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Thursday, 14 Jul 2011
Forex Traders Anticipating US Data Today
Increased market volatility is on today's forecast with a significant news day ahead. Most importantly, the US economy will be publishing a string of reports concerning producer inflation (PPI), unemployment claims, retail sales, and crude oil inventories. The euro zone will also be releasing its CPI data.
USD - USD Halts Climb after Bernanke Testimony
Federal Reserve Board Chairman Ben Bernanke released a statement yesterday which hinted that the Fed may consider another round of monetary easing should the beleaguered economy continue to worsen. The news has delivered a significant impact on the value of the US dollar (USD) which was seen in decline for the first time since the middle of last week.
The EUR/USD was seen moving back towards 1.4100 yesterday while the GBP/USD inched just above 1.60. Data from the American economy was largely bullish, however, which may also have helped spark some risk-taking among investors, pulling additional capital away from the greenback. A reduction in the Federal budget deficit also added a modicum of confidence that the US is addressing its budget shortfalls.
Increased market volatility is on today's forecast with a significant news day ahead. Most importantly, the US economy will be publishing a string of reports concerning producer inflation, unemployment claims, and retail sales.
Should today's news foreshadow a dismal outlook, there is a possibility that more investment will get pushed back towards the safety of the greenback, driving USD values higher. The possibility also exists that a downturn in fundamental data will only reinforce Bernanke's statement, leading to analysts to further anticipate another round of monetary easing by the Fed.
EUR - Euro Zone CPI on Tap
The euro (EUR) has been trading bearish these past several trading days on recent shifts in investor risk appetite. News that Italy is struggling has opened the door to additional bailouts being required across the euro zone, which ominous foreshadow a debt contagion dragging the region down with it. The EUR was able to get some relief yesterday after US Federal Reserve Board Chairman Ben Bernanke testified that the Fed may consider another round of monetary easing if economic conditions in the US don't improve.
The news was positive for risk taking, as was much of the data released by the American economy prior to Bernanke's testimony. The EUR moved above 1.41 against the USD before the market came to a close yesterday, but it continues to struggle against its regional currency counterparts, particularly the British pound sterling (GBP). With inflationary news on tap today, forex traders should receive ample data to fill in part of the growth outlook which is missing for the month of July.
Today's market should be highly volatile and traders will want to be on guard as they traverse today's investment landscape. The most impactful news of the day will come from the United States which is publishing a series of reports ranging from retail sales and unemployment claims to PPI and oil inventories. With France inactive today due to the observance of National Day, the euro zone may have relatively lower volume. However, the EUR does appear set to continue its gains against the dollar regardless of today's data outcomes.
NZD - New Zealand GDP Signals Stability
The New Zealand dollar (NZD) was seen trading with largely neutral results versus most other currencies yesterday following this morning's less-than-surprising GDP report. As was reported this week, regional growth in the Pacific has been only mildly better than forecasts, and in several instances worse. The Australian dollar (AUD) was seen in decline for the past two weeks after several data sets revealed an economic slump was underway.
This week's news has so far weakened the Kiwi and Aussie, fueled by poor fundamental data from the world's leading economies and a general sentiment of risk aversion among investors. With this morning's release of New Zealand's GDP data, many were expecting the island nation to begin addressing its growth outlook. As the NZD gains from external factors affecting its value, primarily a boost in Chinese retail sales, investors begin to speculate what an interest rate hike might do should the Reserve Bank of New Zealand (RBNZ) choose to enact one in light of today's GDP figure. So far, the Kiwi looks to be holding its ground amid the recent flurry of speculation about a downturn across the Pacific.
Oil - Oil Price Rebounds from Technical Shift
Crude Oil prices found support near $96 a barrel Wednesday as sentiment appeared to favor a mild growth in global industry alongside a potential uptick in demand for the black gold. Data releases out of the US and China yesterday were driving many investors back into riskier assets as most reports suggested a surprise flattening out in growth among global industrial output and consumer spending.
