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Monday, 13 Jun 2011
Forex Traders Weighing Options between Bad and Worse
Traders this week are bouncing back and forth between an interest rate differential approach, which favors the EUR, and a debt concern approach which favors the USD. Both carry an ominous overtone for the global economy. Whichever of these approaches wins out will depend on data being released over the next several weeks of summer.
USD - USD Up as Traders Caught between Debt and Differentials
Commentators are beginning to view the potential of a rebound in US dollar values this week after last week's underwhelming rate statement by the European Central Bank (ECB). So far, the US dollar appears to be gaining from this sentiment.
The Fed's record low interest rates will likely persist for the foreseeable future, and the ECB may end up lifting rates again this year, but so far investors are paying closer attention to the potential for a meltdown in Greece due to ravaging debt concerns.
The EUR/USD rose to a monthly high last week, reaching towards 1.4750 before settling below 1.4350 Friday. Soft data out of the American economy continues to fuel a slight run-up in the safe-haven Japanese yen and Swiss franc, but the USD has only gained moderately from the shifts in investment.
Traders are bouncing back and forth between an interest rate differential approach, which favors the EUR, and a debt concern approach which favors the USD. Whichever of these approaches wins out will depend on data being released over the next several weeks of summer.
Today, with most of Europe on holiday for Whit Day, the day which follows Pentecost, and with the US posting no news, most traders are withholding their trades until later in the week when these economic giants come back online.
EUR - EUR Mixed as Investors Consider ECB Rate Statement
The euro has been experiencing mixed results following last week's rate statement by the European Central Bank (ECB). Despite a semi-hawkish statement that garnered support for an impending rate hike, traders appeared more concerned with the potential Greece implosion as its economy struggles to make steps to secure another installment of its financial bailout.
While debt concerns loom in the euro zone, and industrial production still appears to be faltering globally, the higher yielding assets like the GBP and EUR appear positioned to lose value despite hints at growth policies being undertaken shortly by both.
The EUR/USD rose to a monthly high last week, reaching towards 1.4750 before settling moderately lower. Soft data out of the American economy continues to fuel a slight run-up in the safe-haven Japanese yen and Swiss franc, but the USD has only gained moderately from the shifts in investment and the EUR is slowly benefiting less and less from the shifts back into risk.
As for Monday, the euro looks to be anticipating mixed results against the other major currencies as traders are largely absent from the region due to several bank holidays. In observance of Whit Day, Switzerland, France and Germany will be closing, but Italy will still be publishing its industrial production figures at 9:00 GMT. The resulting limited trading volume will likely give cause for a slow opening day.
JPY - Japanese Yen Moving Upward as Data Supports Growth
The USD/JPY has been trading lower recently as investors move sporadically in and out of the greenback. After reaching upwards of 81.00 on Friday, the pair quickly dropped to 80.20 as of this morning. Japan's economy has published several positive figures over the last week, much of which has helped establish the yen's recent bullishness. Whether it will be enough to reverse much of the negative sentiment surrounding Japan is yet to be determined.
The yen suffers from its own economic concerns, while shifts in consumer sentiment have helped lift yen values against a number of its rivals. Last week's data, however, provided a ray of light which caused a secondary shift towards the yen for reasons other than safety. The USD/JPY looks to be continuing this movement for the foreseeable future as a result, especially given the massive shift away from the US dollar which is helping to lift the island currency.
Oil - Crude Oil Prices Steady Near $102 a Barrel
Oil prices held steady this morning with the $102 price level acting as a firm footing for this commodity. US oil stockpiles sunk sharply last week, falling well below expectations and helping to hold the value of Light, Sweet Crude steady near its current mark. The price of black gold has been trading within a consolidation pattern these past several days and traders are beginning to anticipate a breach sometime this week.
The value of the US dollar versus the euro in recent trading has also dropped towards a six-day low of 1.4330, which has helped prevent oil prices from taking off after last week's surprisingly unhinged OPEC meeting. With today's steady sideways movement, traders appear likely to see oil reaching a decision point this week. Whether oil traders decide to lift oil prices from a buy-in on physical assets, or pull away from oil out of a perceived glut, is something traders will bear witness to this week.
A three week rally was met with a failure of the pair to breach 1.4700, a level not far from the previous trend line which opened the door for a significant pullback that retraced 50% of the late May to early June gains. The week's declines ended at the 20-day moving average at 1.4330 and will serve as initial support. Falling daily stochastics suggest the move lower may have scope to continue where the pair may find resistance at 1.4250, a level that coincides with the 61% retracement and the rising trend line from the May low. A breach here and the pair will test the 100-day moving average followed by the May low at 1.3970. To the upside, resistance will likely come in 1.4570 followed by 1.4700.
The weekly candlestick suggests further declines may be in store as last week's candlestick ended on a shaven bottom, indicating momentum is moving to the downside. A confirmation will be needed from this week's trade to confirm the bearish pattern. In the meanwhile the move lower finished at the 38% retracement level of the December to April move and is quickly approaching the trend line off the May 2010 low at 1.6180. The pair could receive a bounce from this level, as was the case in late May. Resistance is located at 1.6400 and 1.6460, and 1.6550. Should the pair not receive a bounce at the trend line declines could mount to 1.6060 and the April low at 1.5935.
The yen was relatively unchanged from the previous week after an attempt to breach below the 80 yen level was only briefly successful before the pair was bid higher. While most oscillators remain in neutral territory, the pair continues to trade lower with resistance at the falling trend line from late May high which comes in near the 20-day moving average at 81.00. This level may offer traders a better price to enter short. Further resistance is located at 81.75 from the May 31st high followed by 82.25 of the May 19th high. Support comes in at the May low of 79.50 followed by the all-time low at 76.11.
The pair is testing a short term resistance level at 0.8450 and a breach here would expose the resistance at 0.8855 which lies just below the 20-day moving average. A rise to this price may offer traders better levels at which to enter short. Above these levels rests the falling trend line from the mid-February high which comes in at 0.8720. Support is found at the all-time low at 0.8325.
The Wild Card
After six weeks of declines the S&P 500 appears to have confirmed a break below the 1290 support level. Forex traders may target the next major support at 1250 from the mid-March low. This area has further significance as the 200-day moving average comes in at 1252.
|09:00||EUR||Spanish Flash CPI||y/y||-0.1%||-0.3%||-0.4%|
|09:55||EUR||German Unemployment Change||-22K||-1K||-14K|
|10:00||EUR||M3 Money Supply||y/y||2.5%||2.6%||2.5%|
|10:00||EUR||Italian Quarterly Unemployment Rate||12.5%||12.4%||-|
|13:00||EUR||GfK German Consumer Climate||8.5||8.6||-|
|00:30||JPY||Tokyo Core CPI||y/y||2.5%||2.3%||-|
|00:30||JPY||National Core CPI||y/y||3.0%||2.9%||-|
|00:50||JPY||Prelim Industrial Production||m/m||2.9%||-0.4%||-|
|01:00||NZD||ANZ Business Confidence||26.5||-||-|
|01:05||GBP||GfK Consumer Confidence||-2||-1||-|
|01:30||AUD||Private Sector Credit||m/m||0.5%||0.5%||-|
|08:00||EUR||German Retail Sales||m/m||-3.2%||1.7%||-|