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Thursday, 3 Feb 2011
Forex Market Wavering amid Egypt Protests
Yesterday's flare-up in Egypt between forces supporting president Mubarak and those calling for his ouster has apparently added to a rising atmosphere of uncertainty in the region which has pulled some investors away from their recent risk-taking.
USD - USD Consolidating ahead of Friday's Non-Farm Payrolls
Despite the sinking value of the US dollar versus most of its primary currency counterparts, the greenback did undergo a modest correction in yesterday's afternoon trading sessions. Following the publication of positive employment change in the American private sector over the previous month, as shown by Wednesday's ADP employment change estimate, the US dollar retraced approximately 100 points against the euro, and 50 points versus the British pound.
The EUR/USD has been surging over the past several trading days, hitting a recent high of 1.3860 before paring its gains and currently resting steadily at 1.3810. The USD/JPY has likewise been in decline but underwent a modest spike following the publication of yesterday's ADP figures. The pair is currently trading at 81.61.
Today will likely be less significant for the US dollar than many traders expect, regardless of the heavy news day ahead. The reason is because it is the day before Friday's Non-Farm Payroll data for the month of January. Typically around this time of the month, the greenback consolidates its value near a breaking point prior to Friday's publication. Traders should expect to see the USD holding steady near its current price values until Friday's release.
EUR - Egyptian Turmoil Weighing on Risk Appetite, Weakening EUR
The euro has been gaining only modestly over the last several trading days as Middle East turmoil puts risk appetite in the region on unstable ground. The 17-nation common currency has undergone a gradual ascent versus the US dollar as investors have moved away from safe-havens and into the higher-yielding assets of European and Pacific currencies.
Against the dollar, the EUR has moved up from the low of 1.2873 touched on January 10 to as high as 1.3860 yesterday. However, yesterday's flare-up in Egypt between forces supporting president Mubarak and those calling for his ouster added to a rising atmosphere of uncertainty in the region which pulled some investors away from their recent risk-taking.
With the European Central Bank (ECB) announcing its latest decision on short-term interest rates today, there is a good chance that the EUR will receive additional volatility than is commonly experienced. The continued unrest across the Middle East also adds to the tug-of-war between market optimists and market pessimists. The direction of the euro is unclear for today, but traders should expect wide swings in value as global events play out and affect risk appetite.
JPY - Japanese Yen Mixed as Markets Balance Optimism and Uncertainty
The Japanese yen experienced mixed results against most of its main currency rivals yesterday. The uncertainty across the Middle East and the recent atmosphere of market optimism in the economies of North America and the Pacific has created a strange mixture between increased risk appetite and regional uncertainty.
The yen has responded by weakening against most of its rivals, but strengthening against traditional safe-havens like the US dollar and Swiss franc. With no news expected out of the Japanese economy this week, the yen looks to be continuing to respond to the valuations of the other major currencies. Middle East turmoil will no doubt continue to factor into region-specific risk taking, but optimistic employment figures from the US could offset any shifts in investment portfolios in regards to risk.
Crude Oil - Middle East Unrest Driving Oil Prices Higher
The price of Crude Oil continues to climb following this week's earlier spike above $90 a barrel. The unrest across the Middle East has many speculators anticipating a decline in output, and thus supply, over the next several weeks. Prices have begun to soar as a result. The decline in US dollar values has only added to the bullishness in Crude Oil prices.
The shifting atmosphere in Egypt and its Arab neighbors has caused a stir among analysts who just prior to the outbreak of unrest were deciding on whether or not the global economy had finally entered a serious recovery. Any revolutionary changes in the political map of the Middle East could greatly impact oil output, pricing, and agreements, carrying over a significant effect on the price of oil. Traders should continue to eye the events in Egypt to gauge whether or not there will be a severe disruption in oil outflows.
The recent sharp climb in value for this pair has pushed the daily chart's Relative Strength Index (RSI) into the over-bought territory, suggesting strong downward pressure. An impending bearish cross on the weekly Stochastic (slow) supports this notion. Going short in the near future appears to be a preferable strategy for the remainder of the week.
The price of this pair appears to have breached the upper border on the daily chart's Bollinger Bands indicating a strong price break-out. The imminent bearish cross on the daily and weekly charts' Stochastic (slow) oscillator suggests that this movement may be short-lived. Traders may want to enter short positions with tight stops on this pair to capture potentially lucrative downward corrections.
There appears to be a fresh bullish cross on the daily chart's Stochastic (slow) for this pair, highlighting mounting upward pressure. A recent breakthrough on the lower border of the daily chart's Bollinger Bands supports this notion. Going long may turn out to be the best decision over the next few days.
As this pair bounces against its record low price near 0.9300, it appears to be meeting significant support. This support level has pushed the pair temporarily back above 0.9400 and indicators seem to suggest that it will continue to move bullish as the day progresses. Holding onto your long positions appears wise today.
The Wild Card
This exotic pair has recent spiked upward enough to push many indicators into over-bought territory. The daily chart's RSI floats high above the 70 line, suggesting strong downward pressure. The daily and weekly charts' Stochastic (slow) also reveals impending bearish crosses. The pair also looks to be approaching a significant resistance level at 7.2000. Forex traders have a great opportunity to catch the downward swing of this pair as it appears to be preparing for a rapid correction.
|00:00||EUR||French 10-y Bond Auction||-||-||-|
|00:00||EUR||Spanish 10-y Bond Auction||-||-||-|
|00:00||GBP||MPC Rate Statement||-||-||-|
|02:30||AUD||RBA Deputy Gov Lowe Speaks||-||-||-|
|04:45||JPY||30-y Bond Auction||1.46|2.7||-||-|
|08:00||EUR||German Factory Orders||m/m||4.2%||-0.8%||-|
|13:00||GBP||Official Bank Rate||0.50%||0.50%||-|
|13:00||GBP||Asset Purchase Facility||375B||375B||-|
|13:30||USD||Challenger Job Cuts||y/y||17.6%||-||-|
|13:45||EUR||Minimum Bid Rate||0.05%||0.05%||-|
|14:30||EUR||ECB Press Conference||-||-||-|
|14:30||USD||Revised Nonfarm Productivity||q/q||-1.8%||-2.2%||-|
|14:30||USD||Revised Unit Labor Costs||2.7%||3.1%||-|
|16:00||USD||FOMC Member Williams Speaks||-||-||-|