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Thursday, 26 Mar 2009
EUR/USD Volatility the Order of the Day
Many forex traders in the market would be blind to have not noticed the sharp volatile movements occurring in the world's primary currency pair: the EUR/USD. This tug-o-war between the two largest world currencies comes about as each side takes aggressive steps to combat the recent recession. As the U.S. continues to publish positive economic data, and the Euro-Zone considers taking steps similar to those taken in the States, this pair's sharp volatility will no doubt continue through to next week.
USD - Dollar Falls on Increased Risk Appetite
The Dollar finished Thursday's trading session lower against a number of its currency pairs after U.S. Treasury Secretary Timothy Geithner said he was open to expanding the use of the International Monetary Fund's (IMF) special drawing rights. As of yesterday's close, the USD fell against the EUR, pushing the currency pair to 135.69. The greenback experienced similar behavior against the CHF as the pair fell from 1.1299 to 1.1227 by day's end.
A disappointing Treasury note auction reversed an early rally in U.S. stocks, but investors ultimately shrugged off that disappointment and focused on the strong economic data. The government reported that New Home Sales in the U.S. unexpectedly rose in February from a record low, as plummeting prices and cheaper mortgage rates lured some buyers, while U.S. orders for long-lasting manufactured goods also unexpectedly rebounded in the same month.
However, demand for New Homes has been limited by the highest jobless rate in a quarter-century and shrinking household wealth, indicating housing may not rebound quickly even as steps to cut borrowing costs and reduce mortgage defaults take hold. Therefore, investors in the coming weeks may unwind their Dollar positions, as they realize that the U.S. economy has a long road ahead for economic recovery.
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. In the short-term, the Dollar may continue to fall against the EUR, as traders look to take-up riskier assets.
EUR - EUR Appreciates Despite Negative Figures
After a relatively negative news day in the Euro-Zone, the EUR still managed to appreciate against most of its currency counterparts. The EUR gained nearly 100 points versus the Dollar, and closed at 1.3569. Against the CHF it mainly fluctuated within a small range, as the pair closed at 1.5231. The EUR climbed against the Pound by an impressive 120 points to close at 0.9301. The European currency also made some impressive gains against the Yen, to close Wednesday's session 85 points higher at 132.67.
The major economic event that came out of the Euro-Zone yesterday was the German Ifo Business Climate data release. German business confidence fell to the lowest level in more than 26 years in March, adding to signs that the recession is deepening in the Euro-Zone's biggest economy. Analysts expect the negative data release to add additional pressure on the European Central Bank (ECB) to make another interest rate cut in the near future. This may affect the EUR in the long-term, but in the short-term forex traders are taking advantage of the EUR to make gains on the high yield of the currency.
Looking ahead to today, the most important economic indicator scheduled to be released from the Euro-Zone is the GfK German Consumer Climate at 7:00 GMT. Analysts are forecasting this figure to slightly decrease from its previous reading. Traders will be paying close attention to today's announcement as a stronger than expected result may continue to bolster the EUR in the short-term. Traders are also advised to follow the Retail Sales figures coming out of Britain at 9:30 GMT, and the Unemployment Claims figures coming out of the U.S. at 12:30 GMT as these results may set the EUR's main currency crosses going into next week.
JPY - Yen Continues its Slide against the EUR
The Yen completed yesterday's trading session with mixed results versus its major currency pairs. The JPY was broadly unchanged versus the USD on Wednesday and finished the trading session at the 97.77 level. The JPY also saw bearishness against the EUR as the pair jumped by a notable 85 points to close at 132.67. Over the past month the pair has risen over 2,200 points as investors lost confidence in the Japanese currency. The JPY did make some impressive gains yesterday, however, against the GBP to close up nearly 90 points at 142.63. On a larger note, this only marks a slight reversal in the 2 currencies, as the JPY fell dramatically against the GBP in this week's trading.
