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Thursday, 16 Jun 2011
Eyes Turn to Philly after Dismal Manufacturing Report from NY
The US economy will be publishing its weekly unemployment claims numbers today alongside more manufacturing data, this time out of Philadelphia. After the Empire State manufacturing report revealed a sharp downturn in New York, today's Philly manufacturing report may be the game-changer in today's market. Traders should be eyeing this news for hints at the second quarter's industrial and manufacturing outlook.
USD - USD Trading Higher as Risk Aversion Increases
The US dollar was seen increasing late yesterday as traders began to seek shelter following several pessimistic economic data releases. The EUR/USD was seen moving towards 1.4130 yesterday after dismal economic reports pushed many investors into the safety of the greenback. The GBP/USD was also in a stark bearish channel, witnessing a move from as high as 1.6400 to this morning's low of 1.6160.
Yesterday's bearish TIC investment report and detrimental manufacturing figures out of New York have so far helped to lift the value of safe haven assets as investors seek safety. The EUR, GBP, and AUD were each plummeting against the US dollar throughout Wednesday's session, with mild upticks coming towards the day's closing.
With another heavy news day expected today, traders are sure to see heightened volatility. Most significantly, the US economy will be publishing its weekly unemployment claims numbers as well as more manufacturing data, this time out of Philadelphia. After the Empire State manufacturing report revealed a sharp downturn, today's Philly manufacturing report may be the game changer in today's market. Traders should be eyeing this news for hints at the second quarter's industrial and manufacturing outlook.
CHF - Switzerland to Dominate Euro News Today
The Swiss economy is scheduled to release several significant data releases today, most important among them is its interest rate differential statement between the UK and Switzerland. The London Inter-Bank Offered Rate (Libor) is a 3-month interest rate for loans offered between the two central banks. It is a primary gauge of Swiss franc (CHF) values.
Expectations for today's rate statement are for the Libor to remain unchanged at 0.25%. The inflationary pressures mounting on several European countries, along with their northern Scandinavian neighbors, also carry the potential for a hawkish statement out of the Swiss National Bank (SNB) today. Though it isn't likely that the SNB will tighten its monetary policy anytime soon, rumors have begun to spread that interest rate differentials are coming under scrutiny and pressure may be mounting to alter the present record low rates.
The CHF has been a top performer among global currencies since the financial crisis of 2007-08, but many analysts wonder how much longer the Swiss can continue to push the value of their currency higher while Swiss exports begin to feel the pinch. Another indication of just how much pressure is being placed on domestic producers in Switzerland is today's industrial production report which is forecast to reveal a stark 7.5% contraction for this quarter. Traders may begin to see the Swissie meet resistance as a result of today's figures, should they prove as detrimental as forecast.
AUD - Aussie Trading Lower as Traders Flee Risk
The Australian dollar (AUD) was seen taking a hit versus the US dollar (USD) yesterday after news began to shift many traders away from the riskier currencies. The Aussie has been a top performer these past several months considering many traders bank on a strengthening of the AUD due to a rise in Chinese demand for Australian raw materials.
Indeed, the insatiable appetite for the raw ore produced in the Land Down Under by the Chinese manufacturing and industrial sectors have, in some ways, transformed the AUD/USD into one of the more frequently traded pairs in the forex market. Investors view the pair as a gauge on the strength of China. As the AUD rises versus its American counterpart, a number of analysts begin to speculate that it is out of an expectation for a boom in demand by China for natural resources out of its southerly Pacific neighbor. Savvy traders have lately been using this metric as a way to determine whether or not to buy into the Chinese stock exchanges.
Oil - Fears of Reduced Fuel Demand Drops Oil Prices
Crude Oil prices dropped sharply towards $94 a barrel Wednesday as sentiment appeared to favor a downturn in global industry alongside a slump in demand for the black gold. Data releases out of Britain and the US yesterday were driving many investors back into safe haven assets as most reports suggested murky growth in global industrial output and consumer spending.
As investors sought safety, the value of crude oil, which has been seen plummeting all week, fell to a monthly low of $94 a barrel. A sudden jump in dollar values due to yesterday's risk averse environment has helped many investors ram up their short-taking positions on physical assets. Crude Oil Should sentiment hold steady this week, oil prices may continue to fail to find weak support near its current price.
A three week rally was met with a failure of the pair to breach 1.4700, a level not far from the previous trend line which opened the door for a significant pullback that retraced 50% of the late May to early June gains. The week's declines ended at the 20-day moving average at 1.4330 and will serve as initial support. Falling daily stochastics suggest the move lower may have scope to continue where the pair may find resistance at 1.4250, a level that coincides with the 61% retracement and the rising trend line from the May low. A breach here and the pair will test the 100-day moving average followed by the May low at 1.3970. To the upside, resistance will likely come in 1.4570 followed by 1.4700.
The weekly candlestick suggests further declines may be in store as last week's candlestick ended on a shaven bottom, indicating momentum is moving to the downside. A confirmation will be needed from this week's trade to confirm the bearish pattern. In the meanwhile the move lower finished at the 38% retracement level of the December to April move and is quickly approaching the trend line off the May 2010 low at 1.6180. The pair could receive a bounce from this level, as was the case in late May. Resistance is located at 1.6400 and 1.6460, and 1.6550. Should the pair not receive a bounce at the trend line declines could mount to 1.6060 and the April low at 1.5935.
The yen was relatively unchanged from the previous week after an attempt to breach below the 80 yen level was only briefly successful before the pair was bid higher. While most oscillators remain in neutral territory, the pair continues to trade lower with resistance at the falling trend line from April high which comes in near the 20-day moving average at 81.00. This level may offer traders a better price to enter short. Further resistance is located at 81.75 from the May 31st high followed by 82.25 of the May 19th high. Support comes in at the May low of 79.50 followed by the all-time low at 76.11.
The pair is testing a short term resistance level at 0.8450 and a breach here would expose the resistance at 0.8855 which lies just below the 20-day moving average. A rise to this price may offer traders better levels at which to enter short. Above these levels rests the falling trend line from the mid-February high which comes in at 0.8720. Support is found at the all-time low at 0.8325.
The Wild Card
Spot crude oil prices tumbled yesterday making a significant breach below the triangle consolidation pattern on the daily chart. Forex traders may want to be short as the price could continue to decline. Support comes in at the rising trend line from the August low at $93.00, a level that coincides with the late January/early February highs.