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Tuesday, 12 Oct 2010

Forex Markets Experiencing Calm Before a Storm?

Yesterday's celebration of Columbus Day in the United States, coupled with Thanksgiving Day in Canada, led to thin market conditions in yesterday's North American trading sessions. The tension building up in the forex market has resulted in the recent wave of stability, appearing to be a calm before the storm which may be released this week.

EUR/USDGBP/USDUSD/JPYUSD/CHFAUD/USDEUR/GBP
Daily Trenddownnoupupnodown
Weekly Trenddowndownnoupdowndown
Resistance1.39651.600082.900.97350.99000.8815
1.39301.596082.600.97000.98500.8780
1.39001.592582.250.96750.98200.8750
Support1.38351.587581.750.96150.97500.8685
1.38001.584581.400.95800.97200.8645
1.37701.581081.000.95300.96900.8600

Economic News

USD - FOMC Minutes May Reveal QE Discussion

Yesterday's celebration of Columbus Day in the United States, coupled with Thanksgiving Day in Canada, led to thin market conditions in yesterday's North American trading sessions. The US dollar is little changed since yesterday against most of its rivals, but the market's movements seem to suggest further downward pressure on the greenback.

The EUR/USD peaked around 1.4000 on Friday before falling back down to currently trade just under 1.3890. Meanwhile, the USD/JPY continues to plummet, dropping as low as 81.45 on Friday, but settling around 82.00 during today's thin trading. Speculators have begun to assume an impending currency intervention by the Bank of Japan (BOJ) due to the strengthening yen, while also forecasting monetary measures by the Fed to combat the weakening dollar.

The tension building up in the forex market has resulted in the recent wave of stability, appearing to be a calm before the storm. If today's release of the Federal Open Market Committee's (FOMC) Meeting Minutes reveals discussions of quantitative easing measures, the market could respond with sharp volatility in USD pairs and crosses.

EUR - EUR Flattening Against Rivals under Thin Market Conditions

The euro fell against most of its currency rivals in yesterday's thin trading environment. The euro zone was also largely absent from economic news yesterday, feeding into the low liquidity of yesterday's trading sessions. Today should not be much different for the 16-nation single currency seeing as most European news today is centered on Great Britain.

The euro fell against the US dollar mildly, dropping from highs over 1.4000 to as low as 1.3879 in late trading. Against the British pound, the euro flattened out and appears to be consolidating around 0.8730.

Germany will be releasing some inflationary data in the early morning hours, but they should be of little consequence. The market may react in favor of the EUR if these figures come out above expectations. Britain will be releasing some impactful CPI figures which should carry a heavy impact on the GBP, especially ahead of Friday's Inflation Report Hearings in the UK.

JPY - BOJ May Intervene as Yen Continues to Soar

The Japanese yen has remained in an ascending pattern against most of its currency rivals despite efforts by the Bank of Japan (BOJ) to intervene in the forex market. The sudden spike in risk aversion in favor of the yen has allowed the island currency to gain against its rivals regardless of efforts by the BOJ to counter those effects.

Speculators, as a result, have begun to anticipate another round of currency intervention by the BOJ to once again combat the rising yen. News of a potential market intervention by the US Federal Reserve, however, has appeared to temporarily offset the BOJ's efforts. This monetary intervention war between major economies is providing some unique market fluctuations which allow traders to benefit from clear, long-term trends, with obvious highs and lows.

Crude Oil - Oil Prices Consolidating Near $82.50

Crude Oil prices have descended somewhat over the past 24 hours. Commodity markets spiked mildly on Friday as the US NFP report disappointed with a sharp decline in American employment. The corresponding drop in the US dollar helped push the price of oil over $84 a barrel.

The consolidating price behavior for Crude Oil over the last day could represent a minor break in a long-term uptrend for oil prices. Industrial growth is underway, albeit slowly, and commodities like oil are beginning to find fundamental support from market optimism and mild growth. If the dollar continues to fall, even with quantitative easing measures from the Fed, then oil price should see a steady rise with a target near $88 a barrel in the next few weeks.

Technical News

EUR/USD

The daily RSI on this pair shows the price in a downward slope, about to exit the over-bought territory. The daily Stochastic (slow) also appears to be displaying similar behavior. It appears this pair may be building steam in a bearish direction. Going short could end up paying off over the next 24 hours.

GBP/USD

There appears to be a bearish cross forming on the weekly Stochastic (slow), suggesting a recent buildup of downward pressure. A recent bearish cross on the daily MACD supports this notion. Going short with tight stops could be a wise tactic today.

USD/JPY

The daily Stochastic (slow) and the MACD on the daily and weekly charts are all showing an impending bullish cross, highlighting an increase in upward pressure. The price also appears to be floating in the over-sold region on the weekly RSI. Going long after the price bounces off its next resistance line at 81.75 could be a smart move.

USD/CHF

The price of this pair looks to be floating deep within the over-sold region on the weekly RSI, but has recently turned upward suggesting a coming end to this pair's bearish trend. Recent, or impending, bullish crosses on the MACD and Stochastic (slow) indicators on the daily and weekly time scale all suggest that a major correction is on its way. Going long may not be a bad idea given these indications.

The Wild Card

Crude Oil

There appears to be impending bearish crosses on the daily MACD and weekly Stochastic (slow), suggesting a strong downward movement is building for this commodity. The price also appears to be descending out of the over-bought range on the daily RSI, which supports the above notion. Forex traders may want to pay attention to these technical indicators today as a downturn may be in the works. Going short with tight stops could be a good way to make a buck.

Current Time: 04/24 08:04 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
04/24
09:00EUR+ German Ifo Business Climate110.7110.5111.25
10:00EUR+ ECB President Draghi Speaks***5
11:00GBP+ CBI Realized Sales1318-3
13:30USD+ Core Durable Goods Orders m/m0.1%0.6%-5
13:30USD+ Unemployment Claims 304K309K-5
13:30USD+ Durable Goods Orders m/m2.2%2.1%-3
15:30USD+ Natural Gas Storage 24B--1
00:30JPY+ Tokyo Core CPI y/y1.0%2.8%-3
00:30JPY+ National Core CPI y/y1.3%1.4%-1
04/25
05:30JPY+ All Industries Activity m/m1.0%-0.5%-1
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