Japan's export collapse may push sentiment among the nation's largest manufacturers to the lowest level in more than 30 years in March, triggering more investment cuts and job losses. Export declines have set new records each month since November, as U.S. and European consumers have retrenched. The collapse in U.S. sales forced Toyota to cut thousands of jobs and slash domestic production by half this quarter. The automaker may not raise output until after the 3rd quarter of this year. Today, forex traders are advised to follow data releases coming out of Japan, the U.S., the Euro-Zone and Britain as these results are likely to set the short-term strength of the JPY.
Crude Oil - Oil Prices Strong Despite U.S Crude Oil Inventory Rises
Oil prices remained strong yesterday, as they only slid 12 cents, even though U.S. Crude Oil Inventories rose by a higher-than-forecasted 3.3 million barrels. The International Energy Agency (IEA) said that the inventories rose to 356.6 million barrels, which is 15.6% above price levels from one year ago, the highest level since 1993. If it wasn't for the inventories data, Crude prices may have risen by several percent, as the U.S. released some impressive economic data. However, the New Home Sales and Core Durable Goods data helped prevent Crude prices from slipping on Wednesday.
It is important to take into account that Crude Oil prices have risen through the past 2 weeks, as the U.S. government plans to buy up toxic assets from banks. Additionally, the U.S. has continued to release a string of positive economic data. This has been compounded by a weaker Dollar that has also caused investors to flee to commodities such as Crude Oil. Furthermore, if the U.S. continues to publish more positive economic news, and if the American government continues to be aggressive in tackling the current financial crisis, then Crude prices may hit $60 Dollar by the middle of April.
This pair has been range trading for the past several days with a build-up towards what appears to be an intense volatile movement. After the sharp rise in price last week, the pair has been down-correcting to find its true value. With most oscillators beginning to go neutral, the daily chart's RSI still shows this pair in the over-bought territory, meaning there is still room for a downward correction. The Bollinger Bands are tightening on the hourly chart. As such, we might be seeing some downward movement today. Going short might be a wise choice.
This pair appears to be floating in the over-bought territory on the hourly and daily charts' RSI, indicating a downward correction may be impending. The bearish cross on the daily chart's Slow Stochastic also supports this notion. However, there does appear to be a bullish cross on the 4-hour chart's Slow Stochastic, which demonstrates that this pair may actually be range trading with clear ups and downs. Buying on lows and selling on highs could be a good move throughout the day.
The recent uptrend has pushed the price of this pair into the over-bought territory on the RSI of the hourly chart, signaling an imminent downward correction. A bearish cross may also be forming on the hourly and daily charts' Slow Stochastic, which would support the notion of a downward move. Going short with tight stops might be a wise choice today.
With relatively flat movement over the past several days, this pair has remained in a range-trading pattern for some time. Most oscillators are giving off neutral indicators, but there was a recent bullish cross on the daily chart's Slow Stochastic, signaling a correction to the sharp downward movement from last week. With the weekly Momentum oscillator still showing an upward direction, going long with tight stops may be a wise choice today.
The Wild Card
This pair's sustained upward movement has finally pushed its price into the over-bought territory on the hourly and daily chart's RSI. Not only that, but there actually appears to be a bearish cross either formed or forming on the hourly, 4-hour, and daily charts' Slow Stochastic oscillators; all this information points to an imminent downward correction. Forex traders have the opportunity to wait for the downward breach and go short in order to ride out the impending wave.
|10:00||EUR||Italian Monthly Unemployment Rate||12.3%||12.4%||12.6%|
|11:00||EUR||CPI Flash Estimate||y/y||0.3%||0.4%||-|
|11:00||EUR||Italian Prelim CPI||m/m||-0.3%||-0.1%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|13:30||USD||Employment Cost Index||m/m||0.7%||0.6%||-|
|14:55||USD||Revised UoM Consumer Sentiment||86.4||86.4||-|
|14:55||USD||Revised UoM Inflation Expectations||2.8%||-||-|