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Tuesday, 12 May 2009

Forex Markets Steady as Stocks Dip

The most notable event to take place in the forex market yesterday appears to have been the lack of any significant movement by the major currencies. As stock markets witnessed a downward correction yesterday, the forex world's latest series of volatile spikes came to an end and most currencies leveled-off. As market news today is anticipated to be much busier, this day of rest in forex may come to an end and we could see a return to the sharp movements witnessed at the end of last week.

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Weekly Trendupupdowndowndownno

Economic News

USD - Dollar Volatility Calms as Markets Falter

The Dollar experienced a mild trading session in yesterday's trading. The USD experienced a relatively flat day as it steadily rose against all of its major currency pairs, except for the Japanese Yen. There was a quiet day of news from the U.S. as there were no economic data releases on the calendar. However, Federal Reserve Board Chairman Ben Bernanke spoke about the state of the U.S. economy and the stress test for banks. He pointed out specifically that he was pleased with banks for raising capital. Investors were optimistic as he said that additional capital from the Federal Reserve will be provided if needed.

Despite this positive news from Bernanke, the stock market in the U.S. and around the world experienced heavy losses. However, part of this may be the start of a correction to the global stock market rally in recent weeks. As a result, the Dollar gained against most of its major currency pairs. The USD took 70 pips from the EUR to close at 1.3591 and a healthy 125 pips from the Pound to close at 1.5095. However, against the JPY, the Dollar lost 100 pips, extending its 3 day loss vs. the Japanese currency. The USD gained against the former 2 currencies due to fears of economic instability.

Today we can expect a higher amount of volatility and instability when it comes to trading with the Dollar and its main currency crosses. This may be even more so due to a heavy schedule of economic data releases and the ambitious economic recovery plan of President Barack Obama. The Trade Balance figures will be published at 12:30 GMT, IBD/TIPP Economic Optimism figures are expected to be released at 14:00 GMT, and the Federal Budget Balance results are scheduled to be published at 18:00 GMT. Positive figures may help spur a stock market rally. At the same time, the Dollar may go bearish, as investor fears dissipate and the global economy continues its slow recovery.

EUR - EUR Stumbles Against Dollar

The European currency stumbled against the Dollar in Monday's trading, ending its 3 day winning streak against the USD. This comes around the same time the President of the European Central Bank (ECB), Jean Claude Trichet, stated that the main developed economies are starting to show signs of growth. For example, The Organization for Economic Co-operation and Development (OECD) recently released figures showing that Britain, France, and Italy's economies recorded some growth in the previous month. However, Germany continues to lag behind in negative territory. This may be one of the factors that could prevent the EUR from gaining the long-term confidence of investors.

As long as Germany, Europe's largest economy, is deep in the red there will continue to be a prolonged burden on the Euro-Zone and its currency. The EUR slipped 70 pips vs. the Dollar to finish yesterday's trading at 1.3591. The EUR slid by a dramatic 200 pips vs. the JPY to 132.23. The 2 reasons for these results are the overvalued EUR/JPY as of late, and the safe-haven bullish JPY. The Japanese currency also experienced similar behavior against the Pound as fears grew yesterday. The EUR/GBP rate rose by a moderate 30 pips, as traders continue to weigh in on the health of the British and Euro-Zone economies.

In today's forex trading, traders are advised to follow economic news releases from the Euro-Zone and Britain closely as the results will help determine the bullishness of the Pound and EUR in today's trading. The most important news events from Britain are the release of the Manufacturing Production and Trade Balance figures at 8:30 GMT simultaneously. From the Euro-Zone, the most important news events are German Final CPI at 6:00 GMT and the speech by Budesbank President Axel Weber at 15:00 GMT. Forex traders are also advised to follow unexpected speeches by President Obama or Ben Bernanke, as this could have a strong impact on trading in the forex market for the main currencies.

JPY - JPY Gains Ground Versus Dollar

The JPY made moderate gains against the Dollar in yesterday's trading as there was panic when global stock markets made heavy losses as a correction may be under way, and as the banking system continues to be unstable. The Yen was also boosted by the weak Japanese economic figures, prompting investors to put money into the Yen. Thus the Yen returned yet again to the forefront as a safe-haven currency. This was compounded by HSBC announcing that despite high profits, the coming year will be a tough. This helped push down other banking stocks, and stocks such as Sony, Toyota, and Mitsui, as they also lost some ground in Monday's trading.

