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Monday, 6 Jul 2009
G8 Meeting to Spur Forex Market Volatility
At the beginning of this week, the forex market appears flatter than usual. Most currencies have leveled off and there appears to be quite a few consolidation trends on the technical charts. No doubt this pressure is building up towards this week's G8 meeting in which the world's financial leaders will discuss economic recovery plans. The participants typically reveal the summit's main talking points to reporters throughout the various meetings which start this Wednesday in L'Aquila, Italy, and the impacts vary depending on the statements.
USD - USD Loses Momentum Ahead of G8 Meeting
The U.S Dollar dipped against the EUR on Friday, reversing some of its sharp gains the previous session following weak U.S. jobs data. On Thursday, data showed the U.S. economy lost a much greater than expected 467,000 jobs in June, pointing to a long, slow economic recovery and causing market sentiment to sour.
Gains in the greenback were also tempered after Russia and India said the global economy is too dependent on the U.S. currency and called for revisions in how $6.5 trillion in foreign-exchange reserves are managed. The impact has been mixed, but the market still appears dollar-positive.
Trading has been extremely thin, due to the U.S. Independence Day holiday, with most major currency pairs staying within very tight ranges. This week, investors will likely focus on the Group of Eight (G8) meeting on July 8-10 for any further debate on currency diversification plans. This may cause the U.S Dollar to come under further weakness this week.
EUR - EUR Recovers Modestly after Thursday's Sharp Fall
The EUR edged higher against the Dollar on Friday, correcting after sharp falls during the late hours of the previous session in the wake of bleak U.S. jobs numbers which dampened hopes for a global economic recovery. Trade was quiet, however, with U.S. markets closed for a public holiday.
The EUR reacted little to the weaker than forecasted Euro-Zone retail sales data and a slight upward revision to the purchasing managers' survey for services in the region. Despite the EUR recovery, the common currency stayed well below a 1-month high above $1.4200 hit earlier in the week, with some analysts saying any gains are likely to be limited due to concerns about the sustainability of any economic improvement.
The European currency has declined for a 3rd day versus the Yen, the longest stretch in 7 weeks. The EUR fell after Russian President Dmitry Medvedev said the world is too reliant on the Euro-Zone currency, damping the appeal of European assets. Also, Germany's IKB Deutsche Industriebank AG said it lost 580 million EUR ($810 million) in the fiscal year ending March 31st as the value of its investments fell. The news is a reminder there are still financial problems in Europe that imply the region may not be so safe, and that may be negative for the EUR, analysts have said.
JPY - Yen Strengthens vs. EUR, Most in 7 Weeks
The Japanese Yen strengthened against the EUR and the Dollar on concern credit market losses will keep increasing in Europe and the U.S., spurring demand for the relative safety of Japan's currency. The Yen strengthened to 133.46 EUR from 134.26 last week, after rising to 133.30, the highest level since June 25th. The currency also rose to 95.39 per Dollar from 96.04. The JPY gained versus all of the 16 most-active currencies as Asian stocks declined, prompting investors to cut holdings of higher-yielding assets.
However, the JPY's gains may be curbed after North Korea test fired its short-range missiles on July 4th, spurring condemnations from the U.S., South Korea and Japan. Analyst said that as long as North Korea is launching short-range missiles that can't reach the territory of Japan, this geopolitical news which often weighs on the Yen, will not affect the price action. Traders said that the key for the financial market is positioning ahead of the G8 summit. The U.S Dollar may come under further weakness this week, and this could support the Yen a little bit higher as well.
Crude Oil - Oil Falls on Firmer U.S Dollar
Crude Oil prices fell as the U.S Dollar climbed against the EUR, limiting investor appetite for assets to hedge against inflation. A rising Dollar usually reduces the attraction of raw materials such as oil. Crude Oil fell to the lowest in 5 weeks, to $64.93 a barrel on a stronger USD and speculation U.S. fuel inventories will increase as the recession curbs demand in the world's biggest energy-consuming country.
The Organization of the Petroleum Exporting Countries (OPEC) has said prices needed to be around $75 to spur investment and it has lowered its output targets by 4.2 million barrels per day since last September to try to support the market. The Oil minister of Kuwait, the 6th biggest producer of the OPEC producers, said yesterday that he wants to see oil prices stay above $60 a barrel and will watch the market closely before deciding on its output at OPEC's meeting in September.
The price of this pair currently floats in the over-sold territory on the RSI of the 4-hour chart, signaling upward pressure. The recent bullish cross on the hourly MACD, and the impending bullish cross on the 4-hour MACD, suggests that an upward move is impending. Going long might be a wise choice today.
An imminent bullish cross is forming on the daily chart's Slow Stochastic, signaling an upcoming appreciation for the price of this pair. With the price hovering near the over-sold border on the RSI of the hourly and 4-hour chart, going long with tight stops might not be a bad idea throughout the day.
The strong downward movement of this pair has pushed the price into the over-sold territory on the RSI of the hourly and 4-hour charts, signaling upward pressure. A fresh bullish cross on the hourly Slow Stochastic supports the notion of an upward correction. Going long appears to be the preferable strategy today.
This pair's price currently floats in the over-bought territory on the 4-hour chart's RSI, signaling downward pressure. The fresh bearish cross on the hourly MACD supports the notion of a downward movement. Going short with tight stops may be preferable.
The Wild Card
The sustained downward movement of this commodity has resulted in most indicators showing upward pressure. The RSI on the hourly and 4-hour charts show the price of oil floating in the over-sold territory, while the 4-hour chart's Slow Stochastic shows a fresh bullish cross. The downward movement of this commodity may not yet be finished, but will likely experience an upward correction throughout most of the day. Going long for the correction, then short for the downward trend appears to be a wise choice for forex traders throughout the day.
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|03:00||EUR||Daylight Saving Time Shift||-||-||-|
|03:00||GBP||Daylight Saving Time Shift||-||-||-|
|01:00||EUR||German Prelim CPI||m/m||0.9%||-||-|
|01:00||EUR||Italian 10-y Bond Auction||1.36|1.5||-||-|
|01:50||JPY||Prelim Industrial Production||m/m||3.7%||-||-|