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Monday, 15 Dec 2008
EUR Surges over 5% on the Dollar this past Week
The EUR made huge gains last week against the Dollar with the largest showing made on Friday. These gains may signal a reversal to the Dollar's rise in recent months.
USD - USD Suffers one of its Worst Trading Weeks
Last week was an exceedingly bearish trading week for the USD against most of its currency counterparts. With a lot of negative news coming throughout the week regarding the American financial crisis, the USD saw very high volatility. Against the EUR, the USD lost over 650 pips and traded above the 1.34 level; as well as being traded above the 1.49 range versus the GBP.
The negative financial news that came out last week put downward pressure on the USD. As the U.S. Congress failed late Thursday to pass an automotive industry bailout package, the White House assured markets it would try to prevent the car makers' bankruptcy. This helped markets to recover some ground, though the collapse of a proposed bailout for U.S. automakers raised fears of a deeper economic slowdown and further financial shocks that may jeopardize worldwide efforts to ease a global recession.
The economic indicators that were released last week also helped to drive the USD's bearishness. Trade Balance, PPI, Unemployment Claims all posted numbers worse than forecasted.
Looking ahead to this week, we can expect some volatility as we await several key US figures. Highlighting this week will be the U.S. Unemployment Rate, Building Permits, Core CPI, Crude Oil Inventories, and the FOMC Interest Rate Statement. As an impact of the contraction in the nation's economy, analysts are now forecasting the Fed to cut Interest Rates once more to 0.5%, which may provide a boost the value of the greenback. Investors should be attentive to the direction of the USD leading up to tomorrow's rate statement.
Today we await the release of TIC Long Term Purchases, Empire State Manufacturing Index, Capacity Utilization Rate and Industrial Production. All four are expected to be released with less than favorable results and will likely compete with rising oil prices to determine the direction of the USD.
EUR - EUR Rallies 5% against the Dollar
The EUR posted perhaps its strongest week in its short history against the Dollar as it took advantage of U.S. bearishness and also was driven by its own economic data releases. The EUR was bullish against all of its currency counterparts. Most notable was the rebound of the EUR/USD cross that traded above the 1.34 range.
A string of negative economic indicators showing a stifling U.S. recession and a failed automaker bailout package propelled the EUR. However the EUR provided positive data of its own. There were few data releases this past week from the Euro-Zone, but from the data that was released, most beat their forecasts. The three which were the most important were German ZEW Sentiment, ZEW Economic Sentiment and German Industrial Production, as each sparked part of the EUR's week long rally. It was also interesting to see how rising Crude Oil prices went hand-in-hand with the bullishness of the EUR.
Sentiment in the Euro-Zone economy has brightened the past week following better-than-expected news. The EUR is showing signs of resilience even though there was volatility throughout non-Euro crosses. It will be crucial for traders to identify how the preceding economic indicators from the U.S., European and Japanese economies will affect their positions.
Looking ahead, traders will be determining if the rally we saw in the EUR can be sustained. Profit taking from the previous weeks surge may have a limited impact the recent rally. Look for the EUR/USD compound its gains, searching for a ceiling at the 1.3600 level.
JPY - Yen Surges to 13-Year High; Damages Japanese Exports
The JPY's 17% gain against the dollar since September has lowered the value of overseas sales and undermined the competitiveness of Japanese cars, cameras and televisions. The Yen's surge to a 13-year high last week has compounded woes for Japan's manufacturers who are already reeling from a collapse in export markets. Layoffs by companies including Sony and Toyota have brought the recession to Japanese households and increased the risk of a prolonged economic slump.
Sentiment among Japan's largest manufacturers fell the most in 34 years, signaling companies are likely to cancel spending plans and cut more jobs, pushing the economy further into recession.
This week Japan will release various indicators which will likely contribute to trading volatility in JPY pairs. However, traders should pay closer attention to the Bank of Japan's (BoJ) press conference and Monetary Policy Meeting this week for any hawkish indicators from Japanese officials, as they could define the JPY's direction this week more than the economic indicators.
Oil - OPEC's Production Cut and a Weakening Dollar Increase Price of Oil
Crude Oil prices rose this past week as signs that the Organization of Petroleum Exporting Countries (OPEC) may begin to cut output from 2-2.5 million barrels a day in order to stabilize prices. Reducing Crude Oil output will be heavily debated as a possible way to increase Crude Oil's price in the last month of 2008.
Prices rose 13% last week as talks on the U.S. auto bailout progressed, pushing the USD to recent highs, and Saudi Arabia, the biggest oil producer in OPEC, said it has already begun cutting production. The group will review output again when ministers meet in Algeria on Dec. 17. Traders may look for another rise in value, potentially reaching into the $45-$50 range before the day's end if this trend continues.
A bearish cross on the hourly chart's Slow Stochastic implies that a downwards correction might take place in the nearest time frame. The 4-hour chart's RSI is floating in the overbought zone suggesting that the upward trend might be out of steam. The daily chart's RSI also supports this notion. Going short with tight stops appears to be the right strategy today.
There is a bearish cross on the hourly chart's Slow Stochastic and the pair appears to be floating in the overbought zone on the RSI indicating a correction to the recent bullish trend. The current price level also has the pair floating near the Bollinger Bands' upper border on the hourly chart, signifying that the uptrend may meet some resistance in the near future. Going short might be the right choice today.
It appears that the bearish trend may have run out of strength as the current price level has dropped the pair into the under-bought territory on the daily chart's RSI. The pair also currently sits near the bottom border of the daily chart's Slow Stochastic, suggesting a correction may be imminent. Going long with tight stops may be the correct strategy today.
There was a violent breach of the Bollinger Bands' lower border on yesterday's daily chart, indicating a bullish correction may take place in the near future. In support of this, the pair also floats in the oversold zone on the hourly chart's RSI. Going long with tight stops might be a good strategy today.
The Wild Card
This commodity is near the beginning of a bearish correction as it appears to be floating in the over-bought zone on the hourly chart's RSI. The recent bearish cross on the hourly chart's Slow Stochastic supports this notion. Forex traders can benefit from this move by selling this commodity and setting tight stops.
|10:30||GBP||Net Lending to Individuals||m/m||4.9B||4.8B||4.8B|
|10:30||GBP||M4 Money Supply||m/m||-1.0%||-0.2%||0.6%|
|11:00||EUR||Italian Prelim CPI||m/m||0.2%||-0.2%||-0.4%|
|16:00||USD||Pending Home Sales||m/m||-2.3%||1.6%||-|
|22:45||NZD||Overseas Trade Index||q/q||1.3%||-2.5%||-|
|23:30||AUD||AIG Manufacturing Index||50.2||-||-|
|USD||Total Vehicle Sales||18.2M||18.0M||-|
|02:35||JPY||Final Manufacturing PMI||52.8||52.8||-|
|04:30||AUD||RBA Rate Statement||-||-||-|
|04:45||JPY||10-y Bond Auction||0.32|2.8||-||-|
|08:00||GBP||Bank Stress Test Results||-||-||-|