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Wednesday, 31 Mar 2010
Euro Trading Lower on Financial System Worries, Positive U.S. Consumer Confidence
The Dollar rose versus the EUR, but was mixed in the other major crosses after renewed concerns over the European banking system weighed on the EUR and other riskier, higher yielding currencies.
USD - Higher U.S. Consumer Confidence Boosts the Dollar
The greenback rose versus the EUR but was mixed against the majors during the New York trading session, reclaiming most of the ground it lost to the EUR after the release of the Greek bailout package. Triggering the rising Dollar was a warning by Standard & Poor's that the weak Greek banking system has been damaged by the fiscal crisis the country is experiencing.
The EUR/USD is currently trading lower at 1.3400 after opening the day at 1.3487, while the GBP/USD was higher at 1.5070, following an opening day price of 1.4997. The USD/JPY was at 93.25 from 92.17.
The Dollar was also supported by better than expected consumer confidence numbers. U.S. CB Consumer Confidence was released with an output of 52.5, far above economists' expectations of 50.1. This leads economists and traders to believe that the U.S. economy may begin to pick up steam in the near term, recovering faster than its European counterpart.
Today's trading should be largely driven by economic data set to be released. The highlight will be the release of the ADP Non-Farm Employment Change. The report is set to be released at 13:15 GMT with expectations of an additional 40K jobs to the U.S. economy. A release on par with market expectations or one that exceeds the forecast could push the EUR/USD lower to its previous low at 1.3266.
EUR - Banking Fears Weigh on the Euro
The EUR slumped following a brief recovery in the 16-nation currency. Weakening the EUR was not only the warning from S&P concerning the health of the Greek banking system, but also a decision by Ireland to inject billions of euros into the ailing Irish banking system and a reduced growth forecast by the International Monetary Fund (IMF) for Germany.
The plan to aid the struggling Irish banking system, dubbed by the Irish press as Bailout Tuesday, the Irish government would seize two banking institutions, inject funds into struggling banks and take control of troubled assets at other lenders. Irish finance experts have called this the nationalization of the Irish banking system. In total, 8B euros will be used to support Irish banks. This does not include another 2.7B euro private investment that will be needed to bring Irish banks up to their needed capitalization standards.
Adding to Europe's woes was a reduced forecast for German economic growth by the IMF. The forecast was dropped to 1.2% from 1.5%.
Interestingly enough, it appears the U.S. is putting more distance between itself and Europe as the major U.S. banking institutions are recovering and returning to profitability while European financial institutions continue to require fresh government aid. This may be reflected in the recent loss of value in the EUR.
JPY - Australian Retail Sales Disappoint, dropping the AUD/USD
The Australian Dollar weakened in the early morning hours of the trading day after the release of Australian economic data failed to meet market expectations. Retail sales for the month of February disappointed traders with numbers coming in at -1.4% on expectations of a rise of 0.3%. This sent the AUD/USD to a low of 0.9144 from an opening day price of 0.9187.
The unexpected drop in retail sales may be a signal that the recent interest rate increases by the Reserve Bank of Australia are beginning to cool the Australian economy. The overnight cash rate was increased by 25 basis points to 4% this past month.
Consumer spending makes up roughly one half of the Australian economy. Therefore, the sudden plunge in retail sales may be enough to convince the Reserve Bank of Australia to keep interest rates at their current level when the policy board meets next week. This should have a weakening affect on the Australian Dollar. The next major support level for the AUD/USD rests at 0.9000.
Crude Oil - Spot Crude Oil Trading Rises
Spot Crude Oil traded higher for the second consecutive day after better than expected consumer confidence numbers, though the gains in spot Crude Oil prices were held in check by a stronger Dollar. The rising prices are prior to the release of the weekly Crude Oil inventory reports.
Spot Crud Oil prices finished the day higher at $82.36 following an opening day price of 82.18. This follows the 3% price rise during Monday's trading.
Traders were being cautious after Monday's $1.70 jump in the price of spot Crude Oil, wondering if the price move was based only on technical movements or a shift in the fundamentals of the commodity. The price broke a short term resistance line of $81.50, though the $83 price level still holds for the long term resistance.
Today the market will be expecting the weekly Crude Oil inventories report from the U.S. Energy Information Agency and could either extend the gains in the commodity or drop the price towards its lower support levels. Economists are expecting Crude Oil inventories to rise 2.4M barrels following last week's 7.3M barrel increase. An output below the 2.4M estimate could be a positive for spot Crude Oil prices and may help extend the bullish rally to the $83 resistance level by the end of the trading day.
The 2 hour and daily RSI are floating near the oversold territory indicating an impending upward movement. A bullish cross is evident on the 4 hour chart's Slow Stochastic. Going long for the day may be advised.
The 2 hour and 4 hour RSI is floating in the overbought territory indicating an imminent downward movement. Furthermore, a bearish cross is evident on the 8 hour chart. Going short for the day may be a good option.
The 2 hour, 4 hour and daily RSI are floating in the overbought territory, while a bearish cross is evident on the hourly, 4 hour and daily charts' Slow Stochastic. Furthermore a breach of the upper Bollinger Band is evident on the 2 hour, 4 hour and daily charts. Going short for the day may be advised.
The pair's indicators seem to be floating in neutral territory with the pair range trading between 1.0650 and 1.0690, however, a bearish cross is evident on the 4 hour chart's Slow Stochastic and the 2 hour chart's RSI is floating near the overbought territory. Going short with tight stops may be advised for today.
The Wild Card
A breach of the upper Bollinger Band is evident on the daily chart with the 2 hour, 4 hour, 8 hour and daily RSI are floating in the overbought territory. A bearish cross is evident on the 8 hour and daily charts' Slow Stochastic. Forex traders may be advised to go short for today.
|01:00||EUR||German Prelim CPI||m/m||0.9%||-||-|
|01:00||EUR||Italian 10-y Bond Auction||1.36|1.5||-||-|
|01:50||JPY||Prelim Industrial Production||m/m||3.7%||-||-|
|09:00||CHF||KOF Economic Barometer||90.1||-||-|
|09:00||EUR||Spanish Flash CPI||y/y||-1.1%||-||-|
|10:30||GBP||Net Lending to Individuals m/m||m/m||2.4B||-||-|
|10:30||GBP||M4 Money Supply||-0.8%||-||-|
|14:30||USD||Core PCE Price Index||m/m||0.1%||-||-|
|16:00||USD||Pending Home Sales||m/m||1.7%||-||-|