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Friday, 12 Dec 2008
Dollar Weakness Helps Crude Oil Prices Jump
Dollar volatility is expected today as traders are likely to act on yesterday's lows against the EUR and JPY. This coincides with several important economic data releases coming out of the United States today. These include the U.S. Retail Sales Report and the Preliminary Consumer Sentiment Survey. The data releases are forecasted to have a negative effect on the USD; traders can expect some heavy volatility in USD trading throughout the day.
USD - Dollar Tumbles as U.S. Senate Rejects Auto Bailout Plan
The Dollar experienced heavy losses against a basket of major currencies during yesterday's trading session due to the U.S. Senates' rejection of the U.S. bailout plan and the release disappointing economic data. As a result, the USD reached a 13 year low against the JPY of 88.13 to close at 89.32. Additionally, the Dollar hit a 7 week low against the EUR of 1.3405 to finish at 1.3366. The GBP also jumped against the USD and ended the trading day with a rise of 1.4% to finish at $1.5006, after hitting an intraday high of $1.5079.
The rejection of the $14 billion auto industry rescue plan met resistance from the Republican Party; this in turn killed the plan in Congress for the time being. Economic data released from the US showed that the number of people collecting unemployment benefits rose by 338K to be placed at 4.43 million, a 26 year high since November 1982, when 612,000 workers filled new claims for unemployment benefits. Additionally, the nation's trade gap grew 1.1 percent to $57.2 billion in November. This was as the weak global economy pushed down demand for exports, while imports from China increased to a new high.
Analysts say that the recent situation is likely to put additional pressure on the Federal Reserve to cut Interest Rates, which could result in a decline of the Dollar's attractiveness for investors.
Dollar volatility is expected today as traders are likely to act on yesterday's lows against the JPY and EUR. This coincides with several important economic data releases coming out of the United States today. These include the U.S. Retail Sales Report and the Preliminary Consumer Sentiment Survey. The data releases are forecasted to have a negative effect on the USD; traders can expect some heavy volatility in USD trading throughout the day.
EUR - EUR Rises on ECB's Hawkish Words
The Euro-Zone currency rallied against its major counterparts as risk appetite and the demand for yield increased. The grim economic news from the U.S. economy, such as the Senates' rejection of the U.S. Auto bailout plan helped pushed the EUR forward to reach a 7 week high against the USD. The Euro rose 2.3% to close at $1.3366 after hitting an intraday high of $1.3405, and against the JPY, the EUR reached an intraday high of $122.72 and closed at 119.43.
The Euros' strength owed much to the hawkish comments from German Bundesbank President and member of the Governing Council of the European Central Bank (ECB) Axel Weber that that the ECB is unlikely make another Interest Rate cut in January during the next ECB meeting.
Looking ahead to today there is the release of the European Industrial Production at 10:00 GMT. Analysts forecast that the metric may recover slightly by 0.6% from the previous month of -1.6%. If the forecast is met, then such a result is likely to be reflected in a bullish EUR. Traders are advised to follow U.S leading indicators throughout the day, as these data releases are likely to generate the largest impact on the market today.
JPY - USD/JPY Freefalls to Lowest Level in 13 Years
A staggering price drop was seen during late evening trading for the JPY/USD. At one point, the USD/JPY was trading at 88.13. The pair finally settled at 89.32, well below the psychological mark of 90 Yen. The USD/JPY has not been trading at a level this low since 1995.
These massive losses for the pair were seen after the U.S. Senate rejected a bailout package for the U.S. auto industry.
More tough talk was heard from the Japanese government on the appreciation of the Yen. Speaking early this morning, the Japanese Minister of Finance told reporters that the government will act appropriately to market movements. This could create a scenario for the Japanese government to intervene in the currency markets in order to depreciate the Yen.
The appreciation of the JPY against the Dollar may prove difficult to hold throughout the day. The inevitability of a bailout package being approved by the U.S. Congress may reduce the recent gains. Light trading with less than normal market makers also helped to compound the gains of the JPY. Profit taking and a more normalized trading session may influence the USD/JPY towards the 90 Yen mark, potentially by the end of trading today.
Oil - Crude Oil Shows Signs of a Comeback
Crude Oil saw a substantial appreciation in the price yesterday with gains greater than 3%. The jump in Crude was supported by increasing expectations that OPEC will reach an agreement to reduce Oil production the following week. Crude Oil rose more then $ 3.00 a barrel, trading above $ 47.00. Oil also found support from a depreciating USD and a surge in U.S. unemployment claims.
OPEC has widely marketed their intention to reduce output quotas of roughly 1.5 million barrels in an attempt to stabilize the price of Oil. However some analysts are signaling that OPEC's goals are to stabilize the market and prevent any further downward spiral rather then igniting a rally.
Conflicting reports may be seizing markets as well. Reports released yesterday by the International Energy Agency and the U.S. Energy Information Administration have different views concerning the demand for Crude next year. The IEA announce that Oil demand is expected to contract by the end of this year and that in 2009, the demand will rise again to a downward-adjusted 86.3 million barrels a day.
On the other hand, the U.S. Energy Information Administration predicts that global Oil consumption is expected to decrease by 50,000 barrels a day in 2008 and the decline will continue by 450,000 barrels a day in 2009. This would be the first time in three decades that world consumption would decrease in two consecutive years.
There is a very accurate bullish channel forming on the daily chart as the pair is now floating in the middle of it. The 4-hour chart's Slow Stochastic is showing a bearish cross suggesting that downwards correction might take place in the nearest time frame. Going short with tight stops appears to be preferable strategy.
The bullish trend is loosing its steam and the pair seems to consolidate around the 1.49 level. The 4 hour chart's RSI is already floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. Going short with tight stops appears to be preferable strategy
The Daily chart's showing that the pair is still in the bearish configuration; however, the RSI is already floating in the oversold territory indicating that a bullish correction might take place in the nearest future. Going long with tight stops appears to be preferable strategy.
This pair is in the midst of a strong downtrend; however, it appears that it is slowly leveling out. The hourlies are showing mixed signals. The 4-hour chart's RSI is showing that bullish correction is imminent. Traders are advised to wait for a clearer signal on the hourlies before entering the market.
The Wild Card
Gold prices rose significantly in the last week and peaked at $808.76 for an ounce. However, daily charts' RSI is floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage.
|22:00||CAD||Annual Budget Release||-||-||-|
|02:30||AUD||MI Leading Index||m/m||0.3%||-||-|
|03:30||AUD||Trimmed Mean CPI||q/q||0.7%||0.6%|
|10:30||GBP||MPC Official Bank Rate Votes||0-0-9||0-0-9||-|
|10:30||GBP||MPC Asset Purchase Facility Votes||0-0-9||0-0-9||-|
|11:00||CHF||ZEW Economic Expectations||-37.9||-||-|
|11:00||EUR||Italian Retail Sales||m/m||0.1%||0.3%||-|