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Tuesday, 9 Nov 2010
European Debt Concerns Drag EUR, Equities Lower
The debt concerns to arise from the euro zone over the past few trading days has put some downward pressure on the 16-nation single currency and reduced demand for other high-yielding investments. After Ireland opened its books to the European Union, worries began to grow that some governments throughout the region may struggle to pay off debts; this in turn has dampened demand for the region's assets.
USD - US Dollar Gaining Ground as EUR Dips from Debt Woes
The US dollar appears to still be gaining ground this week on last Friday's optimistic Non-Farm Payroll data. With a surge in employment rearing its head at such a crucial point for the USD; it appears now like the greenback is beginning to regain some much needed support.
Against the EUR, the buck has been performing better than against most other currencies. The EUR/USD cross fell from its recent high around 1.4270 to now sit just below 1.3960. Against the British pound, the dollar also gained roughly 150 pips to trade near the 1.6140 mark. The USD/JPY also saw a minor boost Friday as the pair jumped to as high as 81.49 before coming back down somewhat and finding stability in yesterday's market near the 81.00 price level.
The US dollar will be strangely absent from the economic calendar today with most market news centering on Britain. The UK will publish two impacting reports: manufacturing production and the British trade balance figures.
On the other hand, the US IBD/TIPP Economic Optimism gauge will be published today and may show some movement towards an optimistic reading. Above the 50.0 line on this report represents market optimism, below represents pessimism. The forecast is for a continuation of the pessimism of previous readings, but after last week's NFP data, there is a chance that this figure could read higher than expected and drive the USD slightly higher.
EUR - Irish Debt Concerns Weigh on EUR Strength
The debt concerns to arise from the euro zone over the past few trading days has put some downward pressure on the 16-nation single currency. After Ireland opened its books to the European Union, worries began to grow that some governments throughout the region will struggle to pay off some debts, which have dampened demand for the region's assets.
The EUR fell against the US dollar to recent low of 1.3940 as of this morning. The euro zone currency doesn't seem to be fairing too well against other major currencies either. The EUR/JPY fell as much as 1.2% to trade near 112.00, while the EUR/GBP declined towards the 0.8600 price mark, which it reached earlier this morning.
With only a handful of minor news events expected from the euro zone today, there is little chance the currency will find support in today's trading. However, Britain will be publishing its measure of manufacturing output today at 9:30 GMT and may end up adding support for a stable pound.
JPY - Has the Japanese Yen Peaked?
Japanese stock indices experienced rapid growth yesterday as the yen finally began to weaken against the US dollar. Following the Federal Reserve's announcement to implement the quantitative easing program, known as QE2, the lagging market began to pick up momentum. The boost in confidence for riskier assets helped to put much-needed sell pressure on the yen.
The USD/JPY climbed towards 81.50, a price not seen for over a week, but appears to be correcting downward somewhat as of this morning. Outlook for the yen remains bearish as Japanese equities gain in value. The Nikkei 225, which had been lagging behind other equities on concerns over the strengthening yen's impact on exports, was trading roughly 1.1% higher yesterday, outpacing most of its counterparts. If QE2 has the positive effects expected, we could be seeing the beginning of a turning point for the yen.
Crude Oil - If USD Recovers Resulting from QE2, Oil Prices Should Fall
Crude Oil prices appear to have stabilized in a range-trading pattern between $86.00 and $87.50 a barrel. Rising demand from China may have had a hand in oil's recent rises, but a wider global recovery has created the conditions for a steadily climbing price of crude.
However, Saudi Oil Minister Ali al-Naimi stated in Singapore recently that oil prices appear to have found their comfort zone between $70 and $90 per barrel. If the US dollar becomes resurgent as the EUR falls, then chances are we could see a diminished price of oil in the coming trading days. Depending on the length and duration of the USD's short-term recovery, oil prices could fall to as low as $80 a barrel over the course of this week.
The price of this pair appears to have recently entered the over-bought region on the weekly RSI, suggesting impending sell pressure. A recent bearish cross on the weekly Stochastic (slow) and daily MACD both support this notion. Going short may turn out to be a wise choice on this pair today.
A fresh bearish cross on the daily Stochastic (slow) seems to suggest that a downward corrective move is imminent. An impending bearish cross on the daily MACD adds weight to this assessment. Going short with tight stops appears preferable.
There appear to be a series of bullish crosses on the daily MACD, highlighting an increase in buy pressure on this pair. A fresh bullish cross on the weekly Stochastic (slow) supports this notion. Today's preferred strategy may see this pair turning a corner with a recommendation for going long.
This pair appears to be testing a significant support level at 0.9650. With the price in the over-sold region of the weekly RSI, and a fresh bullish cross on the daily Stochastic (slow), indicators appear to suggest that a breach of this support line will likely not occur today. Going long on the bounce may be a smart tactic today.
The Wild Card
Gold prices shot up to record highs recently, peaking over $1,410 an ounce. However, this unnaturally sharp spike has pushed most technical indicators into a corrective posture. The price is over-bought on the daily and weekly RSI, while there appear to be fresh bearish crosses on the daily and weekly Stochastic (slow) and MACD. Forex traders have a chance to capture this downward correction at its peak, granting the unique opportunity to make healthy profits with short intraday trades.