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Friday, 8 Apr 2011
EUR/USD Hits 15-Month High Following Rate Hike
Following the widely expected euro-zone interest rate hike yesterday, the euro hit a fresh 15-month high against the dollar, peaking at $1.4400. Meanwhile, the yen resumed its recent bearish behavior during the overnight session and lost over 50 pips against the dollar before staging a correction. Currently the USD/JPY stands at 85.02.
USD - Dollar Drops on Renewed Risk Appetite
The U.S dollar fell against most of its major currency rivals yesterday, hitting its lowest level in nearly a week against the EUR, as gains in commodities prompted investors to wade into riskier currency trades. By yesterday's close, the USD fell against the EUR, pushing the oft-traded currency pair to 1.4400. The dollar experienced similar behavior against the GBP and closed at 1.6385.
The dollar has fallen almost every day this week against the EUR and sterling pound, and it marked its second straight decline against the Japanese yen yesterday. Analysts attributed the fall in the dollar, which has been treated as a lower risk, safe-haven investment, to growing optimism that the worst of the financial crisis has passed, causing investors to unwind positions in favor of the U.S. currency that were built up when fear was widespread, credit was frozen and stock markets were in free fall.
Another leading indicator released yesterday was U.S. Unemployment Claims. This number handedly beat last week result but failed to provide strength to the Dollar as investors may be waiting for key data due to be released today to implement their trading strategies.
Investors may look for the unusual price volatility to continue in the EUR/USD as the pair attempts to stabilize and find new support and resistance lines. Large price jumps such as these are not common place and present terrific opportunities to take advantage of the price swings for large profitable gains.
EUR - The EUR Continues to Strengthen against the USD
The euro rose to its highest level in almost 15 months against the dollar on Friday as a mildly firmer risk environment from higher equity markets and rising oil prices boosted flows into the single currency. The euro rose as high as $1.4400, its highest since mid-January 2010, bringing its gains this year to 7%.
Yesterday, the European Central Bank raised interest rates and cemented expectations for at least two more rate hikes by year-end as it seeks to cool rising price pressures. The ECB's widely expectedly quarter-point rate hike to 1.25% was its first such move since July 2008. In contrast, the Bank of England left its key rate at 0.50%, as concerns over domestic growth trumped, for now, worries over an uncomfortably high 5% inflation rate
Currency traders have started to focus more on fundamentals such as economic growth and short-term interest rates. That shift, just getting underway, could take the shine off the soaring EUR in coming months.
The euro zone has a few reports scheduled for today but most of the attention will be on the ECOFIN meeting. Depending on the statements being released from the meeting of European Union countries, it may be difficult to gauge the direction of the EUR and traders should be aware of the heightened volatility in today's market.
JPY - The Yen is Losing Ground on All Fronts
The JPY saw a bearish trading session yesterday, losing ground against most of its currency crosses. The JPY fell against the sterling pound, pushing the oft-traded currency pair to 139.50. The Japanese yen experience similar behavior against the EUR and closed at 122.55.
The JPY's trends will be affected by the rallies of its primary currency pairs today. It seems that the USD and EUR are expected to continue a volatile trading session today, especially against the Japanese currency. Traders should keep a close look on the news coming from the U.S. and Europe as these economies will be the deciding factors in the JPY's movement today. It is also advisable for traders to follow any unexpected comments coming from key Japanese governmental figures, as this is also likely to lead to further JPY volatility.
Crude Oil - Crude Oil Prices Continue to Rise
The price of oil crossed $111 a barrel for the first time in two and a half years on Thursday amid concerns about war in Libya and as the dollar weakened against the euro.
AFP reported Thursday that an oil field in Libya had been damaged. Furthermore Libyan insurgents as well as civilians stampeded out of Ajdabiya due to rumors that loyalist forces were outside the eastern town, hours after an air strike tore into the rebels' defenses.
In addition, a weaker U.S. dollar tends to boost the price of dollar-priced commodities as it lowers the price to holders of other currencies and reduces the value of the currency oil producers receive of their product.
Most technical indicators are showing that this pair is in overbought territory and could see a downward correction today. It appears like a bearish cross is forming on the daily chart's Stochastic Slow, while the 8-hour chart's Williams Percent Range is currently at -10. Opening short positions may be the wise choice today.
Both the Relative Strength Index and Williams Percent Range on the 8-hour chart have moved into the overbought zone, indicating that downward pressure exists for this pair. Traders may want to go short with tight stops today, as a bearish correction may take place.
While technical indicators on the daily chart are showing the pair in overbought territory, the hourly charts are proving to be much more inconclusive. With most indicators placing this pair in neutral territory, taking a wait and see approach appears to be the preferred strategy today.
The Relative Strength Index on the 8-hour chat has dropped into oversold territory, indicating that a bullish correction may occur today. This theory is supported by the Stochastic Slow on the 4-hour chart, which is close to forming a bullish cross. When it does, it will likely be a good time to open long positions.
The Wild Card
The 8-hour chart's Williams Percent Range is currently hovering right above the oversold zone, indicating that the pair could see some upward pressure today. Similarly, the Relative Strength Index on the 4-hour chart is showing that bullish movement is likely to occur, providing forex traders with an excellent opportunity to open long positions ahead of the impending wave.
|08:30||CHF||SNB Monetary Policy Assessment||*||*||*|
|09:00||CHF||SNB Press Conference||*||*||*|
|09:00||EUR||ECB Monthly Bulletin||*||*||*|
|10:00||GBP||CB Leading Index||m/m||1.5%||-||-|
|13:30||CAD||Capacity Utilization Rate||80.6%||81.1%||-|
|13:30||USD||NZD Core Retail Sales||m/m||0.2%||0.2%||-|
|15:30||USD||Natural Gas Storage||-162B||-||-|
|18:01||USD||30-y Bond Auction||3.81|2.2||*||-|
|21:30||NZD||Business NZ Manufacturing Index||55.7||-||-|
|04:30||JPY||Revised Industrial Production||m/m||0.5%||0.5%||-|