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Wednesday, 16 Jun 2010

Euro Continues To Strengthen Against the Dollar as Risk Appetite Grows

After several weeks in which the Dollar appreciated repeatedly against the Euro, the Euro is showing its first signs of recovery. The rising risk appetite in the market is the main reason for the strengthening Euro, but will it continue?

EUR/USDGBP/USDUSD/JPYUSD/CHFAUD/USDEUR/GBP
Daily Trendupnodownupnoup
Weekly Trendupupdowndownupno
Resistance1.24251.492592.301.14200.87350.8415
1.23851.488092.001.13800.87000.8380
1.23551.484091.751.13450.86750.8350
Support1.23001.477591.101.12750.86000.8295
1.22701.473090.751.12450.85750.8265
1.22301.469590.401.12100.85150.8210

Economic News

USD - Dollar Weakens As Risk Appetite Soars

The Dollar tumbled against most of the major currencies during yesterday's trading session. The Dollar fell to a two-week low vs. the Euro, dropping almost 200 pips in one day. The Dollar weakened against the Pound as well.

Global stocks continued to rally today and in turn are pressuring the dollar. The advance in global markets is increasing risk appetite and as a result turns investors to look for riskier assets, such as the Euro and the Pound. It seems that investors are under the impression that the European markets will recover, and are trying to take advantage of the weak Euro.

In addition, several economic indicators were published yesterday from the U.S. economy. The most significant publication was the Long-Term Purchases report. The report showed that demand for U.S. assets has increased more than forecasted. The expectations were for a $77.3B increase, yet the end result showed that demand for U.S. assets has increased by $83.0B. The positive data has also contributed to the higher risk-appetite, and as a result weakened the Dollar further.

As for today, a batch of data is expected from the U.S. economy. The most important news publications look to be the Buildings Permits and the Producer Price Index (PPI), both expected at 12:30 GMT. Analysts have forecasted that the Building Permits have increased by 0.63M on May. If the end result will be similar, it might support the Dollar. However, this will have a muted impact on the market, if the PPI will reach expectations and drop by 0.5%. Such a result will show that the U.S. economy might be recovering in a slower pace than expected, and as a result the Dollar recover from yesterday's price move.

EUR - Euro Rallies as Stocks Continue To Rise

The Euro continued to strengthen yesterday against most of the major currencies. The Euro rose to a 2-week high against the Dollar and the EUR/USD pair is currently trading above the 1.2300 level. The Euro saw gains vs. the Pound and the Yen as well.

The Euro rallied today as gains in global markets increased the demand for riskier assets. The current global sentiment is that the Euro-Zone will manage to recover from the debt crisis and that the worst of it is behind us. This has increased risk-appetite and has influenced investors to open long positions on the Euro. It currently seems that as long as global markets will continue to show positive signs, the Euro is likely to strengthen in accordance. In addition, every positive data regarding the Euro-Zone's debt crisis is likely to have a positive affect on the Euro as well. Rising stocks have such a strong impact on the market that the disappointing German ZEW Economic Sentiment had no affect on the market. The report dropped to 28.7 points from 45.8 on May, failing to reach expectations for a 48.7 result.

Looking ahead to today, many interesting economic publications are expected from the Euro-Zone. The most significant data seems to be the Consumer Price Indices (CPI). Analysts have forecasted that the European CPI will by 1.6% in May. If the end result will be similar, the Euro is likely to strengthen as a result. Traders are also advised to follow global stock markets, and to take under consideration that if the positive trend will continue, the Euro is likely rise as well.

JPY - Yen Drops against the Majors; BOJ Leaves Rates At 0.10%

The Yen fell against all the major currencies during yesterday's trading session. The Yen lost about 200 pips against the Euro and about 150 pips against the Pound. The Yen dropped against the Dollar as well.

