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Friday, 13 Mar 2009
G20 Summit on Economy Kicks-Off Today
The finance ministers and central bankers from the top 20 industrialized nations are set to begin another economic summit today in which a multitude of recent concerns about the economy will likely be addressed. These meetings, which can last days, have an indirect impact on the market and decisions reached during its meetings are typically implemented at a much later date. It is important for forex traders to follow any statements made regarding stimulus packages and interest rate cuts, however, as these will offer insight into future monetary policy decisions by the central banks.
USD - Dollar Moves on Stock Market Gains
The Dollar recorded an extremely volatile session yesterday as the American stock market made massive gains on Thursday. The Dow Jones climbed an impressive 240 points, or 3.5%.This was owed to a number of diverse factors, such as General Electric revealing that losing its AAA rating won't hurt the company, General Motors stating that it won't need government loans this month, and better-than-expected retail sales figures helped push-up stocks too. This led the Dollar to make big moves against its major currency crosses. Against some currencies it made gains, and against others, like the EUR, it recorded heavy losses.
The Dollar dropped 100 points against the EUR to close down at 1.2924 in yesterday's trading, as investors decided to take some riskier assets. The Dollar also made losses against the Pound. This is more likely to be a correction in the pair, as the Pound has lost a lot of ground against the greenback as of late. The British currency gained 50 points against the USD to close at 1.3918. The Dollar, however, recorded a 150 point gain vs. the Yen as it closed at 97.63.
Other news owing to the bullish U.S. stock market and the fall in the Dollar's value against the EUR yesterday was Bank of America, JP Morgan, and Citigroup reporting impressive figures, leading to more risk taking yesterday. If the trend continues, this will mark a turning point in the current recession. In turn, this would mean a lot for the forex market. Thus, investors would abandon the current safe-haven Dollar en masse and return to currencies such as the GBP and EUR. However, to be safe, the global economic situation should only be judged on a daily basis.
Today, we have some important economic data releases coming out of the U.S. before the weekend kicks in. There are the U.S. Trade Balance figures at 12:30 GMT and the Preliminary University of Michigan (UoM) Consumer Sentiment report at 13:55 GMT. Better-than-expected figures may push the EUR/USD rate up to the 1.3000 level by Friday's close. It is also advisable for traders to pay close attention to whether the Euro-Zone will reveal whether or not they will make rate cuts close to 0% in the coming months.
EUR - EUR Gains against Major Currencies
The EUR made notable gains against all of its major currency pairs in Thursday's trading. This comes about as the stock markets of the Euro-Zone made similar gains, much inspired by the rally on Wall Street. There was also a leap in confidence yesterday, as President of the European Central Bank (ECB), Jean-Claude Trichet, revealed that he will be very aggressive at tackling the economic crisis, more than many analysts had originally forecasted.
Trichet revealed that he plans on cutting the overnight lending rate to 0.5%. In the short-term, this has resulted in an increase in demand for the European currency. This recent news is likely to lead to much volatility in the coming weeks between the EUR and its main currency pairs and crosses.
The EUR gained 40 points against the British Pound in yesterday's trading to close at 0.9284. It nearly gained 300 points vs. the JPY to close at 126.24. This result is also owed to the stock market rally in Japan and the poor Japanese GDP figures, showing that Japan's economy shrunk by 3.2% in the 4th quarter of 2008, the worst figures since 1974. Against the Dollar, the EUR rose 100 points to 1.2924, as investors took up riskier assets.
Looking ahead to today, there is some important news coming out of the Euro-Zone. The German Wholesale Price Index (WPI) will be released at 7:00 GMT, and the Retail Sales figures are set to be released at 10:00 GMT. If these figures match expectations, the EUR is likely to build on yesterday's gains against its major currency pairs. There may be other factor's affecting the EUR's strength later today, such as investors profiting from current market conditions ahead of the weekend.
