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Thursday, 12 Feb 2009
Falling Crude Oil Prices and Passage of Stimulus Bill May Push USD Higher
Yesterday's drop in Crude Oil prices lent weight to the notion that traders are expecting the consolidating USD to spike in value versus its major currency pairs in the not-too-distant future. The passage of Barack Obama's stimulus bill yesterday may also lend weight to this notion. Today, traders could see the value of the EUR/USD pair drop towards the 1.2800 price level as US Retail Sales and Unemployment Claims provide a level of support to this currency pair.
USD - Will Today's Retail Sales Data Drive the USD Higher?
The greenback completed yesterday's trading session with mixed results versus the major currencies. The U.S. Dollar was little changed against the EUR, with the pair closing at the 1.2950 level, but higher against the GBP in a volatile session which saw the pair closing at the 1.43 level. This came amid signs that the U.S. Senate and House of Representatives will be able to bridge their differences on the economic stimulus plan.
The market expressed some optimism for the USD after the U.S Congress and Obama administration reached a deal yesterday on a $789 billion economic stimulus package that would mix tax cuts and new government spending in an effort to rescue the faltering U.S. economy. Analysts now say that the USD is likely to continue to appreciate against the EUR given investors' hopes for a big stimulus package, which might be a slight positive for risk-taking. This is important, as it removes some uncertainty in the U.S economy in contrast to the recent weak economic data coming from the Euro-Zone.
As for today, a batch of data is expected from the U.S. economy. These figures are expected to set the tone for the USD's pairs and crosses. Special attention should be given to the Retail Sales which is expected to increase from previous reading. Traders pay close attention to this figure as it has a strong correlation with the value of the U.S. Dollar. Also today, the weekly Unemployment Claims figure is scheduled and should also have an impact on the market because if it delivers unfavorable figures it will validate a problematic U.S. market, and the USD is likely to weaken slightly as a result.
EUR - German Data Indicates a Weakened Euro-Zone
The EUR finished yesterday's trading session with mixed results versus the major currencies. The 15-nation currency saw gains versus the GBP for most of the day and closed at the 0.8900. Versus the JPY, the Euro-Zone currency was broadly unchanged throughout most of the day, as most of the market movement from yesterday was focused on the USD.
In addition, yesterday was a slow news day in Europe as there was only one economic indicator published. Germany's inflation rate dropped to the lowest level in almost five years in January after the recession deepened and oil prices plunged. The inflation slowdown in Germany, Europe's largest economy, was led by a 15% drop in prices for Crude Oil from a year earlier. In recent months, the Euro-Zone economies are not having much of an impact on the value of their currency. The EUR may in fact be waiting for clear signs of direction from the United States' economy before picking a direction.
Looking ahead to today, the most important financial indicator scheduled to be released from Europe is Industrial Production. Analysts are forecasting this figure to decrease from its previous reading. Traders will be paying close attention to today's Industrial Production announcement as a stronger than expected result may bolster the EUR in the short-term.
JPY - Foreign Influence over the Yen Gaining Strength
The Yen completed yesterday's trading session with mixed results versus the other major currencies. The JPY was broadly unchanged versus the EUR yesterday and closed its trading session at around the 116.00 level. The JPY also saw bullishness against the GBP as it jumped around 100 points and closed at 129.20.
Japan's wholesale inflation dropped for the first time in more than five years as the global recession lowered the cost of oil and commodities. Falling commodity prices and weakening demand for goods kept many firms from hiking prices and even led some to make cuts.
As for today, Japan will be absent from the economic calendar. The JPY's trends will be affected by the rallies of its primary currency pairs. It seems the USD and EUR are expected to continue a volatile trading session today and their crosses with the JPY will likely be as well. Traders should keep a close look on the news coming from the U.S. and Europe as these economies will be the deciding factors in the JPY's movement today, especially U.S. Retail Sales since it has a correlation to Japanese exports.
Oil - Price of Crude Oil Hits One-Month Low
Oil prices slid 4.3% during yesterday's trading session, the lowest in four weeks. This drop came after a U.S. government report showed Crude Oil inventories rose more than expected in the world's top energy consumer, and after the International Energy Agency (IEA) said that global energy demand this year would post its biggest decline since 1982 under the weight of the economic crisis.
Oil prices have dropped significantly in the last few months due to the global economic slowdown and its impact on consumer and business fuel consumption, raising alarms for OPEC members that have agreed to record output cuts to counter this weakness.
This pair continues to build towards a volatile price movement as all oscillators are still showing the price floating in neutral territory. The Bollinger Bands on all charts are still tightening in anticipation of a significant movement as well. With the weekly Momentum oscillator showing mild downward pressure, there is a possibility that the price will go bearish after the breach. Setting short positions with tight stops might be the right choice today.
The price of this pair appears to be floating in the over-sold territory on the 4-hour chart's RSI, signaling an upward correction in the near future. The recent bullish cross on the 4-hour chart's Slow Stochastic supports this notion. With the Bollinger Bands on the hourly chart tightening, a volatile bullish spike may occur later today. Entering buy positions with tight stops before the breach might be the right strategy today.
There appears to be an imminent bullish cross on the hourly chart, indicating an upward correction may occur soon. However, the weekly chart's Momentum oscillator shows steep downward pressure. Waiting for the upward correction to peak then setting sell positions might be a wise choice today.
There appears to be a leveling-off in the price of this pair as all oscillators show the price floating in neutral territory. Even the weekly Momentum oscillator shows almost no direction. Yet, this pair fluctuates within quite a wide trading range of approximately 130 pips. The relatively volatile nature of the recent trend allows traders to open short term positions and to maximize profits by buying on lows and selling on highs.
The Wild Card
There appears to have been a violent breach of the upper border of the Bollinger Bands on both the hourly and 4-hour charts, signaling moderate downward pressure on the price of this commodity. The price currently floats in the over-bought territory on the 4-hour chart's RSI and a bearish cross has recently formed on this chart's Slow Stochastic, which supports the notion of a downward correction in the near future. Forex traders can benefit from this potential trend reversal by setting early sell positions and riding out the downward movement.
|23:30||AUD||Westpac Consumer Sentiment||1.9%||*||-|
|23:50||JPY||Core Machinery Orders||m/m||-2.1%||0.9%||-|
|06:30||EUR||French Final Non-Farm Payrolls||q/q||-0.1%||-0.1%||-|
|07:00||EUR||German Final CPI||0.2%||0.2%||-|
|15:30||USD||Crude Oil Inventories||-5.6M||-||-|
|18:06||USD||10-y Bond Auction||2.75|2.7||*||-|
|19:00||USD||Federal Budget Balance||-91.6B||-154.6B||-|
|20:00||NZD||Official Cash Rate||2.50%||2.50%||-|
|20:00||NZD||RBNZ Press Conference||*||*||*|
|20:00||NZD||RBNZ Rate Statement||*||*||*|
|20:00||NZD||RBNZ Monetary Policy Statement||*||*||*|