The Yen took nearly 100 pips away from the Dollar to close up 1% at 97.29. The JPY made large inroads into the EUR to close up nearly 200 pips at 132.23. The gains against the GBP were even more impressive at 250 pips to close at 147.08. This all comes about as the fears of economic uncertainty fail to disappear. Thus if there is a stock market correction in the coming weeks, then there is a likelihood that the Yen will continue its bullish trend in the medium-term. If this is the case, then within the next several days, the USD/JPY rate may hit below 96.00. As of today, traders are advised to follow the Current Account and Bank Lending data releases at 23:50 GMT.

Crude Oil - Oil Fails To Hit $60

Crude Oil yet again failed to hit the $60 mark as the commodity recorded a relatively flat session on Monday. It rose by a healthy 30 pips to $58.31 a barrel. Considering there was a global stock market slump yesterday, this was actually a good result. The reason why the price of Crude Oil continues to be solid lately is due to renewed investor's confidence that the developed world is starting to show signs of economic recovery. This in turn translates into industry growth and increased demand for oil.

In order for the price of Crude to continue its bullish run the main global economies will need to continue to show positive signs. However, if by the 3rd quarter this is not the case, then Crude may start to slide below $50 a barrel again. In the meantime, it is advisable to follow economic news coming out of the U.S., Japan, and China very closely in order get an accurate picture of which direction the global economic situation is heading.

Technical News


The price of this pair appears to be floating in the over-bought territory on the RSI of the 4-hour chart, signaling a downward correction may still be relevant. The imminent bearish cross on the daily chart's Slow Stochastic supports this notion. Going short might be a wise choice today.


The Bollinger Bands on the hourly chart appear to be tightening in expectation of a volatile movement. As the daily chart's RSI shows the price of this pair floating in the over-sold territory, and as the recent bearish crosses on that chart's Slow Stochastic demonstrate, we may be in for a sharp downward movement. Going short with tight stops might be a good strategy.


The recent bearish run for this pair may be coming to an end. There appears to be a bullish cross on the 4-hour chart's Slow Stochastic signaling upward movement is imminent. The price also appears to be floating in the over-sold territory on the 4-hour chart's RSI. With a bullish cross also forming on the daily chart's Slow Stochastic, going long might not be a bad choice today.


The price of this pair appears to be floating in the over-sold territory on the RSI oscillator of the 4-hour and daily charts. As the Bollinger Bands on the hourly chart begin to tighten, the impending volatile movement may very well be in an upward direction. Going long might be a wise choice throughout the trading day.

The Wild Card

Crude Oil

After a few days of sustained upward movement, the price of this commodity now appears to be floating in the over-bought territory on the RSI of the 4-hour, daily and weekly charts, signaling a downward correction is long overdue. There also appears to be fresh bearish crosses on the daily chart's Slow Stochastic, which signifies that forex traders may be capable of entering the impending downward correction at a great entry price by going short on this commodity today.

Current Time: 11/30 23:59 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
22:45NZD+ Overseas Trade Index q/q1.3%-2.5%-1
23:30AUD+ AIG Manufacturing Index50.2--1
USD+ Total Vehicle Sales18.2M 18.0M-1
00:50JPY+ Capital Spending y/y5.6%2.3%-1
01:30AUD+ Building Approvals m/m2.2%-2.4%-3
01:30AUD+ Current Account-19.0B-16.6B-3
02:35JPY+ Final Manufacturing PMI52.852.8-1
04:30AUD+ Cash Rate2.00%2.00%-5
04:30AUD+ RBA Rate Statement---5
04:45JPY+ 10-y Bond Auction0.32|2.8--1
06:30AUD+ Commodity Prices y/y-19.8%--1
07:45CHF+ GDPq/q0.2%--1
08:00GBP+ Bank Stress Test Results---5
08:00GBP+ BoE Financial Stability Report---3
08:00GBP+ FPI ---1
08:30CHF+ Employment Level4.24M4.24M-3
09:15CHF+ Retail Sales y/y0.2%0.4%-3
09:15EUR+ Spanish Manufacturing PMI51.351.9-3
09:30CHF+ Manufacturing PMI50.750.8-1
09:45EUR+ Italian Manufacturing PMI54.154.3-1
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