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Thursday, 5 Mar 2009
European Rate Cuts to Determine Today's Market
One of the most important events for forex traders is a decision on short-term interest rates by central banks. Today, not 1, but 2 central banks are set to decrease interest rates by 50 basis points. The European Central Bank (ECB) and Bank of England (BoE) will likely decrease their rates around noon today (GMT), leading to depreciation across the boards for the EUR and GBP. This will no doubt be today's market mover.
USD - Dollar Plunges as Wall Street Rallies
The Dollar fell against most of its major currency pairs in yesterday's trading. The Dow Jones ended up 150 points or 2.5%. The stock market rally in the U.S. was spurred by positive news from China that economic stimulus will be dramatically increased. Stocks also moved on Crude Oil Inventory data showing that U.S. Crude Oil storage decreased by 700,000 barrels, rather than the forecasted increase of 1 million barrels. Additionally, the U.S. reported an increase in demand for Oil, helping increase investors' confidence.
Adding to this positive news, the Treasury Department revealed details of President Obama's housing stimulus plan. To put it bluntly, it seems that investors took Obama's advice and bought some undervalued stocks. This move away from the safe-haven Dollar to riskier assets led to a dramatic decline in the greenback yesterday.
The Dollar fell by over 120 points versus the EUR ahead of today's expected rate cut by the European Central Bank (ECB). The British Pound also recorded some strong gains against the Dollar, with the Pound climbing about 140 points to 1.4155 against the Dollar. This is also ahead of a possible rate cut by the Bank of England (BoE) later today. Against the Japanese Yen, the Dollar actually rose by an impressive 70 points to 99.16, as Japanese investors also flocked to riskier assets yesterday, leading to their stock market to rally as well.
Looking ahead to today, there is a lot of economic news coming out of the U.S. which traders should pay close attention to. Traders are also advised to follow the Interest Rate decisions coming out of Britain and the European Union (EU) around midday as these will no doubt be the market drivers during today's trading.
EUR - EUR Jumps Ahead of Today's Rate Cut Decision
The European currency went bullish against its major currency crosses in Wednesday's trading. This was largely due to the knock-on effects from Wall Street, which saw the American stock market climb by several percentage points. This also led to rallies in Europe. The stock market rallies in both Europe and the U.S. were initiated by a decrease in U.S. Crude Oil inventories, high hopes for China's economy, Obama unveiling a new housing plan, and investors buying undervalued stocks. This in turn led investors to drop the safe-haven U.S. Dollar, and to buy-up riskier currencies such as the EUR and GBP.
The EUR made notable gains against a number of its most important currency pairs in Wednesday's trading. The European currency rose by 130 points to close at 1.2615 vs. the USD. It also rose by an impressive 220 points vs. the JPY to 125.12. The EUR/GBP currency pair ended yesterday's trading virtually unchanged ahead of today's rate cut decision in both Britain and the Euro-Zone and closed at 0.8910. The Pound also made similar gains vs. the USD and JPY. If the media responds positively to the bullish European currencies in early morning news, then the GBP and EUR may further their gains against their main currency pairs and crosses.
Today, there are very important economic news events coming out of Britain and the Euro-Zone. These include the British and Euro-Zone Interest Rate decisions by the Bank of England (BoE) and the European Central Bank (ECB) at 12:00 GMT and 12:45 GMT respectively. British rates are expected to be cut by 50 basis points to 0.50%, whereas Euro-Zone rates are expected to be cut by 50 basis points to 1.50%. If either the Euro-Zone or Britain decides not to cut their respective Interest Rates, then this may help their respective currencies to make significant gains against their main currency crosses within a 3-4 hour period after the announcement.
JPY - JPY Sinks as Safe-Haven Currency Ditched
Forex traders ditched the JPY yesterday as they looked for short-term riskier assets. The Japanese Stock market made massive gains, largely influenced by Chinese Premier Wen Jiabao revealing that China will make drastic moves to push China's economic growth to 8%, rather than the forecasted 6%. This will include possibly doubling the 4 trillion Yuan ($600 billion) stimulus plan. As a result, stocks climbed yesterday. This came about as the weaker Japanese Yen encouraged confidence on stocks that were highly correlated with exports. The JPY's bearish behavior yesterday actually came as a relief for the Japanese government, as the Yen has gone from strength to strength against its major currency counterparts since the beginning of the global financial crisis, which has hurt Japanese exports.
The Yen fell by 70 points against the Dollar to close at 99.16. Against the EUR, the Yen plummeted by a dramatic 220 points to close at 125.12. Japan's currency also declined vs. the Pound by a massive 240 points to close at 140.39. The JPY may slide further today, owing to negative economic data that came from Japan last night revealing that Capital Spending declined more than forecast to -17.3%. This may push forex traders away from the Yen, and to other currencies, as Japan's economy worsens.
Oil - Crude Oil Soars to $45 a Barrel
Crude Oil prices soared by an impressive 9% in yesterday's trading to close at $44.90 a barrel. This advance in the black gold's price came about as U.S. Crude Oil Inventory figures, which were released yesterday, showed that storage decreased by 700,000 barrels rather than the forecasted 1 million barrel increase. In addition, Crude prices were also helped by reports that demand from the U.S. for oil increased as of late. This led many investors to the conclusion that the U.S. may already be starting to recover from recession. This comes about as the U.S. showed some mixed figures yesterday.
The other factor which helped spur the Crude prices yesterday was positive news coming from China that they may double their stimulus plan and increase investments in infrastructure and manufacturing. The result of this was a dramatic increase of commodity prices, such as Crude Oil. Only time will tell if prices are able to hit $46 by the end of trading today. A release of a string of positive economic figures could support this price level. Therefore, traders are advised now to make some profits as the price of Crude Oil is set to remain volatile in the short-medium term.
This pair appears to be consolidating towards the center line of the Bollinger Bands on all charts, indicating a lack of direction. However, the recent bullish cross on the daily chart's Slow Stochastic signifies that a bullish correction may take place in the nearest future. Going long might be the right choice today.
The Bollinger Bands on the hourly and daily charts appear to be tightening in anticipation of a volatile movement. With the recent bearish cross on the 4-hour chart's Slow Stochastic oscillator, the impending movement may be a downward correction. Going short with tight stops might be the right choice today.
The 4-hour chart's RSI oscillator is currently floating in the over-bought territory. The chart also shows a bearish cross on the Slow Stochastic, suggesting that the bullish trend is losing steam and a bearish correction is impending. This notion is also supported by the daily chart's RSI oscillator which is currently floating in the over-bought region. Going short looks to be a good option for the day.
The hourly chart shows the pair range trading between the 1.1750 and 1.1710 levels; however, there appears to be a bearish cross on both the hourly chart as well as the daily chart's Slow Stochastic, signaling a continuation of the correction to the up-trend seen the past few days. Setting short positions with tight stops might be the right choice today.
The Wild Card
The price of this commodity appears to be floating in the over-bought territory on the 4-hour chart's RSI, signaling a downward correction may be imminent. The recent bearish cross on the 4-hour chart's Slow Stochastic supports this notion. Entering an early short position on Crude Oil may help forex traders earn substantial profits today as they ride out the impending downward movement.
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