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Thursday, 30 Jun 2011
Greece Passes Austerity Budget, Risk Appetite Rising
With the parliament in Greece voting in favor of the austerity budget yesterday, most traders began to shift their portfolios to higher yielding assets in expectation of smoother sailing for the region, at least for a while.
CAD - CAD Bullish after CPI Growth, GDP Implications
The Canadian dollar (CAD) was seen trading significantly higher yesterday following bullish reports about its level of inflationary growth. The agency Statistics Canada released its latest findings on CPI and Core CPI yesterday afternoon, both of which outpaced forecasts.
The nominal reading was seen moving higher than the core data, implicating a jump among the 8 volatile goods and services which the core reading excludes. Inflation in Canada was a concern last month, as several reports highlighted shrinkage in the northern giant's manufacturing and industrial sectors. A dip in oil prices is also beginning to gouge the Loonie's value in technical trading.
The implications which yesterday's CPI figures bring to today's economic calendar is a possibility of unexpected growth in Canada's gross domestic product (GDP) report. The Canadian economy will be publishing its monthly update on the nation's GDP with expectations for a contraction of 0.1%. If the bullish CPI growth factors into recent market forces, the GDP reading may also come in above expectations which would likely lead to another bullish leap by the CAD in this week's trading.
EUR - EUR Trading Higher after Greece Austerity Budget Passes
Trading moderately higher yesterday, the EUR found support following news of heightened risk aversion across the region. With the parliament in Greece voting in favor of the austerity budget yesterday, most traders began to shift their portfolios to higher yielding assets in expectation of smoother sailing for the region, at least for a while. Prior to the vote, the EUR/USD was seen trading somewhat hesitantly, edging above $1.43 for the first time in a week. After the vote, the pair jumped above $1.44 before flattening out.
Long-term structural debt concerns across the euro zone still linger and many investors have taken reports from the manufacturing and industrial sectors these past two months as an indication that the economy is slowing over the second quarter. A somber economic news day yesterday held volatility to a minimum as investors awaited the results of the Greek budget vote, which passed amid violent protests around the country's capitol. The market jubilation at the news of a passed budget helped riskier assets climb throughout the latter half of the day.
With today's heavy news day ahead, traders will want to pay attention to the shifts in risk sentiment following yesterday's euphoric highs. Given the large string of economic indicators being published in the euro zone today, the possibility exists for current sentiment to get turned around. So far, however, optimism appears to be prevailing and traders are seeking riskier assets, driving the EUR higher as the Asian session wore on.
JPY - Japanese Yen Holding Near 81.00 vs. US Dollar
The Japanese yen (JPY) was seen trading sideways yesterday, holding only slightly above intervention levels versus the US dollar (USD). Yesterday's bullish industrial output data, along with Tuesday's retail sales data, has so far helped turn the tide from a dismal few months for Japan. Traders seeking risk also appear to be hedging with JPY carry trades from the appealing nature of the yen these past few days.
News for today is focused on the ramifications of Greece passing its austerity budget yesterday. Sentiment appears favorable for a jump into higher yielding assets among global investors. The JPY may dip against its rivals somewhat as a result, but this week's strongly bullish data may help it retain some value. Traders should be on the lookout for any shift in sentiment which will push investors en masse back to safety, of which the JPY will likely benefit the most.
Oil - Crude Oil Price May Sink after US Stockpiles Decrease
Crude Oil prices dropped may find themselves in decline this week after yesterday's oil inventories report from the United States revealed a sharp decrease in US stockpiles. The news was not unexpected considering President Barack Obama announced recently that strategic reserves would be released in order to ease rising gas costs for US consumers. The pressure this release may put on oil prices, however, could drive the price lower in the short-term.
Sporadically moving dollar values may have also helped many investors pause on their long-taking positions on physical assets. The passage of Greece's austerity budget yesterday could fuel a return to growth behavior that may counter this move, though, leading to a tug-of-war between bears and bulls on the commodity markets. Should sentiment hold steady this week, oil prices may fail to find support and begin to move back towards $90 a barrel.
Momentum has now turned lower as falling stochastics appear on the monthly, weekly, and daily charts. Initial support comes in at the June low of 1.4075 and the May low of 1.3970. A break here and technical traders will target the 200-day moving average at 1.3860. While the 8 cent decline from the May high is a sharp drop, traders should keep in mind that the correction the pair is currently undergoing is just that, a correction. Buyers may be lurking at the rising trend line from the June 2010 low. Resistance comes in at the recent high of 1.4440 where the 50-day and 20-day moving averages are floating.
The pair has broken a significant technical barrier at the neckline from a head and shoulders pattern which measures a target at 1.5370. Monthly and weekly stochastics are turning lower so traders may expect further declines. Support is located at the March low at 1.5935 followed by the late January low at 1.5750. To the upside the neckline from the head and shoulders pattern at 1.6120 could offer traders a level to enter short as many times in a head and shoulders chart pattern the pair will revert back to the neckline only to head lower from there.
Yen bears are making a stand at the 80 level. A previously broken trend line from the April high comes in at this level and will also support the bears. However, once this last bastion of support is broken the fallout could be similar the price action in March. Should the move higher continue, resistance is found at 81 and 81.75.
The previous resistance at 0.8550 held and the all-time low at 0.8325 is continually being pressured so a break here may be in the works. An absence of supports or trend lines below this level makes it difficult to predict how low the pair could go.
The Wild Card
After failing to move above its 200-day moving average the USD/CAD has pulled back for three consecutive days and is now testing the base of its broadening chart pattern at 0.9680. Forex traders should note a break of this level would likely signal a continuation of the long term downtrend after a period of consolidation.
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