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Wednesday, 11 May 2011

EUR Mixed between Debt Woes and Interest Rate Expectations

The EUR was able to hold its recent price against the US dollar as regional investors battled over the direction of the 17-nation common currency. The two ends of the spectrum were represented by those wanting to sell the EUR from weakened fundamentals connected with Greece's downgrade and other debt concerns, and those wanting to hold the euro steady out of an expectation for monetary policy tightening in the ECB's upcoming meeting in May.

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Economic News

USD - USD Down Slightly vs. Majors on Tuesday

The US dollar experienced slightly bearish results yesterday as traders began to seek higher yields for their investments. The result has been for the EUR/USD and GBP/USD to consolidate near Monday's closing price. Against the euro, the greenback was holding near a 3-week low of 1.4350 while against the pound the buck held close to 1.6360.

The US Bureau of Labor Statistics published its import price report yesterday showing healthy growth in goods purchased domestically and imported thereafter. Expectations were for an inflationary ascent of 1.8%, but the actual results came in at 2.2% signifying healthy demand and inflationary growth. Investor's Business Daily (IBD) also released its TIPP Economic Optimism report which revealed movement towards an optimistic stance, but still slightly below the 50.0 reading necessary to signify optimism in business outlook.

For today, the US trade balance is set to be released and any movement deeper into deficit could weigh on the USD's recent downtick, pulling the currency lower against its primary counterparts. The US federal government will also be publishing its budget balance today at 19:00 GMT and like the trade balance figure, a shift deeper into deficit will likely signal a sell-off in the USD later in the day.

EUR - EUR Stable, German Inflationary Reports on Tap

Monday's downgrade of Greece by Standard and Poor's ratings agency from B to BB- has put significant pressure on the euro zone's common currency. The euro was holding near a three-week low versus its primary currency counterpart (USD) yesterday with today's outlook appearing to favor a consolidation movement near the 1.4350 price level.

The EUR was able to hold its recent price against the US dollar as regional investors battled over the direction of the 17-nation common currency. The two ends of the spectrum were represented by those wanting to sell the EUR from weakened fundamentals connected with Greece's downgrade and other debt concerns, and those wanting to hold the euro steady out of an expectation for monetary policy tightening in the upcoming meeting.

As for today, the euro zone will be largely absent from the economic calendar aside from two inflationary figures published out of Germany at 7:00 GMT. Germany's Destatis will be publishing its final CPI reading as well as it wholesale price index (WPI), both of which are forecast to show stable growth. The common currency may gain a little support today, but forex traders are more tuned in to the US federal budget and trade balance.

JPY - JPY Dips against USD, Jumps vs. EUR

The Japanese yen (JPY) has been trading with somewhat mixed results since Friday, with gains made against several currencies and losses elsewhere. After a week of ups and downs, the Japanese yen appears set to take losses today as investors appear to be seeking higher yields. The dominant stance of risk aversion overarching yesterday's environment of optimism has many traders moving towards the yen against the higher yielding currencies like the euro, which dropped to a six-week low during yesterday's afternoon sessions.

However, the yen was slightly lower versus the US dollar as the pair moved up from previous intervention levels near 80.00. The USD/JPY held steady at yesterday's low, finding support near 80.30 and moving up towards 80.90 by today's opening Asian sessions. Japan's leading indicators were published at 6:00 GMT with little surprising information coming out of that report. But in Asian news, most traders will be focused on the slew of reports issued out of China this morning, the industrial production figure foremost among them.

Oil - Crude Oil Prices Higher after Mid-Day Slump

Oil prices rebounded yesterday with the New York Mercantile Exchange session closing just above the $103 price mark. The price for a barrel of Crude Oil felt a sharp sting last week as the US dollar surged against its main currency rival, the euro. The price for a barrel of oil saw its feet pulled out from underneath it and flopped heavily to as low as $94 a barrel by last week's closing. Today's bounce in price, however, may see the price returning to a mark approaching last week's average.

The value of the US dollar versus the euro in recent trading has been holding steady near a three-day high near 1.4350, but oil prices continued to rebound strongly as traders price in an expected boost in consumption as the driving season kicks into high gear in the Northern Hemisphere. Should oil prices persist in their bullish uptick, traders may see some corrective resistance being met near the psychological barrier at $104. Rising USD strength could also help push the value back below $100 a barrel if today's economic calendar events push the pair lower once more.

Technical News


The pair has come off the 6 cent decline and has found support near a short term trend line from the late March lows. The daily stochastics are crossing indicating a bullish signal. Resistance comes in at the January to May trend line at 1.4470, followed by 1.4650. To the downside, Monday's low at 1.4250 could prove to be supportive as well as 1.4150, the 38.2% Fibonacci retracement level from the January to May move.


Monday's price action took the pair close to the 61.8% Fibonacci retracement from the late-March low to the early high in May. Should this level be broken, Sterling could test the 1.6170 support, followed by the trend line rising off of the May 2010 lows which comes in today at 1.6005. To the upside, 1.6430 should serve as initial resistance followed by 1.6600.


Yesterday the dollar bounced higher, only to find resistance near 81.10, a level that coincides with the falling trend line from the April high. Traders may find this a potential opportunity to enter short with stop above the trend line near 81.20 with a target of 78.20, the bottom of a falling wedge pattern on the monthly chart.


Yesterday the pair made a close above the 20-day moving average. The last time the pair closed above this line was early April. Traders may find opportunities to short the pair near the 0.8900 resistance level with a target near the low of 0.8550.

The Wild Card


Spot crude oil prices have rebounded nicely from last week's low of $94.67. The failure of the commodity to close below the $96.20 support level, combined with rising daily stochastics point to further price increases. Forex traders may want to target the initial resistance at $105.20 followed by the May high of $114.80.

Current Time: 11/29 15:34 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
22:45NZD+ Building Consents m/m-5.7%--1
EUR+ German Prelim CPI m/m0.0%--3
00:30AUD+ MI Inflation Gauge m/m0.0%--1
00:50JPY+ Retail Sales y/y-0.2%--3
00:50JPY+ Prelim Industrial Production m/m1.1%--1
01:00AUD+ HIA New Home Salesm/m-4.0%--1
01:00NZD+ ANZ Business Confidence10.5--5
01:30AUD+ Company Operating Profits q/q-1.9%--3
01:30AUD+ Private Sector Credit m/m0.8%--1
06:00JPY+ Housing Startsy/y2.6%--1
09:00CHF+ KOF Economic Barometer99.8--3
10:30GBP+ Net Lending to Individualsm/m4.9B--3
10:30GBP+ M4 Money Supplym/m-1.0%--1
10:30GBP+ Mortgage Approvals69K--1
11:00EUR+ Italian Prelim CPI m/m0.2%--1
14:30CAD+ Current Account-17.4B--3
15:45USD+ Chicago PMI56.2--3
16:00USD+ Pending Home Salesm/m-2.3%--3
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