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Thursday, 16 Dec 2010
Gold and Silver Drop as Dollar Rebounds
A threat by Moody's to downgrade Spanish sovereign debt sent investors flocking to the dollar which in turn sparked a sell off in gold and silver prices. Crude oil prices were resistant to the commodity selling as better than expected inventory numbers helped support prices.
USD - Dollar Rallies on Spain Worries
The US dollar regained its footing today as the greenback rose against the major currencies. The broad based rally was triggered following the announcement by Moody's Investor Services of a potential future downgrade of Spanish sovereign debt.
Broad based gains were seen in the dollar versus the euro, pound, and yen as many of these pairs pushed through known stop loss levels. A pickup in positive US data releases (with the exception of the November non-farm payrolls release) has some forecasting an increase in US economic growth rates as the countries of the currencies mentioned above continue to struggle to maintain positive growth rates. This is underscored by today's release of US industrial production numbers that came in as expected with an increase of 0.4%.
The EUR/USD was trading down at 1.3220 after opening the day at 1.3353. The GBP/USD is down sharply at 1.5550 from 1.5763. The USD/JPY traded at its highest level since September and finished the day at 84.31 after opening at 83.81. The S&P 500 finished the day down 0.51%.
Gold and silver prices were down sharply today following dollar buying with Gold dropping to $1379.50 after opening at $1396.68. Silver dropped to $28.80 following an opening price of $29.52.
Traders will be looking to the economic calendar today with major US economic data set to be released. US building permits and weekly unemployment claims will be published at 13:30 GMT along with the Philly Fed Manufacturing Index at 15:30 GMT. We may expect the recent streak of improving economic numbers to continue which could strengthen the dollar and send commodities lower.
Support and resistance for spot silver is found just below $28.00 and the recent high of $30.70.
EUR - Threat of Downgrade Sinks Euro; Swiss Interest Rate On Tap
Earlier in the day Moody's Investor Services announced it had put Spain on review for a future potential downgrade of its sovereign debt due to its need for increased funding in the capital markets, a struggling banking sector, as well as the fiscal difficulties of other EU members. This was the driving factor in today's trading as both the euro and the pound finished the day near their daily lows.
Spain and the EU continue to battle against contagion following agreements by both Greece and Ireland to accept joint EU/IMF bailouts in return for strict fiscal policy changes. Protests erupted today in Greece as the Greek government slashed transportation worker salaries by 10%. 20,000 union workers were estimated to have protested today as well as bank workers, teachers, and public electric workers. Firebombs were thrown at police outside the finance ministry and parliament.
The protests come on the eve of the European Union summit. Many traders are expecting new possibilities for dealing with the European fiscal crisis to be adopted from the meeting such as an increase in sovereign bond purchases by the European Central Bank.
Today will bring the release of the Libor Rate announcement followed by the monetary policy assessment from the Swiss National Bank (SNB). Interest rates are not expected to be changed from the 0.25% level. Earlier this week the Swiss government updated inflation and growth expectations and today the SNB will provide their own estimates which may be give guidance for economists and traders alike.
The Swiss franc shined this year and has performed well versus both the euro and the dollar. Further gains for the franc may be expected in the USD/CHF. A breach below the November support at 0.9550 may take the pair to the swing low on the daily chart at 0.9460.
JPY - USD/JPY Breaches Key Resistance Level
Following a broad based dollar rally today the USD/JPY moved above the 84.40 resistance level. The pair has tested this price a number of times in both November and December before failing to breach the resistance line.
Data released yesterday from Japan was on the positive note as the Tankan Manufacturing Index climbed to 5 on expectations of 4.
Yesterday the USD/JPY finished the day higher at 84.20 after opening the day at 83.81. The EUR/JPY was down at 111.40 following an opening day price of 111.93.
The USD/JPY continues to make new highs, indicating further bullishness may be in store for the pair. Traders may want to target the post intervention high of 85.90. Support comes in at 83.00 from the trend line rising off of the December lows.
Crude Oil - Crude Prices Rise on Positive Inventory Report
The price of spot crude oil was boosted yesterday after US weekly crude inventories showed sharp declines. Spot crude oil prices rose despite large gains for the dollar.
Yesterday the US Energy Information Administration released data showing crude oil inventories plummeted by 9.9M barrels in the previous week. Expectations were for a decline of only 2.7M barrels.
Spot crude oil ended the day up at $88.60 after opening the day at $87.92.
The gains in spot crude oil come despite a strong performance by the dollar in yesterday's trading. The dollar rose versus the major currencies, especially the euro. Commodity prices typically have an inverse relationship with the dollar; as the dollar rises, oil prices tend to fall.
A bullish flag pattern appears on the daily chart with the recent price being contained by two downward sloping resistance and support lines above and below the price action beginning on December 6th. Traders may want to wait for a breakout above the resistance line and go long. The pattern shows a potential price appreciation of $6 to the $95 level.
The short squeeze appears to have ended with the last two days of declines for the pair. An opportunity to enter short into the downtrend could materialize following a breach below the December 9th low of 1.3160 with a target the November 30th low of 1.2970. A protective stop could be placed at 1.3230 above the rising support from the early December low.
Yesterday's shaved head candlestick paints an interesting picture. While this signal calls for further bearish movement with momentum to the downside, the current price action is running into the rising trend line off the May and June lows and has support at 1.5480. This coincides with the Nov 30th low and is close to the 50% retracement level from May to November move at 1.5500. Traders may want to be patient and wait for a bounce higher off of the trend line to confirm a continuation of the current uptrend.
Yesterday the USD/JPY moved above the 84.40 resistance level, a price the pair has tested a number of times in both November and December but always failing to breach. The USD/JPY continues to make new highs, indicating further bullishness may be in store for the pair. Traders may want to target the post intervention high of 85.90. Support comes in at 83.00 from the trend line rising off of the December lows.
For the past two days the pair failed to breach the 0.9550 support level. Some upward movement may be expected with resistance coming in at 0.9725, a level that has had significance multiple times since October. A short term falling trend line also may provide resistance. Today the level comes in at 0.9780.
The Wild Card
A bullish flag pattern appears on the daily chart with the recent price being contained by downward sloping resistance and support lines above and below the price action beginning on December 6th. Forex Forex traders may want to wait for a breakout above the resistance line and go long. The pattern shows a potential price appreciation of $6 to the $95 level.
|23:50||JPY||M2 Money Stock||y/y||4.4%||4.4%||-|
|00:00||JPY||Monetary Policy Statement||*||*||*|
|00:00||JPY||BoJ Press Conference||*||*||*|
|00:00||GBP||10-y Bond Auction||2.73|1.8||*||-|
|00:01||GBP||BRC Retail Sales Monitor||y/y||3.9%||*||-|
|00:30||AUD||NAB Business Confidence||8||*||-|
|06:00||JPY||Prelim Machine Tool Orders||y/y||40.3%||*||-|
|07:00||EUR||German Trade Balance||18.5B||19.3B||-|
|10:00||GBP||Inflation Report Hearings||*||*||*|
|15:00||GBP||NIESR GDP Estimate||0.8%||*||-|
|23:30||AUD||Westpac Consumer Sentiment||-3.0%||*||-|