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Wednesday, 8 Dec 2010
Gold Rises to New Record High Before Falling
The US dollar rallied in the New York session to close higher versus the majors while dragging down the price of commodities. An agreement between President Obama and Republican congressman to extend Bush era tax cuts spurred the dollar buying. Investors are currently eyeing budget debates in Ireland that are expected to face stiff opposition.
USD - Dollar Rises on US Tax Agreement
The US dollar staged a late session rally following an agreement with Republican congressman that will allow for an extension of the Bush era tax cuts. The lower income tax rates would stand for another two years. Obama was quoted saying the compromise, “Is a good deal,” for Americans as it would extend tax cut to all Americans as well as unemployment benefits to those who have been out of work for a number of months. Moody's Investor Services was of the opinion that the tax cut extensions will not lead to a downgrade in the US credit rating as current fiscal pressures may remain stable.
The announcement of the agreement led to a dollar rally with the EUR/USD trading as low as 1.3260, from an opening day price of 1.3336. Early in the day the pair reached a high of 1.3400 before heading lower where the current price coincides with the rising trend line on the hourly chart.
The greenback was stronger versus the Canadian dollar as well as the Australian dollar following decisions by both central banks to hold interest rates steady and monetary policy statements that suggested an easing of monetary policy.
At the end of trading, the USD/CAD closed higher at 1.0120, up from an opening day price of 1.0050. The AUD/USD was down at 0.9829 after opening the day at 0.9903.
A lack of data releases in the US may have investors looking toward Europe for FX influences. The Irish budget votes are expected to face tough opposition and could help to weaken the euro and drive traders to buy dollars. EUR/USD support and resistance come in at 1.3250 and 1.3400.
EUR - Irish Budget Debate Takes Center Stage
All eyes are on Dublin as the budget debate rages in the Irish parliament weighing on the euro. The debate will be highly scrutinized as the joint EU/IMF bailout package for Ireland is contingent on 5 billion euros worth of budget cuts in the debt-ridden nation. Ireland expects to receive 67.5 billion euros in aid to cover the failing Irish banking system that was backstopped by the Irish government.
Comments were made by IMF Managing Director Dominique Strauss-Kahn that another solution will be needed to solve the debt European debt crisis and authorities should not address the problem as a case by case basis.
Yesterday the euro was mixed versus the majors with the EUR/USD falling to a low of 1.3250. The EUR/CHF was higher at 1.3093, from an opening day price of 1.3074. The EUR/JPY was also up at110.67 after opening the day at 109.96.
Today traders will be watching for the passage of the Irish budget decision as well as German industrial production numbers for the month of November. Expectations are for a rise of 1.1%. An output below market expectations may hurt the value of the EUR/CHF. The next support for the pair rests at 1.3000 followed by 1.2930. Resistance comes in at 1.3200.
JPY - USD/JPY Surges
The dollar was up on the yen yesterday with the USD/JPY trading up from a three week low. Driving the pair higher was the extension of US tax cuts in a deal struck by US President Obama and Congress. This helped to increase expectations of economic improvement in the US economy, boosting the rate of the dollar.
The USD/JPY finished the day up sharply at 83.55 after opening the day at 82.44.
In early Asian trading, Japanese machine orders fell by 1.4% on expectations of no change. Also the Japanese current account registered a decline of 1.46 trillion. This highlights a drop in Japanese exports that may be due to both a slowing Japanese economy as well as a stronger yen. A strong local currency makes exports more expensive in overseas markets, thereby reducing export activity.
Further declines in the yen may be seen as the USD/JPY appears to be on its way to a close above the resistance level of 82.35. The next target should be last week's high at a price of 84.40.
Oil - Spot Crude Oil Rises Above $90
The price of spot crude oil moved above $90 for the first time in two years but volatile trading did not allow for the commodity to hold its gains as the price finished the day lower. The drop in price may be attributed to profit taking as traders may have had limit orders resting at the $90 level. A strengthening dollar also may have weighed on the price of crude oil.
Spot crude oil prices reached a high of $90.74 before finishing the day down at $87.94. Trading began at the price of $88.95.
Oil prices have strengthened significantly in the past two weeks, rising from a low of $80.30 to yesterday's high above $90.
Today spot crude oil traders will be looking at the US weekly crude oil inventory release which is due to be released at 15:30 GMT. Market expectations are for a decline of 1.3 million barrels. A larger draw down than expected could help continue to push prices up above the $90 level until the $100 level.
The pair has seen stiff resistance at the 20-day simple moving average as well as the trend line for the November to December move. Today the trend line falls at 1.3360 which should serve as short term resistance. Support for the pair falls at 1.3190 as well as the November low of 1.2970.
The market appears to be indecisive on the cable as the pair has been little changed over the past two days. This is also highlighted by the flattening of the 20-week exponential moving average. Falling weekly stochastics show more declines may be in store for the pair. Support is located at 1.5565 as well as the rising trend line from May to November.
Yesterday's bullish engulfing candlestick provides a signal that further gains may be in store for the pair. Traders should be long on the pair with a target at last week's high of 84.00. Support for the pair is found at yesterday's low of 82.30.
The pair recently found support at the 0.9720 level and has risen from this point. Increasing momentum may help to carry the pair to further gains. Resistance for the pair rests at last week's high of 1.0070 and this should serve as the near term target for traders. Support rests at 0.9720.
The Wild Card
Spot gold prices rose to a new all-time high yesterday before falling lower. The hourly chart shows the price is currently trading near the congestion area of $1,390. This may present an opportunity to enter long with a target at the resistance level of $1,410, followed by the all-time high of $1,431. Forex traders can place a protective stop below the support level of $1,380 for a trade setup that allows for a respectable 2:1 profit to risk ratio.
|01:00||NZD||GDT Price Index||-1.3%||-||-|
|01:00||USD||Total Vehicle Sales||17.8M||17.2M||-|
|01:30||AUD||AIG Manufacturing Index||52.3||-||-|
|01:50||JPY||Tankan Manufacturing Index||12||12||-|
|01:50||JPY||Tankan Non-Manufacturing Index||19||23||-|
|03:35||JPY||Final Manufacturing PMI||49.9||49.9||-|
|09:15||EUR||Spanish Manufacturing PMI||55.8||55.6||-|
|09:45||EUR||Italian Manufacturing PMI||54.8||55.2||-|
|09:50||EUR||French Manufacturing PMI (p)||50.5||50.5||-|
|09:55||USD||German Manufacturing PMI||51.9||51.9||-|
|10:00||EUR||Final Manufacturing PMI||52.5||52.5|
|11:30||GBP||BoE Financial Stability Report||-||-||-|
|13:30||USD||Challenger Job Cuts||y/y||-22.5%||-||-|
|14:15||USD||ADP Non-Farm Employment Change||201K||212K||-|
|15:45||USD||Final Manufacturing PMI||53.4||53.4||-|