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Thursday, 6 Aug 2009
European and British Interest Rate Announcements on Tap
The Bank of England (BOE) and the European Central Bank (ECB) are set to release their policy statements regarding short-term interest rates at 11:00 and 11:45 GMT respectively today. These announcements always generate heavy market volatility and forex traders should be on guard today, ready to capture these fantastic money-making opportunities!
USD - Greenback Dives on Bullish Equities
The U.S. Dollar fell on Wednesday toward its lowest point this year versus the EUR, giving up gains stemming from a decline in U.S. equities and a disappointing report from the U.S. services sector. The Dollar drifted sideways against the EUR, which was steady from late New York on Tuesday at $1.4411. The USD also fell 0.2% against the Japanese yen to 95.02 from 95.25 yen on Tuesday.
The greenback has slid broadly since March as riskier assets, such as equities and commodities, rallied on improving economic data, eroding demand for the safe-haven USD. The Dollar's inverse relationship with investor appetite for risky assets has reasserted itself in recent weeks, analysts have said. The USD has also lost ground as equities posted a strong global rally and investors rushed into assets perceived as more risky.
Recent manufacturing data from the United States and China has spurred investors to sell U.S Dollars and invest in riskier currencies and assets, as did a smaller-than-expected contraction in the U.S. economy in the 2nd quarter. But the trend to sell the Dollar on the view that the worst of the world recession is over has become quite deeply rooted, making it tough for the Dollar to rally much.
EUR - EUR Little Changed Ahead of ECB Rate Decision
The EUR extended last week's advance against the Japanese yen as retail sales in the 16-nation Euro-Zone rose 0.3% in June following a 0.4% decline in May. The EUR and Sterling were up slightly vs. the Dollar for the day, as investors awaited policy decisions by the European Central Bank (ECB) and the Bank of England (BOE) on Thursday. Late Wednesday, the EUR was little changed at $1.4414 but earlier rose to $1.4446, its highest level sine December.
The British pound climbed to a 9-month high against the Dollar after services and manufacturing reports added to evidence that the recession is easing and Lloyds Banking Group Plc. said provisions for bad loans peaked. The U.K. currency climbed 0.4% to $1.7008, the strongest level since Oct. 21. The Pound also advanced 0.4% vs. the EUR to 84.75 pence.
Next up for currency investors are today's policy decisions from the BOE and ECB. The European Central Bank (ECB) appears certain to keep its Interest Rate at a record low of 1% as it waits to see the impact of efforts so far to revive the economy and credit flows.
JPY - Yen Falls for First Time in 3 Days
The Japanese yen fell for the first time in 3 days versus the EUR and the Dollar as Asian stocks advanced on speculation Japanese companies will report stronger earnings, reviving demand for higher-yielding assets. The yen weakened to 136.96 per EUR from 136.79 yesterday. Japan's currency also fell to 95.05 per Dollar from 94.97.
Japan's currency weakened against 14 of its 16 major counterparts after a Japanese report showed domestic investors bought more foreign equities than they sold for a 7th week, suggesting a return of the carry trade.
However, losses in the Yen may be tempered after U.S. reports yesterday added to doubts the recession in the world's largest economy is easing, boosting demand for Japan's currency as a refuge.
Crude Oil - Crude Oil Boosted by Dollar's Weakness
Crude Oil ended higher Wednesday, reversing earlier losses late in the session, as investors focused on Dollar weakness and shrugged off a government report showing a rise in inventories. Energy markets have been looking to broader economic data for signs of an end to the recession and a potential rebound in Oil demand.
Optimism has helped lift Crude from below $33 a barrel in December, well off record highs near $150 reached in July 2008. Further support has come from a series of output reductions agreed to by the Organization of the Petroleum Exporting Countries (OPEC) last year.
Crude prices were also bolstered by a drop in U.S. distillate inventories and optimism that a slowdown in U.S. private job losses in July could signal a gradual turnaround in the economy. The Dollar weakness has been supportive for Oil prices; and as a result of the USD's new lows, a further increase in Oil prices above $74 a barrel seems almost inevitable.
This pair's flat range-trading continues despite technical indicators. With bearish crosses on the hourly and 4-hour MACD, as well as on the daily Slow Stochastic, the impending movement appears to be bearish. Waiting for the downward breach and then jumping in as early as possible may be the best strategy today.
The price of this pair appears to be floating in the over-bought territory on the daily RSI, indicating downward pressure. The bearish crosses on the hourly and 4-hour MACD, and the daily chart's Slow Stochastic supports the notion that a downward movement may be imminent. Going short with tight stops may be today's preferable strategy.
This pair appears poised for a volatile movement as all indicators point to neutral and the Bollinger Bands on the 4-hour and daily charts are beginning to tighten. The mid-term volatility of this pair will likely hold it inside its current range-trading pattern. As such, buying on lows and selling on highs would be a wise choice today.
There appears to be fresh bullish crosses on the hourly and 4-hour MACD, and the daily chart's Slow Stochastic, highlighting an impending bullish movement. Going long could be a sound strategy.
The Wild Card
The Bollinger Bands on the 4-hour chart appear to be tightening, signaling an impending volatile movement. With the price cascading down from the over-bought territory on the daily chart's RSI, and a fresh bearish cross on the daily Slow Stochastic, this pair seems poised for a sharp drop in value today. The doji candlestick formation on the daily chart supports this notion. Forex traders should try to not miss out on this great opportunity and begin placing their short positions on this pair as soon as possible.
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