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Tuesday, 28 Dec 2010
Forex Market Gets Ready for 2011
With slow trading expected today, investors will likely keep their eyes on the U.S. Dollar and whether it can maintain its recent upswing that it experienced last week. Set to be released later today, the U.S. Consumer Confidence report should give traders a good idea about the general direction of the greenback as 2010 draws to a close.
USD - Dollar Declines against Major Rivals
The dollar fell against most of its major currency pairs on Monday, as risk appetite took a minor hit after China's weekend rate hike. The People's Bank of China said Saturday that it will raise interest rates for a second time in the current cycle as the government steps up its fight against inflation. But the post-Christmas trading day saw little activity and the major FX pairs then reversed their initial moves and were mostly trading flat in the afternoon. After yesterday, the USD fell against the EUR and closed at 1.3190.
Traders should note that most analysts do not see these dollar decreases as signs of a continued trend. With many investors on vacation for the holidays, USD movements may have just been a result of low liquidity and a slow news day on Monday. Traders will want to pay attention to the U.S. Consumer Confidence report set to be released at 15:00 GMT today.
A higher number then last month is forecasted for the report, which if indeed comes true, will likely support the dollar. Most analysts are saying that the American people are slowly regaining faith in the U.S. economy. If the consumer confidence figure reflects this sentiment, it could be an early sign as to where the dollar is headed in 2011.
EUR - EUR Higher in Thin Trading Day
The euro was steady on Monday after rebounding from a record low against the Swiss franc and a three-week low versus the dollar, though sentiment on the single currency remained bearish amid worries about Portuguese and Spanish debt. . By yesterday's close, the EUR rose slightly against the USD, pushing the oft- traded currency pair to 1.3190. The 16 nation currency saw also a small bullishness against the CHF and closed at 1.2640
Yesterday's trading ranks were extremely thin. London was closed on Monday and Tuesday for holidays and a blizzard in New York limited activity, ensuring only minor price fluctuations. However, analysts said concerns about fiscal troubles in some euro zone countries could result in further euro selling in the New Year.
The euro showed limited reaction to Fitch cutting Portugal's long-term and local currency ratings by one notch to A-plus on Thursday, although this served as a reminder that sovereign debt problems will stay a key theme for 2011.
JPY - Yen Mixed Against Major Currencies
The Japanese Yen completed yesterday's trading session with mixed results versus the major currencies. The JPY fell against the GBP yesterday, pushing the oft-traded currency pair to 127.90. The Yen experienced similar behavior against the EUR as the pair rose from 108.70 to 109.40 by day's end. The JPY did see some bullishness as well, gaining 30 points against the USD and closed at 82.65.
Traders today have very little fundamental news emanating from Japan. As such the Yen will look towards equity movements as well as to U.S. and Euro-Zone news for market movements.
OIL - Crude Oil Falls from 26-Month High
Oil dipped below $91 per barrel on Monday after briefly hitting its third successive 26-month high, ending a five-day rally after a Chinese rate increase threatened to slow demand and a major East Coast refinery resumed operations.
As a major blizzard on the East Coast further diminished already thin holiday trading volumes and threatened to stoke oil demand for home heating, many traders expected the fourth-quarter rally to quickly resume toward $100 a barrel as key OPEC members showed no sign of moving to halt its rise.
The price of this pair appears to be floating in the over-bought territory on the 4-hour chart's RSI indicating a downward correction may be imminent. The downward direction on the hourly chart's Momentum oscillator also supports this notion. When the downward breach occurs, going short with tight stops appears to be the preferred strategy.
The pair has been range-trading for a while now, with no specific direction. The Daily chart's Slow Stochastic is providing us with mixed signals. All oscillators on the 4 hour chart do not provide a clear direction as well. Waiting for a clearer sign on the hourlies might be a good strategy today.
The pair has recorded much bearish behavior yesterday. However, the technical data indicates that this trend may reverse anytime soon. For example, the 8-hour chart's RSI signals that a bullish reversal is imminent. An upward trend today is also supported by the 4-hour chart's Williams Percent Range. Going long with tight stops may pay off today.
The USD/CHF has gone increasingly bearish yesterday and currently stands at the 0.9560 level. The daily chart's Slow Stochastic supports this currency cross to fall further today. However, the hourly chart's Stochastic Slow signals that a bullish reversal will take place today. Entering the pair when the signs are clearer seems to be the wise choice today.
The Wild Card
Crude oil prices rose significantly in the last week and peaked at $91.80 per barrel. However, the daily charts' RSI is floating in overbought territory suggesting that a recent upwards trend is losing steam and a bearish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage.