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Tuesday, 17 May 2011

EUR/USD Bullish as Interest Rate Differentials Come Back in Focus

The euro zone published its consumer price index (CPI) reports yesterday which showed solid, stable inflationary growth, year-on-year. The core data also showed better growth than was expected. This data generated a heightened intrigue in the comparative interest rates between America and Europe as risk sentiment got shifted. The result was for the interest rate bulls to outpace the debt woe bears in yesterday's session, driving the EUR higher versus the USD.

EUR/USDGBP/USDUSD/JPYUSD/CHFAUD/USDEUR/GBP
Daily Trendupnoupdownupup
Weekly Trenddowndownnoupdowndown
Resistance1.42501.629082.000.89351.06800.8820
1.42301.627081.800.89051.06600.8800
1.42001.624081.500.88751.06300.8770
Support1.41401.618080.900.88151.05700.8710
1.41101.615080.600.87851.05400.8680
1.40901.613080.400.87651.05200.8660

Economic News

USD - US Dollar Slides After Day of Soft Data

The US dollar opened this week moderately stronger versus the euro yesterday as traders continued last week's shift into safer assets. As of late trading yesterday, however, the EUR/USD pair seems to have shifted back into a bullish posture as traders return to interest rate differentials between the Atlantic rivals. After briefly touching 1.4050, the pair found support and is currently moving towards 1.4175.

Soft economic data out of the American economy yesterday had many investors seeking market direction elsewhere. TIC long-term purchases for April came in much lower than expectations and the NAHB housing indicator was in just below forecasts. The Empire State manufacturing index also fell to 11.9 from last month's 21.7. Alternately, CPI figures from the euro zone showed stable growth. This data together helped turn many investors' attention back towards the interest rate differentials in the US and Europe, which caused a shift away from the greenback.

As for today, the euro zone will be absent as its ministers congregate for another meeting of the Economic and Financial Affairs Council (ECOFIN) in order to discuss the region's finances. The US, on the other hand, is scheduled to release several housing and industrial reports. If forex traders witness another day of soft data, the weakness of the USD in recent trading may become exacerbated as more traders shift into the higher yielding euro.

EUR - EUR Gains as Investors Turn Gaze to Interest Rate Differentials

The euro rose versus the US dollar yesterday during New York trading hours, with the pair's price reaching near 1.4160 as of this morning. Soft data out of the American economy yesterday forced a reevaluation by many investors who went long on the USD following the European Central Bank's (ECB) cloudy rate statement two weeks back.

Yesterday's significantly weaker fundamentals out of the American economy were only one part of the story, however. The euro zone published its consumer price index (CPI) inflationary reports which showed solid, stable growth, year-on-year. The core data also showed better growth than was expected. This combination of data from these two economic rivals generated a heightened intrigue in the comparative interest rates as risk sentiment got shifted. The result was for the interest rate bulls to outpace the debt woe bears in yesterday's session, driving the EUR higher versus the USD.

As for today, the euro zone will be absent from the calendar as its ministers congregate for another meeting of the Economic and Financial Affairs Council (ECOFIN) in order to discuss the region's finances. Hawkish statements could hint towards a tightening monetary policy in the near future, but traders should be wary of a return to risk aversion should the meeting produce less-than-stellar commentary. In the latter case, the EUR could see its bearishness return, especially since it has yet to outpace the strength of its regional rival, the Swiss franc (CHF).

JPY - JPY Returns to Uncertain Growth as Consolidation Patterns Form

The Japanese yen (JPY) has been trading with somewhat mixed results since early last week, with gains made against several currencies and losses elsewhere. After a week of ups and downs, the Japanese yen appears set to make gains today as investors seek safety from recent turmoil and as the Bank of Japan (BOJ) published several reports yesterday morning which could help the island economy make gains. The dominant stance of risk aversion overarching last week's trading environment has many traders moving towards the yen against the higher yielding currencies like the euro and British pound.

The USD/JPY was seen trading somewhat higher this morning, finding support near 80.70 and moving up towards 80.90 at today's opening Asian sessions. Japan's core machinery orders report was published this morning and revealed a modest uptick which may help the island currency in today's market hours. Market news released out of the US today will likely be the driving force behind JPY values, though, and traders would be wise to watch the US industrial production figure since it has a strong correlation with Japanese growth.

Crude Oil - Crude Oil Prices Surprisingly Fall on Sudden EUR Surge

Oil prices fell below $98 a barrel this morning, surprisingly after the euro took off against its primary rival, the US dollar. US oil stockpiles rose over 3 million barrels for the second week in a row last week, which had harangued the price of oil in last week's later sessions. The sudden plummeting value of the dollar had many analysts assuming that oil would find support in this morning's trading, but that seems to not be the case.

With this morning's downward movement there is a chance that yesterday's decision point was reached today and oil bears are winning out. Whether oil traders decide to lift oil prices back from this recent plunge is yet to be determined, especially considering the strangeness of the inverse relationship to the USD yesterday. The greenback's decline may have a delayed effect today and oil traders may see the price bouncing back if that is the case.

Technical News

EUR/USD

The EUR/USD cross has experienced a bearish trend for the past week. However, it seems that this trend may be coming to an end. The RSI of the daily chart shows the pair floating in the over-sold territory, indicating that an upward correction will happen anytime soon. Going long with tight stops might be a wise choice.

GBP/USD

The hourly chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, the 4-hour Chart's RSI is already floating in the oversold territory indicating that a bullish correction might take place in the nearest future. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.

USD/JPY

The pair has been range-trading for a while now, with no specific direction. The Daily chart's Slow Stochastic providing us with mixed signals. All oscillators on the 4 hour chart do not provide a clear direction as well. Waiting for a clearer sign on the hourlies might be a good strategy today.

USD/CHF

The USD/CHF has gone increasingly bearish yesterday, and currently stands at the 0.8845 level. The daily chart's Slow Stochastic supports this currency cross to fall further today. However, the 2-hour chart's RSI signals that a bullish reversal will take place today. Entering the pair when the signs are clearer seems to be the wise choice today.

The Wild Card

Crude oil

Crude oil prices have dropped significantly yesterday and peaked at $97.24 a barrel. However, on the daily chart RSI is floating in an oversold territory suggests that a bullish correction is impending. This might be a great opportunity for forex traders to enter the trend at a very early stage.

Current Time: 11/01 00:54 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
11/03
JPY+ Bank Holiday1
01:30AUD+ ANZ Job Advertisementsm/m0.9%3
01:30AUD+ Building Approvals m/m3.0%-0.9%-5
03:45USD+ Final Manufacturing PMI56.256.1-1
04:00USD+ ISM Manufacturing PMI56.656.5-5
04:00USD+ Construction Spending m/m-0.8%0.8%-1
04:00USD+ ISM Manufacturing Prices59.558.3-1
04:00USD+ Total Vehicle Sales16.4M16.6M-1
06:30AUD+ Commodity Prices y/y-16.8%--1
09:15USD+ Spanish Manufacturing PMI-52.6-52.4-3
09:30CHF+ SVME PMI50.451.3-1
09:45EUR+ Italian Manufacturing PMI50.750.6-3
10:00EUR+ Final Manufacturing PMI50.750.7-1
10:30GBP+ Manufacturing PMI51.651.55
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