JPY - JPY Slides on Poor GDP Data and Stock Market Rally
The JPY slid in Thursday's trading owing to 2 factors. First, the recent publication of Japan's poor GDP figures showing that her economy shrunk by 3.2% in the 4th quarter of 2008, the sharpest fall since 1974. The second factor that led to the very weak Yen yesterday was the stock market rally in Japan, inspired by Wall Street. The Nikkei rose by over 300 points, or 4%, as investors dropped the safe-haven Yen. Shares such as Sony, Canon, and Japan's banking sector made notable gains. This was the push that Japan needed to show that there may be light at the end of the tunnel. Maybe we are seeing a turnaround in economic fortunes for Japan?
The JPY made large losses against its major currency crosses. Against the Dollar, the Japanese currency fell by 150 points to close at 97.63. The JPY dropped a massive 300 points vs. the EUR, as there was renewed confidence yesterday due to the Euro-Zone's fiscal policy, and the move away from less risky assets. The Pound also gained against the JPY by 250 points to finish yesterday's trading session at 135.93, reversing losses that the Pound made in recent days. Revised Industrial Production and Household Confidence figures may determine the JPY's strength in early trading today. However, as the day goes on, the Yen will be impacted more and more by developments coming out of the U.S. and the Euro-Zone.
Oil - Crude Oil Prices Soar $4 Higher
The price of Crude Oil for April delivery soared a dramatic $4 a barrel in Thursday's trading to $46.60. This comes about as ministers from the Organization for Petroleum Exporting Countries (OPEC) are set to meet this coming Sunday. Officials in Saudi Arabia and Libya revealed that there may be a decision on further production cuts at their next meeting. However, ministers from OPEC failed to go into detail. There is concern, however, about the destabilizing economic situation on Oil prices.
Throughout this week, Oil prices have continued to be volatile as the upcoming meeting for OPEC in Vienna approaches. On Wednesday, for example, Crude prices dropped dramatically, after a higher-than-forecasted storage of Oil that was published in the Crude Oil Inventories report in the U.S. It seems that these losses have now been overcome. We will have to wait until Sunday's meeting for the surprises that OPEC's oil ministers have for us.
The recent bullish trend is losing its steam and the pair seems to be consolidating around the 1.29 level. The hourly chart's RSI is already floating in the over-bought territory suggesting that the upward trend may see a bearish correction soon. When the downwards breach occurs, going short with tight stops appears to be the preferable strategy.
The 4-hour chart is showing mixed signals with its RSI fluctuating in neutral territory. However, the daily chart's RSI is sitting near the bottom border, suggesting that the possible next move might be a bullish one. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
The typical range-trading on the hourly chart continues. Both the hourly RSI and Slow Stochastic are floating in neutral territory. However, the pair currently sits near the bottom border of the 4-hour chart's RSI, suggesting an upward correction may be imminent. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
The daily chart is showing mixed signals with its Slow Stochastic fluctuating in neutral territory. However, a fresh bearish cross on the hourly chart's Slow Stochastic implies that a downwards correction might take place in the nearest time frame. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.
The Wild Card
Crude Oil prices rose significantly yesterday and peaked at $46.50 a barrel. However, the hourly chart's RSI is floating in the over-bought territory, suggesting that the recent upwards trend is losing steam and a bearish correction may be impending. This might be a good opportunity for forex traders to enter the new trend at a very early stage.
|10:00||EUR||Italian Monthly Unemployment Rate||12.3%||12.4%||12.6%|
|11:00||EUR||CPI Flash Estimate||y/y||0.3%||0.4%||-|
|11:00||EUR||Italian Prelim CPI||m/m||-0.3%||-0.1%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|13:30||USD||Employment Cost Index||m/m||0.7%||0.6%||-|
|14:55||USD||Revised UoM Consumer Sentiment||86.4||86.4||-|
|14:55||USD||Revised UoM Inflation Expectations||2.8%||-||-|