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Monday, 31 Oct 2011
Employment Data and Interest Rates Comes Into Focus This Week
With a heavy news day ahead, many traders are awaiting this week's data releases before buying into riskier assets, especially with this week's employment and interest rate focus. With today's high liquidity, some heavy movement is expected, though this is just the start of a very volatile week; a fact alone which could hold liquidity back.
USD - US Dollar Gains Ground at Start of Non-Farm Week
The US dollar (USD) was seen trading moderately bullish Monday morning as traders saw a small increase in risk aversion following last week's economic reports. The EUR/USD rose last week following the completion of a long-term consolidation trend, reaching a 4-day high of 1.4250. Late last week, however, the pair bounced off the resistance level and is now trading near 1.4140.
Inflation and housing reports from the US and Canada last week portrayed a Western Hemispheric economy somewhat stronger than what many had expected. The mixed results from American housing last week revealed a mildly stagnant market, but inflation appeared to rise as businesses across the United States and Canada begin seasonal hiring for the holidays. Such reports are likely to drive risk aversion into odd swings as the holidays draw near.
With an oddly heavy news day ahead, traders appear anxious for the week's data which seems to be centered mostly on employment, housing, and interest rates. Today's publications are British- and euro zone-heavy, however, with several disparate figures on various economic sectors due this morning. Liquidity will likely be higher than the typical Monday making the market likely to experience some swings.
EUR - EUR Trading Lower as Traders Flee Risk
The euro (EUR) was seen trading with largely bearish results this morning following last week's mildly optimistic assessments from North American inflation and housing reports. Against the US dollar (USD) the euro was trading near a 4-day low, with few signs of halting the bearishness which appears to come on the coattails of a long-term consolidation pattern. Against the Great British pound (GBP), the EUR witnessed a similar, albeit weaker, loss in strength.
Traders appear to be clinging less and less to the 17-nation common currency with lower yielding investments in mind. With inflation rising and employment increasing in the North American continent, it seems likely that more traders will opt for higher yields heading into the 2011 holiday season, but this morning's downtick was a likely a reverberation of insecurity when the EUR/USD touched the 1.4250 resistance line.
Economic sentiment across the euro zone remains negative overall, with many analysts and economists expecting moves towards safety by traders early this week. With a heavy news day ahead, many traders are awaiting more data releases later in the week before buying up further EUR, especially during this week's employment and interest rate focus. With today's high liquidity, some heavy movement is expected, though this is only the start of a volatile week; a fact alone which could hold liquidity back somewhat.
JPY - Japanese Yen Expecting Little Movement
The Japanese yen (JPY) was seen trading significantly higher versus most currencies this morning as its value as an international safe haven begins to get challenged by the prevailing economic conditions. Being linked to international risk sentiment, the yen has experienced an expected uptick during a period when shifts away higher yielding assets became prominent.
The latest moves of the JPY are causing some concerns, however, as many speculators were anticipating a downturn following the Bank of Japan's (BOJ) latest rate statement. A strengthening yen has benefits for the buying power of the island economy, though its dependence on exports makes a strong yen unfavorable for longer-term growth in Japan's current financial model. The persistence of the yen's rising strength is causing some furrowed brows in Japan's economic circles, and this may be a cause of its mixed trading behavior.
Gold - Gold Price Meeting Resistance
The price of Gold found heavy support over the past several days despite the surging strength of the US dollar, the currency in which such assets are valued. Gold has been trading with wilder price action since early August, but traders have been awaiting a price correction from the rampant increase in risk aversion due to rising tensions from the euro zone's periphery and a sudden lift off in dollar values.
As investors seek safety, the value of Gold, which has been seen trading with bullish results for the past eight trading days, is expected to rise further should it breach the current resistance level it is currently testing at $1,742. A sudden rise in dollar values due to this week's uncertain environment is expected to assist the sentiment favoring Gold, however. Should risk sentiment continue to bounce in sporadic directions this week, the price for this precious metal may continue to experience similar swings in value, favoring an upside as Gold holds within its current bullish channel.
An impressive run higher over the month of October took the EUR/USD as high as 1.4250, the 61% retracement from the May to October move. However, a failure of the pair to overcome this key technical mark does not bode well for the EUR in the near term. Also worth noting is the failure of the pair to move above its previously broken trend line from the June 2010 and the January 2011 lows. Falling stochastics on the daily and weekly chart also point to declines in the value EUR/USD. Support is located at 1.3915 from the October 17th high followed by 1.3650 off of the October 18th low and the October low at 1.3145. The 61% retracement level will serve as initial resistance with additional selling perhaps at 1.4450 from the trend line off of the May and July highs.
Cable has failed to climb above both its 200-day moving average and stopped short of its 61% Fibonacci retracement target from the April to October move which at 1.6150 should serve as initial resistance. A move higher could go on to test the 1.6450 resistance off of the August high though daily stochastics have crossed and the weekly stochastics are beginning to roll lower as well. As such, a move lower could find support at 1.5890 from the October 26th low as well as the October 18th low of 1.5630.
Another round of intervention has lifted the USD/JPY 400 pips for a 5.29% gain. However, the pair's sharp move higher was unable to break a key falling trend line from the 2007 high which comes in this week at 79.70. With the long term downtrend still intact a move lower may once again test the all-time lows the pair will first encounter support at 77.85 from the September high as well as 77.50 from the mid-October high. Should the intervention continue the Japanese Ministry of Finance may find willing offers waiting at 80.20 which was the peak of the last round of intervention in August.
The Swiss franc has once again resumed its downtrend versus the USD after moving as low as 0.8550, a level that has previously served as both support and resistance. A bounce from here could find an offer at 0.8900 from the resistance line off of the October peak. Should the downtrend from October extend into November a break of 0.8550 may have scope to 0.8240 from the August high.
The Wild Card
Today's intervention by the Japanese Ministry of Finance propelled the pair 4.1% but the EUR/JPY failed to break above two major technical barriers; the August high at 111.90 and the pair's 200-day moving average at 112.70. Forex traders should note should the long-term downtrend looks to have held. Support may be found at the previously broken trend line from the April and July highs which comes in at 109.80 followed by the last week's high of 108.10.