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Friday, 18 Jun 2010
Euro Continues to Rebound on Successful Spanish Debt Auction; Swissie Soars
Risky currencies performed well yesterday following a successful auction of Spanish bonds that helped to ease fears of the euro zone fiscal crisis, prompting investors to take on riskier positions. The Swiss franc was a big mover after the Swiss National Bank declared it would end its efforts to weaken the currency.
USD - Higher Equities Fuel USD Weakness
The EUR/USD rose to its highest level since May 28th before falling back a bit due to weakness in U.S. equities. Traders were motivated to take on further risk following a successful auction of Spanish debentures earlier in the day. But mixed U.S. economic data sank equities as the S&P 500 finished up marginally with a gain of 0.13%.
Dollar weakness was prevalent throughout the U.S. trading session as the EUR/USD traded higher at 1.2392, up from an opening day price of 1.2272. The cable was higher as well, closing up at 1.4817 after opening at 1.4707. The dollar was stronger versus the yen as the USD/JPY traded below the support level of 90.80, only to close at 90.84.
U.S. data was mixed on a news heavy day. Core CPI came in as forecasted at 0.1%. The current account was better than expected, coming in lower at -109B on expectations of -120B. However, weekly unemployment claims were higher than expected at 472K on forecasts of only 452K. The Philly Fed Manufacturing Index was also significantly lower at 8.0 with a forecasted value of 21.1.
The calendar is lacking any major economic data releases for today's trading. As such, traders will want to follow the movements of the major equity indices as the dollar has recently been trading in an inverse relationship to equities. Strength in stocks could propel the EUR/USD to its next resistance line which rests at 1.2450.
EUR - Swissie Strengthens After Swiss Bank Policy Shift
The Swiss franc was in the spotlight yesterday following an announcement by Swiss National Bank (SNB) Chairman Phillipp Hildebrand that the current expansionary monetary policy in not feasible over the long term horizon without compromising long term price stability. Deflationary risks have all but dissipated and growth forecasts have risen to 2.0% from 1.5%.
This effectively ends the intervention in the currency markets by the SNB. The SNB has been artificially weakening the Swissie by buying euros on the inter-bank market. This has been done to support export activity Switzerland.
Following the announcement, the USD/CHF tumbled below its most recent rising trend line, falling to a low of 1.1094. The EUR/CHF also fell sharply yesterday but the decline in the pair was held in check at the 1.3740 support level, close to the pair's all-time low.
The euro was supported by yesterday's successful auction of Spanish debentures. Strong demand was seen for the 10-year and 30-year bonds, but the sale was accompanied with significantly higher yields. This is due to the fiscal crisis in the euro zone.
The successful bond auction helped to boost the euro yesterday as the currency continues to recover from its lowest level versus the dollar in 4 years. Despite the recent appreciation of the euro, the currency remains fundamentally weak in the long term.
JPY - Yen Reaches Key Support Level at 90.80
The Yen was mixed versus the majors yesterday, advancing against the dollar and the euro, but falling against the pound. Much of the movements in the currency can be attributed to traders taking on greater risk in the forex market. As traders become more comfortable with the market's stability, traders move into higher yielding currencies and sell safe havens such as the yen.
Following the successful auction of Spanish bonds and a rise in equities, traders sold the yen. Weak U.S. unemployment numbers also helped to strengthen the yen versus the dollar.
The USD/JPY traded below the recent support level of 90.80, only to close at 90.84. The EUR/JPY was higher, trading at 112.54, up from an opening day price of 112.71, while the GBP/JPY was up at 134.62 after opening at 134.18.
Now that the USD/JPY has reached the support level at 90.80 but failed to close below this price, we may see the pair bounce back up towards its next resistance level at 93.00.
Crude Oil - Spot Crude Oil Falls on Mixed U.S. Economic Data
The price of spot crude oil declined yesterday for the second day in a row following mixed U.S. economic data. Spot crude oil prices ended the day at $76.57, after an opening day price of 76.93.
U.S. Core CPI came in as forecasted at 0.1%. The current account was better than expected, coming in lower at -109B on expectations of -120B. However, weekly unemployment claims were higher than expected at 472K on forecasts of only 452K. The Philly Fed Manufacturing Index was also significantly lower at 8.0 with a forecasted value of 21.1.
Recently spot crude oil prices have been taking cues from the equity markets. Yesterday's minute gains in the S&P 500 highlight this type of market behavior. With an absence of economic data on today's calendar, traders should be following the performance of the major equity indices to identify the daily trend of spot crude oil prices. A break of the $78.10 resistance level will put the price of spot crude oil above the 200 day moving average.
There is a bearish cross forming on the daily chart's Slow Stochastic indicating a bearish correction might take place in the nearest future. The downward direction on the 4-hour chart's Slow Stochastic also supports this notion. When the downward breach occurs, going short with tight stops appears to be preferable strategy.
The pair has recorded much bullish behavior in the past several days. However, the technical data indicates that this trend may reverse anytime soon. For example, the 4-hour chart's Stochastic Slow signals that a bearish reversal is imminent. . Going short with tight stops might be a wise choice.
The pair currently sits near the bottom border of the daily chart's RSI, suggesting an upward correction may be imminent. The upward direction on the 4-hour chart's Momentum oscillator also supports this notion. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
The USD/CHF cross has experienced a bearish trend for the past 2 weeks. However, it seems that this trend may be coming to an end. The RSI of the daily chart shows the pair floating in the over-sold territory, indicating that an upward correction will happen anytime soon. Going long with tight stops might be a wise choice.
The Wild Card
This pair's sustained upward movement has finally pushed its price into the over-bought territory on the 4-hour chart's RSI. Not only that, but there actually appears to be a bearish cross on the Slow Stochastic pointing to an imminent downward correction. Forex Forex traders have the opportunity to wait for the downward breach on the hourlies and go short in order to ride out the impending wave.
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