 1.2943. The GBP/USD rose as high as 1.5638 before closing back at 1.5600 after opening the day at 1.5557. The USD/CHF was higher at 0.9737 from an opening day price of 0.9685. US equities were stronger today with the Dow Jones Industrials Average trading up 34 points to close at 11671.88 for an increase of 0.30%.
Today's trading will see a pickup in activity from the economic calendar with the release of US import prices at 13:30 GMT followed by the release of the Fed's Beige Book at 19:00 GMT. The Beige Book is expected to confirm a pickup in US economic activity over the past three months. Support for the EUR/USD come in at this week's low from the consolidation pattern at 1.2870. Resistance is located at the December 23rd low at 1.3050.
EUR - Portugal Under Scrutiny
The euro received a reprieve today from its bearish trend following stronger US equities and a pledge by Japan to purchase debt from the European Financial Stability Facility (EFSF). A 0.3% rise in the value of the Dow Jones Industrials Average also helped to boost risk appetite.
An announcement by the Japanese Ministry of Finance and its intention to purchase more than 20% of the bonds offered in the EFSF boosted interest in the euro as traders sent the 17-nation currency higher not only versus the dollar but also versus the Swiss franc.
At the end of the trading day the EUR/CHF was up sharply at 1.2645 from an opening day price of 1.2535. The EUR/JPY was trading higher at 108.13 from 107.45, while the EUR/GBP was even for the day at 0.8315.
Despite the rise in the euro, the market appears to have set its sights on Portugal as the next potential domino to fall in the debt ridden euro zone. Today Portugal will go to the markets looking to raise 1.25 Bn euros. Analysts expect the demand for the struggling European nation's debt to be scant as Portugal has so far resisted all suggestions to accept funding from the European Central Bank or the International Monetary Fund. Should the debt offering by Portugal not be well received by the market, the selling of the euro may continue with the EUR/CHF potentially testing its all-time low at 1.2399.
JPY - Yen Weaker as Risk Sentiment Decreases
The yen was sent lower yesterday as risk sentiment evaporated following a pledge by Japan to purchase a piece of the European Financial Stability Facility and gains in equities had traders bidding the yen lower. Demand for the yen sank throughout the day as traders moved out of typical safe haven currencies such as the JPY and the dollar and bought higher yielding assets such as the euro, crude oil and equities.
At the end of the trading day, the yen was down versus the USD with the USD/JPY trading at 83.21, up from an opening day price of 83.01. The EUR/JPY was bid higher at 108.13 from 107.45.
Tomorrow will bring key data from Japan with the release of last month's core machinery numbers. Expectations are for a strong report with orders rising 2.2% compared with November's decline of 1.4%.
Crude Oil - Crude Rises Above $91
The price of spot crude oil rose yesterday, moving above the $91 level as the closure of an Alaskan pipeline raised supply concerns. Spot crude oil rose as high as $91.38 before ending the day at $91.16 after opening at $89.18.
The Trans-Alaska Pipeline was shut down this past Saturday due to a leak that should be plugged towards the end of the week with the pipeline back up and running shortly after. With the cut in the Alaskan pipeline, the flow of oil from Alaska virtually has come to a standstill with 95% of the state's oil transportation dependent on the pipeline for deliveries.
Today crude oil traders will be eyeing key supply data from the US with the release of the weekly crude oil inventory report. Market expectations are for a slight increase of 0.4 Mn barrels. This is in contrast to last week's large unexpected drawdown of inventories by 4.2 Mn. Traders should note the short term support and resistance levels for spot crude oil rest at $86.80 and $92.50.
The pair has begun a bullish correction after bottoming out at 1.2870 which serves as a first support level. Resistance for the pair is found at the December 23rd low at 1.3050, followed by the 200-day moving average which comes in today at 1.3080. Further resistance may be found at 1.3110 off of the downward sloping trend line from the November high.
In early morning trading the pair breached above the downward sloping trend line off the early November high. The buying was finally capped at the 50-day moving average line at 1.5660. Should further bids come in, the pair could move higher to the 100-day moving average at 1.5775. Support can be found at the rising support line below the late December and January price action which comes in at 1.5430.
A consolidation pattern following the sharp appreciation of the pair has led to a bullish flag pattern. A breakout from this pattern has the potential to take the pair higher with a price estimate coming in just above the December high of 84.50.
The bullishness for the pair continues with yesterday's close coming in above the trend line that has held since June 2010. However, the pair's gains were capped by the previous rising trend line off of the October and November lows that served as resistance. Patience should be taken with this pair. Only initiating a long position with a move above this former trend line is recommended.
The Wild Card
Spot silver has risen sharply following support holding at the $28.30 level. Resistance has been provided by the rising trend line beginning in late August 2010. Forex traders should be long on the commodity with resistance coming in at $30.25 followed by the all-time high at $31.21.
|03:00||CHF||Daylight Saving Time Shift||-||-||-|
|03:00||EUR||Daylight Saving Time Shift||-||-||-|
|03:00||GBP||Daylight Saving Time Shift||-||-||-|
|01:00||EUR||German Prelim CPI||m/m||0.9%||-||-|
|01:00||EUR||Italian 10-y Bond Auction||1.36|1.5||-||-|
|01:50||JPY||Prelim Industrial Production||m/m||3.7%||-||-|