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Monday, 17 Aug 2009
Empire State Manufacturing Index to Lead USD Trading
The U.S. Dollar gained versus the EUR but extended losses against the JPY since Friday, after the U.S. Consumer Sentiment index unexpectedly declined in early August. The data aided the Dollar, which in many instances has tended to move in the opposite direction to its economy, due to higher risk aversion. The most important data expected today is the Empire State Manufacturing Index and TIC Long-Term Purchases from the U.S. at 12:30 GMT and 13:00 GMT. It is recommended that you open big positions in the USD's main pairs now, as market volatility builds up today.
USD - U.S Dollar Soars against the EUR and GBP
After going through the beginning of last week with falling trends, the Dollar finished last week significantly higher against most of its major currency pairs. However, against the Yen, the Dollar continued to drop, and the pair now stands at the 94.50 level.
The Dollar's bearishness at the start of last week's trading was owed to much negative U.S economic data. The Federal Budget Balance showed pessimistic, proving that the U.S. federal budget is deep in deficit. Additionally, the U.S. retail sales data was unexpectedly negative, emphasizing that U.S consumers have yet to regain their faith in their financial security. What's more, the Federal Reserve avoided hiking Interest Rates last, despite its record low. Both of these factors led to an extremely bearish USD.
The Dollar's downtrend was reversed in the latter part of last week, as the relatively positive inflation data, which was published via the Consumer Price Indices (CPI) managed to make investors bullish on the Dollar. The drop in commodities prices, such as Gold and Crude Oil, was another dominant factor responsible for USD recovery.
Looking ahead this week, much market moving data is expected from the U.S. economy. Amongst the main publications are the Building Permits and the Producer Price Index (PPI) on Tuesday, and the Existing Home Sales on Friday. The Building Permits is expected to be the best figures in 8 months, and the Dollar is likely to strengthen as a result. However, the PPI is forecasted to deliver its first negative result since March. Negative inflation data could erase the Dollar's recent recovery. Traders are advised to open their USD positions now, in order to make maximum profits this week.
EUR - EUR Set For a Volatile Trading Week
The EUR saw an incredibly volatile session during last week's trading. The European currency began the week with a sharp bullish trend against the Dollar, just to lose its gains close to the weekend. The EUR saw a significant uptrend against the British Pound on the one hand, yet a sharp drop against the Yen on the other hand.
It seems that the EUR's volatility has come as a result of the mixed data form the Euro-Zone's major economies. For example, the French economy saw its first signs of recovery as the French Industrial Production rose by 0.3% in June, suggesting positive inflation. However, European Industrial Production dropped by 0.6% in June. The German Gross Domestic Product (GDP) unexpectedly rose by 0.3% in the 2nd quarter, showing that the German economy unexpectedly rose out of recession. On the downside for the EUR last week was that the European Consumer Price Index dropped by 0.7% in July, indicating that inflation is still dropping in the Euro-Zone.
As for the week ahead, a much important data is expected to be published from the Euro-Zone, which is also likely to have a great impact on EUR volatility. The German ZEW Economic Sentiment will be released on Tuesday, and analysts forecast a result of 45.2. Such an outcome is likely to boost the EUR, as this will show that the German economy is continuing to improve. Considering that the German economy is the strongest economy in the Euro-Zone, this result could have a great impact on the EUR. Traders are also advised to follow the German PPI on Wednesday as this may provide much support for the EUR this week.
JPY - Yen Rises to a 2 Week High vs. the EUR
Last week, the Yen rose against all the major currencies. The USD/JPY dropped around 300 pips to the 94.50 level. The Yen rose about 500 pips against the EUR, and saw an 800 pips rise against the Pound!
The Yen's recent uptrend is largely due to positive data from the Japanese economy. For example, the monthly Core Machinery Orders report showed a 9.7% increase, better than the 2.8% forecast. Also, late last night, Japan's Prelim GDP results showed a rise of 0.9% in the 2nd quarter, which was slightly below estimates. This led to the JPY rising to a 2 week high vs. the EUR and a basket of other currencies in early trading. This week week, the main publications that are expected from Japan are the All Industries Index on Wednesday at 04:30 GMT. Analysts forecast the result to be 0.4% as opposed to May. If the final result comes in line with forecasts, the Yen is likely to build on its recent bullishness against its major currency counterparts.
OIL - Crude Oil Plummets Below $68
Crude Oil's high volatility continues, and a barrel of oil has once again dropped below $70 in the past day, and currently stands at $67.93 in early Monday trading. Crude dropped last week on speculations that reduced demand and rising stockpiles in the U.S will lead higher supplies during the upcoming North Atlantic hurricane season. However, if the hurricane season isn't as many people expect, then the of Oil may actually plummet further.
The recent strengthening of the Dollar in the past week has also had a strong impact on Crude Oil prices. USD strength typically impacts Dollar-denominated commodities because it makes them more expensive for holders of other currencies. If the Dollar will continue to strengthen during the next few days, Crude Oil's recent dive in value may continue.
A bearish formation on the daily chart is still intact; however the momentum is already quite low. The 4 hour chart is also maintaining a slightly bearish configuration yet with no distinct conclusion. Traders are advised to hold for the break and then swing into it.
The price of this pair appears to be floating in the over-sold territory on the RSI of the 4-hour chart, signaling an impending bullish move. The fresh bullish cross on the hourly chart's Slow Stochastic also supports this notion. Going long appears to be a good strategy today
A correction on the hourly chart could be fore coming as a price move has originated at the bottom border of the Bollinger Bands. This may signal a move from the lower border all the way to the other border. Going long with a tight stop may be the right choice today.
On a daily chart RSI the pair is showing consistent bullish momentum for a while now and today is no difference. Although the signal is not strong the pair might have a local target at 1.08 level, which might make it feasible for forex traders to go long with tight stops
The Wild Card
The price of this pair has just entered the over-sold territory on the 4-hour chart's RSI, signaling upward pressure. The fresh bullish crosses on the MACD of the hourly and 4-hour charts support the notion of an impending bullish correction. By entering early long positions, forex traders can enter the market on this pair, and at a great starting price.
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