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Tuesday, 18 May 2010
EUR Claws Back Against the USD
Yesterday started as a volatile day in which the EUR/USD pair continued to drop and Crude Oil traded below 70$ a barrel. However, during the New York trading hours, after several economic reports from the U.S. signaled a sustained economic recovery, investor confidence improved. Thereafter the EUR managed to gain back some of its losses and crude oil price ended almost unchanged yesterday.
USD - USD - Dollar Trades Lower Against the EUR
The Dollar lost part of its rally against the Euro and against the pound. Other major counterparts remained almost unchanged during yesterday's trading. The EUR/USD is currently trading near 1.2330. The pair was trading above 1.2400 during yesterday's late session. almost 150 pips higher than its five months record low.
The gains in the Euro came after the TIC report signaled a sustained economic recovery. Thereafter, another report showed home builders are more optimistic about house sales. Normally better than expected reports should strengthen the local currency, in this case the Dollar. However, in the current economic conditions the U.S. is still considered the leader of the global economy. Therefore, as long as positive results continue to arrive from the U.S., investors believe other countries economic conditions would improve including Europe. Consequently, surprisingly good results from the U.S. might actually support other riskier currencies.
Today, traders are advised to follow reports published one hour before New York trading begins. Higher Building Permits data could raise investors' confidence and a higher than expected Producer Price Index (PPI), should support the USD.
EUR - EUR Snaps Bearish Streak
The EUR gained for the first time in a week after reaching its lowest price against the USD since 2006. This might signal an end to the short term rapid decline of the EUR against its major counterparts.
The EUR rebounded against the greenback after reports about the U.S. economy raised confidence among analysts regarding growth. Fears about an economic slow down in Europe are not over yet, but as long as the U.S. economy is still expanding investors' confidence should improve nt in general.
Today traders are advised to continue following new updates regarding the European fiscal crisis. Moreover, plenty of macro data due out should support the Euro if it is better than expected. The main data to watch is the German ZEW Economic sentiment, EUR economic sentiment, and GBP Consumer Price Index (CPI).
JPY - Investors Return to Riskier Assets
The Yen lost some of its value last week after traders returned to buy the Pound and the Euro. The Japanese yen ended yesterday lower against all its major counterparts.
Yesterday's weakness in the Yen was a direct reaction to investors' rising confidence about a global recovery in spite of a possible slowdown in Europe. A report published during the early hours didn't help to support the Yen. The Japanese Tertiary Industry Activity index, which measures demand for services, slipped 3% in March.
As for today, the decline in the Yen is expected to continue against its major counterparts. If macro reports from Europe are more than expected, the pace of the Yen's decline might even increase. The dollar strengthened against the JPY, currently trading at 92.50. The USD/JPY is yet to cross its resistance level at 93, which would signal further Yen weakness.
OIL - Higher in Early Trading Hours Following Last Week's Drop
Crude oil traded below 70$ a barrel during yesterday's trading session. This level has not been reached since December of last year. Oil prices are influenced by the Dollar, similar to other commodities. Therefore any strengthening of the Dollar leads to weaker Crude Oil prices. The positive EUR/USD trading at the end of yesterday supported Spot Crude Oil prices and the commodity is currently trading near $74.
As for tomorrow, Crude Oil will continue to be influenced by the Euro. Traders are advised to follow macro European data releases and later from the U.S. economy. Unless new fears about Europe's fragile economy are published, Crude Oil prices may continue to advance and follow suit with the Euro.
Despite yesterday's correction of the pair up to1.2413, momentum remains behind the dollar. The simple moving averages of 200, 100, 50, 20, and 10 days remain in a perfect order and are downward sloping. This signals a strong trending environment. As such, traders should be short on the pair with a first support located at the swing low on the 4-hour chart of 1.2233.
The downtrend continues and appears to be strengthening as the daily chart shows the ADX indicator rising higher with a reading of 44, indicating a strong trending environment. The 14-day Relative Strength Index is sloping lower and continues to follow a downward sloping trend line. Despite the index floating in the oversold region, traders should stay short on the pair until the RSI breaks above the 30 level. The next support level for the pair rests at 1.4250.
The pair has traded in a wide range the past 48 hours but the appreciation in the pair has been contained by the 4-hour chart's 20-period middle line of the Bollinger Bands. Traders can also see a potential bearish cross forming on the 4-hour chart's Slow Stochastic, indicating the potential for downward movement in the pair. Traders may want to be short with target of 91.75.
The strong uptrend remains intact despite yesterday's declines. The simple moving averages of 200, 100, 50, 20, and 10 days remain in a perfect order and are upward sloping. This signals a strong trending environment. As such, traders should be long on the pair with a first resistance level located at the swing high on the 4-hour chart of 1.1444.
The Wild Card
Spot crude oil is currently trading at the resistance line of $74. Should the commodity fail to break this price level, CFD traders should go short with two price targets in mind. The first is located at the support level of $69.50, and the second target is at the support line of $65.00.