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Monday, 15 Nov 2010
Euro's Weakness Continues as Ireland Denies Crisis
The euro is currently trading near a 6-week low vs. the dollar amid the Irish debt crisis. Ireland has denied speculation it was seeking an aid package before tomorrow's meeting of European finance ministers. It was also reported that Germany is pressing Ireland to seek aid in an attempt to calm market volatility. The high uncertainty in this matter continues to weaken the euro on all fronts.
USD - Dollar Closes Bullish Week Following Positive U.S. Economic Signals
The U.S. dollar rallied against most of the major currencies during last week's trading session. The dollar's most notable appreciation took place vs. the euro, as the EUR/USD pair fell to the 1.3573 level, marking a 6-week low. The dollar saw rising trend against the Japanese yen and the British pound as well.
The dollar's bullish trend came as a result of positive U.S. economic data, which signal that the economy is recovering. The most significant data were the employment reports, which showed that payrolls rose more than forecasted in October, signaling that businesses may be recovering faster than Federal Reserve's estimations. Payrolls climbed by 151,000, well above expectations for a 63,000 rise and following a revised 41,000 drop the prior month. In addition, the Trade Balance indicator showed that the trade deficit in the U.S. narrowed more than forecast in September as a drop in the dollar pushed exports to the highest level in two years. The gap shrank by 5.3% to $44 billion. Exports increased by 0.3% on foreign demand for aircraft, generators and foods, while imports fell. It currently seems that further positive data from the U.S. economy will strengthen investors' confidence that the economy is recovering, and might lead to another bullish week for the dollar.
Looking ahead to the following week, several significant economic releases are expected from the U.S. Traders are advised to focus on the Retails Sales, Producer Price Index, Long-Term Purchases, Building Permits, Consumer Price Index and the weekly Unemployment Claims reports, as these are likely to have the largest impact on the greenback during this week's session.
EUR - Euro Tumbles amid Ireland Debt Crisis
The euro fell sharply against all its major rivals during last week's trading. The euro dropped about 400 pips vs. the U.S. dollar, marking a 6-week low for the European currency. The euro also fell about 200 pips vs. the British pound and the Japanese yen.
The euro's bearishness came as a result of the European sovereign-debt concerns. The main concerns dealt with the Irish economy, and its possible difficulties to pay debts. Several reports have recently stated that Germany is pressing Ireland to seek aid before tomorrow's meeting of European finance ministers, in order to calm market volatility. Germany's Chancellor Angela Merkel has even publicly clashed with European Central Bank Jean-Claude Trichet on the matter. However, Ireland official have been cited saying that aid talks will not take place as the economy is not in need for external assistance. Nevertheless, current estimations are that Ireland will eventually request an aid of about 80 bullion euros ($110 billion) between years 2011 and 2013.
As for this week, traders' main focus should remain on Ireland's bailout concerns, as this is likely to be the main economic topic for the near future. Reports regarding an aid package are likely to support the euro, just as continuous speculations that Irish bond-holders will have to anticipate in the burden could weaken the currency further. Traders are also advised to follow the German ZEW Economic Sentiment release on Tuesday. The German economic condition becomes even more imperative now that another nation of the region might require an external aid, and economic data from Germany is likely to have a large impact on the market.
JPY - USD/JPY Trading Near a 1-Month High
The Japanese yen fell against most of its major counterparts during last week's trading session. The yen dropped about 150 pips vs. the U.S. dollar, and the USD/JPY pair is now trading near a 1-month high. The yen also fell about 200 pips against the British pound.
The yen fell last week as U.S. Treasury 1-year yields rose near a seven-week high which made assets dominated in greenback more attractive to international investors. Treasury yields surged on lower than average demand at a $16 billion sale of U.S. 30-year bonds. This has boosted the dollar to nearly a 1-month high against the Japanese currency.
Looking ahead to this week, traders are advised to follow the leading releases from the Japanese economy. Main focus should be given to the Tertiary Industry Activity report and the All Industries Activity report as these are likely to impact the currency. Traders are also advised to follow developments regarding the European sovereign-debt crisis, as this is likely to affect yen trading as well.
Crude Oil - Crude Oil Erases Gains and Closes near $84.60 A Barrel
Crude oil began last week's trading session with a rising trend, and reached as high as $88.60 a barrel. However by Thursday the trend has sharply reversed and crude fell about 400 pips, to reach as low as $84.60 a barrel.
Crude oil sharply fell close to the weekend on concerns that China may go for further monetary policy tightening after its inflation hit a two year high. Economists expect that China will hike rates, which is likely to dent demand for crude oil from the world's second largest energy consumer. In addition, recent reports regarding the European sovereign-debt crisis have raised concerns that demand for energy in Europe will decline, adding to the bearish pressure on crude oil.
As for the following week, traders are advised to follow the leading economic updates from the U.S. and the euro-zone, as these are likely to have a large impact on crude oil prices. In addition, traders are advised to follow the U.S. Crude Oil Inventories report, which is scheduled for Wednesday, as this release usually has an instant impact on the market.
After correcting some of its losses, the pair looks on its way to see further bearishness. The pair's next significant support level is placed at 1.3600. If the pair will fall below the support level, it could mark the beginning of yet another significant bearish move.
The cable continues with the volatile activity, and remains trading between the 1.5950 and the 1.6180 range. Nevertheless, a bearish cross on the 4-hour chart's Slow Stochastic suggests that a bearish move is impending, with a key-target level of 1.5950.
The pair is in the midst of a bullish correction, and is currently testing the 83.00 level. If the pair will manage to breach though the resistant level it might reach as high as the 84.00 level. Otherwise, it might drop back towards the 81.75 level.
There is a very distinct bullish channel formed on the 1-hour chart, as the pair is now floating in its upper section. In addition, as both the Slow Stochastic and the MACD on the daily chart provide bullish signals, it appears that the rising trend is likely to proceed today. Going long seems to be preferable.
The Wild Card
After peaking at $1,424 an ounce, gold has erased gains, and is now trading near the $1,370 level. Currently all the oscillators on the daily chart continues to point down, suggesting that the bearish move has more steam in it. This might be a good opportunity for forex trader to join the correction.
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||0.1%|
|13:30||USD||Employment Cost Index||m/m||0.7%||0.6%||0.7%|
|14:55||USD||Revised UoM Consumer Sentiment||86.4||86.4||-|
|14:55||USD||Revised UoM Inflation Expectations||2.8%||-||-|