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Wednesday, 4 May 2011

EU/IMF Bailout of Portugal Announced, EUR/USD Bearish

The euro appears to have fallen mildly against a number of its currency rivals yesterday after the European Union and International Monetary Fund (IMF) announced their expected plans for a bailout of Portugal. As a result, the EUR/USD came off its recent 17-month high of 1.4900 to trade moderately lower, near the 1.4820 mark at today's Asian market open.

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Economic News

USD - Safe Havens Gain, USD Mixed, as Investors Move to Safety

The US dollar experienced mixed results yesterday as traders began to shift away from riskier assets citing expectations for al Qaeda reprisals following Osama bin Laden's death. The USD moved lower against the safe haven Swiss franc and Japanese yen on global concerns while stocks and commodities begin to trade flatter.

The USD did see some minor gains against the EUR, however, as news of the European Union's bailout of Portugal surfaced, pushing traders away from Europe side-by-side with Britain following yesterday's decline in the UK's manufacturing PMI. The US economy also published a series of highly bullish figures yesterday, such as a new factory orders report which showed a 3% monthly jump coming alongside a slightly better than forecast total vehicle sales indicator.

The issue of American interest rates remains ever-present in economic analyses lately; leading many speculators to claim that this recent return to safety may leave the dollar exempt from the shift, as it usually is during times of uncertainty. Today's publication of ADP's Non Farm Employment Change report will give a preview into the all important employment sector of the US economy. There is a possibility that bullish jobs data could lift the USD in the short-term, but it is yet to be seen whether it can balance the bearishness brought on by last week's FOMC rate statement.

EUR - EUR Bearish following Portugal Bailout Announcement

The euro appears to have fallen mildly against a number of its currency rivals yesterday after the European Union and International Monetary Fund (IMF) announced their expected plans for a bailout of Portugal. As a result, the EUR/USD came off its recent 17-month high of 1.4900 to trade moderately lower, near the 1.4820 mark at today's Asian market open.

The downturn may end up being short-lived, however, as investors returned temporarily to safe haven investments in expectation of an al Qaeda reprisal following bin Laden's death this weekend. Portugal's bailout was structured as expected and should not have a lasting impact on the region's currency value. The bearishness on the EUR today should end up a mild downtick in a prolonged upward movement versus its major counterparts.

As for today, the euro looks like it may take further losses as trader sentiment moves towards safety. The 17-nation economic bloc will once again be largely absent from today's calendar, with only a minor Flash PMI publication scheduled to be released at 9:00 GMT and a regional retail sales report at 10:00 GMT. A strong series of data releases is expected out of Great Britain, though, and should have significant impact on the faltering British economy.

JPY - Greenery Day Continues Golden Week in Japan

The JPY has been trading with mixed results recently as investors turn their focus elsewhere amid global reactions to the death of Osama bin Laden. After reaching upwards of 82.75 on Monday, the USD/JPY quickly dropped to a daily low of 81.00 by Tuesday evening, and looks to fall farther in today's sessions as investors remain largely bearish on the greenback.

With Japan celebrating Greenery Day, amid Golden Week, liquidity throughout the region will be somewhat depressed. The JPY could gain from this absence as the rest of global traders shift towards Europe, as well as safe havens. As for today, the JPY will be absent from the market again, meaning global investors will continue to focus their attention elsewhere, creating mixed results for the yen. But the recent shift into safe havens following expectations of an international reprisal from al Qaeda in response to bin Laden's death has helped lift the yen and should continue to do so for the remainder of the week.

Oil - Physical Assets and Stocks Decline as Investors Seek Safety

The prices of physical assets and global stocks ended Tuesday lower on the day as traders largely began to speculate an imminent reprisal from al Qaeda following Osama bin Laden's death. The result has been a moderate dip in stock prices, also weighing on the price of assets like oil, silver, gold, and a variety of industrial metals. The biggest gainers on the day were the Swiss franc and Japanese yen, making strides from the shift in sentiment.

As for today, crude oil traders may want to consider that commodities, which are linked to the value of the US dollar, are likely going to continue receiving a boost in the immediate future due to recent monetary policy statements out of the US. Hawkish statements about economic growth may suffice to hold prices stable between $111 and $115, but many speculators are beginning to anticipate another bull run in commodity prices, but timing is everything. Recent events have delayed that event, but do not yet appear to have killed its prospects.

Technical News


The pair has been range trading between 1.4750 and 1.4900 and the failure of the pair to make a close above the 1.4900 level is slowing momentum behind the bullish trend. Weekly stochastics are overbought and a decline in the pair could trigger a price drop to the 1.4630 area with further support coming in at 1.4520, a level that coincides with the rising trend line off of the January low. A breach above 1.4900 would target the 2009 high at 1.5140.


Following yesterday's sharp decline in the pair, initial support is near the 20-day moving average at 1.6460. The support level at 1.6430 could be an area of interest for technical analysts. This price level coincides with the late April low and a 38.2% Fibonacci retracement of the April move higher. Below this key area further support is found at the mid-April low of 1.6165, followed by the rising trend line off of the May 2010 lows which comes in today at 1.5970.


The pair continues to fall towards the 80 yen level after moving below the 50% Fibonacci retracement from the pre-intervention low. Traders should be mindful of a breach below the 80 level as this could bring further intervention by the Japanese Ministry of Finance. Support comes in at 82.80.


Yesterday the pair briefly hit a new all-time low under the 0.8600 level before pulling back to 0.8640. Traders should be short on the pair with stops above the 20-day moving average line which comes in today at 0.8825.

The Wild Card


Silver prices plunged yesterday by more than 8% to a low of $40.53 before trading back to $41.00. The price drop is largely considered a technical correction and the low of the day coincides with the rising trend line off of the January low. Forex traders may find this an opportunity to buy into the uptrend on a bounce from the trend line. A protective stop should be placed underneath the rising trend line to protect against any further downside move in the commodity.

Current Time: 11/24 21:51 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
20:30CAD+ Gov Council Mem. Kennedy Speaks---1
23:50JPY+ Monetary Policy Meeting Minutes---3
00:30AUD+ Construction Work Doneq/q1.6%-1.8%-3
07:00CHF+ UBS Consumption Indicator1.65--1
09:30GBP+ BBA Mortgage Approvals 44.5K45.5K-1
10:00EUR+ Italian Retail Salesm/m0.3%0.5%-1
10:01EUR+ German 10-y Bond Auction0.44|1.2--1
10:20AUD+ RBA Assist Gov Debelle Speaks---3
12:30GBP+ Autumn Forecast Statement---3
13:30USD+ Core Durable Goods Orders m/m-0.3%0.5%-5
13:30USD+ Unemployment Claims 271K273K-5
13:30USD+ Core PCE Price Index m/m0.1%0.1%-3
13:30USD+ Durable Goods Orders m/m-1.2%1.6%-3
13:30USD+ Personal Spending m/m0.1%0.3%-3
13:30USD+ Personal Income m/m-0.1%0.4%-1
14:00USD+ HPI m/m0.3%0.5%-1
14:45USD+ Flash Services PMI54.855.2-1
15:00USD+ New Home Sales468K500K-3
15:00USD+ Revised UoM Consumer Sentiment93.193.2-3
15:00USD+ Revised UoM Inflation Expectations2.5%--1
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