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Tuesday, 22 Mar 2011
EUR/USD Climbs To A 4-Month High on Expectations ECB Will Raise Rates In April
This week's trading session opened with a sharp bullish spike in crude oil prices, which was a direct effect of the NATO attack in Libya. In addition, the most significant development in the FX market was the bullish euro. Expectations that the ECB will hike rates in April continue to impact the market, and as a result the EUR/USD pair hit a 4-month high.
USD - Dollar Slides vs. Majors as Risk-Appetite Recovers
The U.S. dollar fell against most of its major currency counterparts on Monday's trading session. The dollar dropped about 80 pips vs. the euro and the EUR/USD pair is trading above the 1.4200 level. The dollar also fell about 100 pips vs. the British pound.
The dollar fell to its lowest level in 15 months against a basket of currencies on Monday as risk-appetite in the market has risen. Investors have embraced leveraged risk trades in stocks and commodity-linked currencies and by so supported demand for the euro and the sterling.
The dollar's fall was also driven by the surge of the euro. Demand for the 17-nation currency steadily increases on bets that the European Central Bank will hike rates in April from a record low of 1.00%. The Federal Reserve (Fed) on the other hand is likely to maintain its relatively loose policy, which in turn weakens demand for the greenback.
Looking ahead for today, the Federal Reserve Bank of Dallas President Richard Fisher is expected to deliver a speech regarding future American monetary policy. The speech is scheduled at 11:35 GMT, and is expected to ignite volatility in the market. Traders are advised to follow Fisher's speech and to take under consideration that a dovish speech has potential to further weaken the dollar.
EUR - Euro Rallies on Bets ECB Will Hike Rates
The euro strengthened against most of the major currencies during yesterday's trading session. The 17-nation currency gained about 80 pips against the U.S. dollar on Monday, and the EUR/USD pair reached as high as the 1.4240 level, hitting a 4-month high. The euro also saw a 100 gain against the Japanese yen.
The euro rose yesterday on expectations that the economic uncertainty caused by Japan's nuclear crisis may not deter the European Central Bank (ECB) from raising interest rates next month. ECB seniors have commented last week that strong vigilance is necessary to keep a lid on inflation, hinting that an interest rates hike is imminent. In addition, ECB President Jean-Claude Trichet said last week that he has nothing to add to his March 3rd comments, also alluding that the ECB will probably increase rates in April.
It currently seems that the European currency may continue to ride the interest rates-hike speculations in the short-term, especially as the Federal Reserve is expected to proceed with the super-loose policy.
As for today, no significant economic data is expected from the euro-zone, and traders are advised to follow the leading releases from the British economy. Special attention should be given to the British Consumer Price Index release. If the report will indeed show that inflation in Britain continues to rise, demand for both the pound and the euro might strengthen.
JPY - Yen Tumbles as Nuclear Risk Eases
The Japanese yen fell on all fronts on Monday's trading session. The yen saw a 40 pip drop against the U.S. dollar, and the USD/JPY pair is trading above the 81.00 level. The yen also saw a 100 pips fall against the euro and a 120 pips fall against the British pound.
The yen declined against all its major rivals after officials made progress in cooling nuclear reactors at a crippled plant. Investors still fear that Japan will act further to weaken the yen after the Group of Seven nations intervened last week in the market, in the attempt to weaken the yen.
The stabilization of the Japanese nuclear crisis has also helped to restore risk-appetite in the market, which further decreases demand for the Japanese currency as a safe-haven asset.
Looking ahead to today, traders are advised to stay alert for any update regarding a potential intervention in the market by Japan. An intervention may take place in the case that the yen will once again begin to strengthen. Special attention should of course be given to the Japanese nuclear situation, as any news on this issue is likely to impact the market.
Crude Oil - Crude Oil Stabilizes Above $103 a Barrel
Crude oil began this week's trading with a prices spike after NATO forces attacked Libyan government positions. Crude oil prices jumped to over $104 a barrel after opening the week at $101.31.
Crude is traded near the highest level in more than a week as airstrikes on Libya and the threat of contagion in the Middle-East pushed energy prices upwards. In addition, Libyan output has fallen to less than 400,000 barrels a day from an estimated 1.59 barrels a day in January.
Throughout Monday's trading session crude oil prices remained relatively steady, and a barrel of crude is currently trading near $103.50 a barrel.
As for today, traders are advised to follow all the developments from Libya as this conflict there is now the main catalyst in crude trading. In case that the conflict will escalate, oil prices might climb even further.
There is a very distinct bullish channel formed on the daily chart, as the pair is currently floating in the middle of it. In addition, as both the MACD and the RSI on the 4-hour chart continue to provide bullish signals, it seems that the pair might rise further today, with potential to reach the 1.4300 level.
The cable is in the midst of a bullish reversal, which is about to be completed at the 1.6350 level. If the pair will manage to breach through the 1.6350 resistance level today, it has potential to climb towards the 1.6450 level. Going long appears to be the right strategy today.
The USD/JPY continues to recover from the recent low of 76.40 and is currently trading above the 81.00 level. Nevertheless, as a bearish cross took place on the 4-hour chart, it seems that a bearish correction might be imminent. Going short with tight stops seems to be the right choice today.
The USD/CHF pair mainly saw flat trading over the past several days, remaining near the 0.9050 level. Currently, as the 4-hour chart and the daily chart are providing mixed signals, it seems that traders should better stay out of this one today.
The Wild Card
Gold prices gained significantly over the past week. In just a few days gold climbed from $1,380to $1,435 an ounce. However, as a bearish cross takes place on the daily chart's Slow Stochastic, it appears that a bearish correction may be impending. This might be a good chance for forex traders to catch the trend in its beginning.
|00:00||EUR||German 10-y Bond Auction||-||0.87/1.2||-|
|01:30||AUD||Construction Work Done||q/q||-1.2%||-1.7%||-|
|08:00||CHF||UBS Consumption Indicator||1.41||-||-|
|08:00||EUR||German Import Prices||0.3%||-0.3%||-|
|10:30||GBP||Second Estimate GDP||q/q||0.7%||0.7%||-|
|10:30||GBP||Prelim Business Investment||3.3%||2.3%||-|
|10:30||GBP||Index of Services 3m/3m||0.8%||0.7%||-|
|12:00||GBP||CBI Realized Sales||28||31||-|
|14:30||USD||Core Durable Goods Orders||m/m||-0.1%||0.5%||-|
|14:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|14:30||USD||Durable Goods Orders m/m||m/m||-1.1%||-0.4%||-|
|15:55||USD||Revised UoM Consumer Sentiment||89.4||90.2||-|
|15:55||USD||Revised UoM Inflation Expectations||2.6%||-|
|16:00||USD||New Home Sales||467K||471K||-|
|16:00||USD||Pending Home Sales||m/m||0.3%||0.9%||-|
|16:30||USD||Crude Oil Inventories||2.6M||-|