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Monday, 5 Oct 2009
EUR/USD Volatility Ripples across FX Market
As the first week of October kicked off last week, traders witnessed a number of volatile jumps in the worlds 2 primary currencies: the EUR and USD. Optimism appeared to be on the rise in America while Europe was giving off signals of a lagging economy. The USD had pared a moderate percentage of its previous losses until employment data in the US hampered those gains and sent the EUR flying high. As a result, every other currency in the forex market was impacted in a similar way since these currencies have the ability to influence world prices. The question remains: Will this week's data calm the market, or simply add fuel to the flames?
USD - Poor Employment Data Diminishes Bullish Week
Last week the Dollar saw a volatile trading session against all of the major currencies. The greenback started last week with rising trends against the Euro and Pound, yet eventually returned to similar rates from the beginning of the week.
Last week's early rally of the Dollar was mainly due to the positive Consumer Confidence survey on Tuesday. The survey showed that consumers in the U.S currently have a positive view regarding economic conditions such as labor availability, business conditions, and the overall economic situation.
Even though the survey failed to reach expectations for a 57.0 result, the mark above 50.0 boosted the Dollar. In addition, the Pending Home Sales rose for the 7th consecutive month, indicating that the housing sector in the U.S is showing recovery signals. On the long-term, a sequence of positive housing data is likely to support the Dollar, as many see it as the number one parameter in the economy's condition.
However, the poor employment figures have halted and reversed the Dollar's rising trend. The Non-Farm Employment Change report showed that the U.S economy lost 263,000 jobs in September, which was more than had been expected. This had investors questioning the economy's recovery and pushed them away from the Dollar.
Looking ahead to this week, many impacting publication are expected from the U.S economy. The Non-Manufacturing Purchasing Managers' Index (PMI), the weekly Unemployment Claims and the U.S Trade Balance are all likely to influence the market the most. Traders are advised to pay special attention to the employment figures since last week's data has apparently made this one of the most urgent matters at the moment.
EUR - EUR Recovers before the Weekend
The Euro underwent a volatile trading week. As the week began, the Euro saw bearish trends against most of the major currencies, including the Dollar and the Yen. However, close to the weekend, the Euro saw a reverse of trends and managed to recover.
The Euro's bullish trend came mainly as a result of the poor data published from the Euro-Zone last week. The German Preliminary Consumer Price Index (CPI) fell at a faster pace than expected. The report showed German CPI dropping by 0.4%, more than the 0.2% drop expected by analysts.
In addition, the German Retail Sales for August dropped by 1.5% as opposed to July. The Retails Sales measure the total value of inflation-adjusted sales at the retail level. The negative figures for both these German economic indicators have created speculations that the German economy's recovery might take longer than expected. This has driven investors to look to safe-havens such as the USD.
However, just before the weekend, the Euro managed to recover most of its losses. The Euro's appreciation came as a result of the poor employment data from the U.S. As for the week ahead, many interesting pieces of data are expected from the Euro-Zone. The most intriguing news is likely to be the Interest Rates announcement on Thursday. If the European Central Bank (ECB) will surprise and hike rates, a sharp rising trend might take place. Traders are advised to follow this publication very closely.
JPY - Yen Sees Mixed Results against the Majors
Just like the rest of the major currencies, the JPY saw mixed results during last week's trading sessions. The Yen saw a changing trend throughout the week, and by Friday it returned to its former price levels.
It appears that the Yen's volatility was due to the mixed results from the Japanese economy. Batches of both positive and negative data lead to a jumpy trading week. On one hand, better than expected Japanese Retail Sales figures and a better than expected Non-Manufacturing Index have shown that the Japanese economy might be doing better than many analysts claim.
On the other hand, the poor Manufacturing Index figures and the negative Core CPI result have questioned the stability of the economy. It seems that investors were left confused by the sharp differences of each publication, and a volatile session was inevitable.
As for this week, the most impacting data from the Japanese economy seems to be the Core Machinery Orders report, which is scheduled for Thursday. This report measures the total value of new private sector purchase orders placed with manufacturers. If the end result will reach expectations for a 2.2% growth, the Yen is likely to appreciate as a result.
Crude Oil - Crude Oil Remains Under $70 a Barrel
Crude Oil saw a sharp uptrend during last week's session, and a barrel of crude oil was traded for over $71 a barrel. However, the bullish trend was halted and for the past few days a barrel of oil has been trading for under $70.
The main reason for the halt in the uptrend seems to be concerns that the U.S economy will take longer to recover. That is of course due to the poor employment data from last week. The logic behind it is that the U.S is the biggest energy-consuming nation in the world, and thus any deterioration in its condition might signal a decrease in fuel demand. In addition, another reason for lowering oil prices was the rising supplies from Russia.
Russia increased output by 1.7% in September, and the combination of dropping demand and rising supply has prevented Crude Oil from reaching above $70 a barrel again.
Looking ahead to this week, the high volatility in Crude Oil's trading is likely to continue. Traders are advised to follow the leading publications from the U.S. and the Euro-Zone as they tend to have a great impact on oil prices. In addition, traders should also pay attention to the Crude Oil Inventories report on Wednesday. This weekly report usually leads to sharp change of prices for the black gold.
There appears to be a fresh bearish cross on the hourly Slow Stochastic, and an impending bearish cross on the hourly MACD, which suggests the next movement is most likely going to be in a downward direction. The relatively older bearish cross on the daily MACD, and subsequent downward sliding indicator, supports this notion. Going short appears to be today's preferable strategy.
The price of this pair has recently entered the over-bought territory on the hourly RSI, suggesting a level of downward pressure on its price. A bearish cross also appears imminent on the 4-hour Slow Stochastic, suggesting today's primary movements could be in a downward direction. Going short may be a wise choice today.
While the bearish cross on the hourly Slow Stochastic has finished, and the indicator is cascading downward, there appears to be another bearish cross forming on the 4-hour Slow Stochastic, suggesting another downward move is impending. Traders can benefit from this upcoming movement by entering short positions early and riding out the wave.
The only clear indication on this pair seems to be the fresh bullish cross on the hourly Slow Stochastic, which suggests an upward correction is due to take place in the nearest future. However, the Bollinger Bands on the daily chart appear to be tightening which suggests that a volatile jump could happen later this week and traders should be on the lookout for indications regarding its direction. For today, going long might be a good short-term tactic.
The Wild Card
A bearish cross has recently taken place on the hourly Slow Stochastic for this commodity, suggesting an impending downward correction is imminent. The bearish cross on the 4-hour MACD supports this notion. Forex traders involved with the commodities market might want to consider going short on Gold in the next few hours as an overwhelming amount of evidence suggests bearishness for the day.
|23:30||AUD||AIG Construction Index||45.9||-||-|
|08:00||EUR||German Industrial Production||m/m||0.1%||0.6%||-|
|08:45||EUR||French Gov Budget Balance||-85.6B||-||-|
|08:45||EUR||French Trade Balance||-3.4B||-3.0B||-|
|09:00||CHF||Foreign Currency Reserves||498.4B||-||-|
|10:30||GBP||Consumer Inflation Expectations||2.5%||-|
|14:30||CAD||Labor Productivity q/q||q/q||0.1%||0.2%||-|
|14:30||USD||Non-Farm Employment Change||257K||241K||-|
|14:30||USD||Average Hourly Earnings||0.5%||0.2%||-|