As investors sought higher yields, the value of crude oil, which has been seen swinging widely all week, in fact rose to a weekly high of $96.15 a barrel. A sudden slump in dollar values due to yesterday's statement by Fed Chairman Ben Bernanke sparked an environment that was more conducive to risk-taking and growth. The value of oil, therefore, found modest support and began to make strides. If this sentiment can persist, the value of Light, sweet crude may continue to gain through the rest of the week, targeting $98 a barrel.
After a false breakout higher from the triangle chart pattern the EUR/USD is approaching the rising support line off of the May low at 1.4160. Falling daily and monthly stochastics suggest the next move will be to the downside. A break here and the next major support is found at 1.3970. The 200-day moving average at 1.3905 may also prove supportive. Below this key technical mile marker the rising trend line from the 2010 May low comes in at 1.3710 and traders may see buying interest at this level. To the upside the July 7th high at 1.4370 could be supportive, as well as the falling resistance off of the May and July highs at 1.4530. A close above the June high at 1.4700 would likely signal a shift in momentum to the upside.
Cable is caught in a 220 pip range as the pair struggles to stay above its 200-day moving average and its initial support at 1.5910. A move lower and the next support to enter the picture stands at the late January low of 1.5750, not far from the 38% Fibonacci retracement from the 2010 May to 2011 April move. Support is also found at 1.5650 which has served as both support and resistance in October and in December of last year. The consolidation pattern is capped at 1.6140 where the neckline from a head and shoulders pattern rests. For traders who are not yet short this would be a point from which to sell a potential rally. The head and shoulders reversal chart pattern shows a measured move which could take the GBP/USD lower to 1.5370.
A series of higher highs and lower lows has created a bullish channel on the daily chart but the pair will likely remain locked in a range that has contained the USD/JPY since early June. A number of resistance levels will provide ample opportunities to sell into any gains, a play that is in-line with the long-term trend. The top of the channel is found at 81.50 and is close to the 100-day moving average. Additional resistance is located at the May high of 82.20 and the falling trend line from the 2007 high comes in at 82.80. The bottom of the channel could prove to be supportive at 80.45 but a break here could test the May low at 79.50.
The daily chart provides an interesting technical picture for the Swissie. The pair is flirting with its 50-day moving average at 0.8550, a technical indicator the pair has not traded above since February. A potential head and shoulders bottom reversal may also be forming with the neckline falling from the mid-June highs and the high from July 1st. A measured move from the pattern suggests potential gains of 260 pips and a reversal would likely target the mid-May lows at 0.8755 and the March 16th spike lower which is also a Fibonacci retracement target at 0.8845.
The Wild Card
The Aussie dollar is standing at a crossroads following the breakout from a bullish flag pattern on the daily chart. After moving above the resistance line that falls off of the May high and the pair's subsequent pullback to the line as is sometimes the case with this chart pattern, the pair now trades below the 1.0790 resistance. Forex traders should note that a break above this resistance level will likely test the all-time high from May at 1.1010.
|10:00||EUR||CPI Flash Estimate||y/y||0.3%||0.3%||0.3%|
|10:00||EUR||Italian Prelim CPI||m/m||0.2%||-0.3%||-0.3%|
|14:00||USD||S&P/CS Composite-20 HPI||y/y||8.1%||7.5%||-|
|15:00||USD||CB Consumer Confidence||92.4||92.2||-|
|00:30||AUD||AIG Manufacturing Index||47.3||*||-|
|00:50||CAD||Tankan Manufacturing Index||12||11||-|
|00:50||JPY||Tankan Non-Manufacturing Index||19||17||-|
|01:00||EUR||German 10-y Bond Auction||1.05|1.4||*||-|
|01:00||GBP||10-y Bond Auction||-||-||-|
|USD||Total Vehicle Sales||17.5M||16.9M||-|
|02:35||JPY||Final Manufacturing PMI||51.7||51.7||-|
|08:15||EUR||Spanish Manufacturing PMI||52.8||52.3||-|