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Friday, 1 Oct 2010
Flurry of US Economic Data Impacts Forex Market
The end of the month brought a volatile trading day as US GDP and weekly unemployment numbers were released. Irish Banking woes continue to weigh on the markets but failed to slow a strong month for equities.
USD - ISM Manufacturing PMI on Tap
Today's trading was swamped with positive economic data on the calendar. However, the better than expected data did not help the US dollar increase versus its rivals. US Final GDP was better than expected at 1.7% on expectations of 1.6%. Weekly unemployment claims were also better than forecasted. Only 453K new jobless claims were reported on expectations of 458K. Positive data from the business sector was also released as the Chicago PMI index climbed to 60.4 from a previous reading of 56.0.
Despite the strong economic numbers, traders showed little interest in pushing the US dollar higher. The EUR/USD traded in a range between 1.3680 and 1.3560. The USD/JPY was unchanged from its opening day price of 83.56. The dollar did show strength versus the British pound and the Swiss franc. The GBP/USD dropped to its lowest level of the week at 1.5668 while the USD/CHF rose as high as 0.9843 after opening at 0.9774.
US equities were weaker on the day as the Dow Jones Industrials Average posted a loss of 0.4%. September was a good month for US stocks as the Dow rose 7.7%, the largest gain in September trading since 1939. September is typically considered a gloomy month for stocks. The catalyst for the gains in the Dow was positive US economic data that reduced the risk of a double dip recession.
The market's expectations for improving economic data will be tested today with the release of the US ISM Manufacturing PMI. Better than expected data could continue the recent trend of dollar weakness. The EUR/USD could rise to the resistance level of 1.3820.
EUR - Euro Shrugs Off Negative News
European financial woes are reemerging following the bailout of Allied Irish Banks and the downgrade of Spanish sovereign debt by Moody's.
Ireland will need to fork over 34 Bn euros to shore up failing Allied Irish Banks. The recapitalization of the bank will most likely affect the Irish budget which should reflect a higher debt to GDP ratio.
Moody's investor services downgraded Spanish sovereign debt by one notch to Aa1 from Aaa and held the outlook stable. Moody's is the last of the major ratings agencies to downgrade Spanish sovereign debt. The move was largely expected by the market and did not come as a big surprise.
Despite the negative news, the euro has shrugged off the publicity and continues to strengthen against its rivals. Yesterday the rate of the EUR/USD was largely steady, but the EUR/GBP was up sharply at 0.8679. This is up from an opening day price of 0.8583.
British Manufacturing PMI data will be the catalyst for today's EUR/GBP trading. The next resistance level for the EUR/GBP rests at 0.8770.
JPY - USD/JPY Continues to Weaken
The downtrend of the USD/JPY continues and has shown few signs of slowing since the Japanese Ministry of Finance intervened in the forex markets over two weeks ago. Traders are once again testing the resolve of the ministry and the Bank of Japan (BOJ) to intervene.
There is no said line that is drawn in the sand that once crossed the BOJ will begin selling yen on the open market. But it appears traders are targeting the recent low for the USD/JPY at 82.86.
A glimpse of hope for a reversal in the trend lies in the ascending wedge pattern that has formed on the monthly chart. A rise in the price could test the resistance level at 90.80. A close above this on a monthly basis would confirm a breakout to the upside.
However, there is always a chance the pair will continue and break to the downside. Traders should eye a breach below the 82.80 level for a sign of a continuation of the downtrend.
Oil - Oil Prices Rise on Positive Economic Data
The price of oil rose sharply yesterday by 3.4% on the heels of positive US economic data. The rise in the price left crude oil with a strong performance for the month of September that coincides with a strong month for US equities.
The release of rising US GDP numbers, better than expected weekly unemployment data, and a rising Chicago PMI all helped to influence traders to become more bullish on the economic recovery.
Momentum for spot crude oil appears to be to the upside as the MACD histogram shows a rising trend. This may signal further gains in the price of spot crude oil. The next resistance level for the pair is found at $83.00.
Momentum continues to increase to the upside with the 20-day simple moving average sloping higher. As such, traders should favor trades in that direction. A bullish channel has formed on the daily chart, beginning at the September 12th low. Traders should target the upper line of the channel which coincides with the March high of 1.3820.
Traders should be cautious with the pair following yesterday's selloff. The long red candlestick follows three days of consecutive doji candlesticks. The halt in the uptrend occurs at 1.5870 which coincides with the 61.8% Fibonacci retracement level from the November 2009 high. All of this may signal a reversal of the trend or at least a period of a consolidation.
A distinct declining wedge pattern has formed on the monthly USD/JPY chart that could signal a reversal of the downward trend. As the long term trend is clearly to the downside, traders will need to be extra patient before taking a long position and wait for a clear signal that a breakout to the upside has occurred. This month the price could test the resistance level at 90.80. A close above this on a monthly basis would confirm the breakout. However, there is always a chance the pair will continue to the downside. Traders should eye a breach below the 82.80 level for a sign of a continuation of the downtrend.
Two days of appreciation in the pair may present a sell opportunity to enter into the downtrend. The price of the pair rose as high as the 0.9840 level where it then proceeded to head lower. This may be the time enter short with a target at the 2008 low of 0.9632.
The Wild Card
Crude oil is showing signs that momentum is to the upside. The 7-day Momentum indicator is sloping sharply higher and the MACD histogram is also rising. Yesterday the price breached above the resistance level of $80. Forex traders should be targeting the next resistance level at $83.00.
|00:30||JPY||Tokyo Core CPI||y/y||2.5%||2.3%||-|
|00:30||JPY||National Core CPI||y/y||3.0%||2.9%||-|
|00:50||JPY||Prelim Industrial Production||m/m||2.9%||-0.4%||-|
|01:00||NZD||ANZ Business Confidence||26.5||-||-|
|01:05||GBP||GfK Consumer Confidence||-2||-1||-|
|01:30||AUD||Private Sector Credit||m/m||0.5%||0.5%||-|
|08:00||EUR||German Retail Sales||m/m||-3.2%||1.7%||-|
|08:45||EUR||French Consumer Spending||m/m||-0.8%||0.2%||-|
|09:00||CHF||KOF Economic Barometer||99.8||100.1||-|
|10:00||EUR||Italian Monthly Unemployment Rate||12.6%||12.6%||-|
|10:00||EUR||Italian Quarterly Unemployment Rate||12.5%||12.4%||-|
|11:00||EUR||CPI Flash Estimate||y/y||0.4%||0.3%||-|
|11:00||EUR||Italian Prelim CPI||m/m||0.1%||-0.3%||-|