The main reason for the Yen's slide is the higher demand for riskier assets in the market. Over the past two days stock markets around the globe have rallied, and as a result risk-appetite has increased. The Yen is considered to be a relatively safe asset, and as a result, the higher risk-appetite has turned investors to close their long positions on the Yen.

The Bank of Japan (BoJ) has decided to leave Interest Rates at 0.10%, the lowest level in the industrialized world. One of the main reasons that the BoJ keeps low Interest Rates is to weaken the Yen in order to support Japanese exports.

As for today, traders are advised to continue following global stock markets as they seem to have a large impact at the moment. If stocks will continue to rally, the Yen might see further bearishness.

OIL - Crude Oil Rises Above $77 a Barrel

Crude oil rose for the third consecutive day. Crude oil started yesterday's trading session at $74.60 a barrels and gained about 250 pips. Crude oil is currently trading above $77 a barrel.

Crude oil has strengthened yesterday as gains in U.S. equity markets have created speculation that demand for fuel will increase. The Euro-Zone's debt crisis had a negative affect on oil as investors feared that the European economies will reduce their demand for energy. However, recently trader's concerns are easing and in addition to the rising equities, investors feel that demand for oil will increase. It currently seems that as long as equity markets will rise, crude oil is likely to gain as well.

As for today, traders are advised to follow the U.S. Crude Oil Inventories report. This report measures the change in the number of barrels of crude oil held in inventory by commercial firms during the past week. If the end result will be negative, crude oil has potential to rise further.

Technical News

EUR/USD

The pair appears to be correcting the long term bearish trend that has taken place since November, 2009. As such, major technical indicators are showing the pair is overbought, including the daily chart's 10-day Momentum. A bearish cross also appears to be forming on the Slow Stochastic oscillator. Despite the technical signals, the pair is testing 1.2350 resistance level. A breach of this significant resistance level could propel the pair higher to the next resistance line which rests at 1.2520.

GBP/USD

Yesterday the pair breached the significant resistance level at the price of 1.4780 but failed to move above the 1.4840 resistance level. However, the pair did close above the 50-day Simple Moving Average line. Further bullishness in the pair would make the next price target at the resistance line that rests at 1.5040.

USD/JPY

The pair continues to consolidate between the support level at 90.80 and the resistance level at 93.00.The 4-hour chart shows a tendency to the downside as the pair failed to close above the Bollinger Band's 20-period moving average line. The chart's Relative Strength Index is also moving lower, indicating a downward trend. Traders may want to go short and target the support level at 90.80.

USD/CHF

The current bullish trend on the daily chart is being tested near the price level of 1.1300. We would like to see a bounce higher off of this big round number towards the 10-day Simple Moving Average that has been acting as a resistance level since June 9th.

The Wild Card

Gold

The price has fallen since a new all-time high was set in the price of spot gold at $1251.76. However, the drop in the price has been held in check by the commodity's inability to breach below the 20-day Simple Moving Average. This may provide CFD traders a good point for an entry into the bullish trend of spot with a target at the $1251 resistance level.

Current Time: 09/23 11:42 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
09/23
13:30CAD+ NZD Core Retail Sales 1.5% 0.4%-5
13:30CAD+ Retail Sales m/m1.5%-0.1%-3
13:30CAD+ Retail Sales m/m1.1% -3
14:00USD+ HPI 0.4% 0.4%-1
14:45USD+ Flash Manufacturing PMI57.958.1-1
15:00USD+ Richmond Manufacturing Index12 10-1
19:00USD+ FOMC Member Kocherlakota Speaks***3
23:45NZD+ Trade Balance-692M -1125M-5
09/24
01:00AUD+ CB Leading Index m/m0.4%--3
02:30AUD+ RBA Financial Stability Review***1
02:35JPY+ Flash Manufacturing PMI52.2 52.5-1
07:00CHF+ UBS Consumption Indicator1.66--1
09:00EUR+ German Ifo Business Climate106.3105.9 -5
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