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Tuesday, 4 Aug 2009
Greenback Touches 2009 Low vs. Currency Basket
The Dollar fell to its lowest levels this year on Monday after the Institute for Supply Management's index on U.S. manufacturing improved more than expected in July. Along with some better earnings reports from foreign banks, the data supported equity markets and spelled trouble for the U.S. currency because investors no longer desire its safe-haven status.
USD - Dollar Tumbles on Optimistic Manufacturing Data
The U.S. Dollar tumbled on Monday after the publication of far better than forecast ISM Manufacturing PMI from the U.S. economy. The reading rose to an 11 month high of 48.9, notably higher than the forecasted figure of 46.4. Construction data in the U.S. also showed some big improvements. This led to a drop in the demand of the USD, as risk appetite grew throughout the day. The greenback tumbled against virtually all of its major currency pairs, as traders feel that the recession is nearly over, and economic growth will soon return to the U.S. economy. As a result, the USD fell to its lowest level in 7 months.
The EUR/USD rose to as high as 1.4444, before closing at 1.4421. This was the USD's weakest rate against the European currency since the middle of December last year. The Dollar fell by about 250 pips vs. the British Pound to 1.6980. This was the Dollar's lowest level vs. the GBP since about the middle of October last year. One of the only currencies that the Dollar gained ground against yesterday was the Yen. The USD/JPY cross increased by about 70 pips to the 95.43 level, as demand for higher yielding assets increased throughout much of Monday's trading.
Looking ahead to today, forex traders can expect much of the same volatility in the market. The Dollar is set to move a lot against its major pairs, such as the GBP, EUR, JPY, and CAD. This is likely to occur, as investors continue to trade on much of yesterday's data. Additionally, the U.S. market is set to be the main market mover again with the with the release of Personal Spending and Personal Income data at 12:30 GMT, and the publication of U.S. Pending Home Sales at 14:00 GMT. In order to take advantage of the very volatile forex market, it's advisable that you open your USD positions now.
EUR - EUR Soars to 7 Month High versus the USD
The European currency soared to a 7 month high versus the USD yesterday, as optimistic global manufacturing data from the Euro-Zone, U.S., Britain and China led to a decline in demand for the safe-haven USD. In addition, the British Pound jumped against the Dollar, as the British economy showed really clear signs that it may rise out of recession by the end of the 3rd quarter. This was following the publication of very positive British manufacturing data, and the much better than expected pre-tax profits of HSBC and Barclays Bank.
The GBP/USD pair rose by over 250 pips in Monday's trading to the 1.6980 level. This may also have been helped as the USD may have come under increasing pressure from the rise in Oil and other commodity prices. The EUR/USD cross climbed by 190 pips to 1.4421, the highest level since December 2008, just weeks after the collapse of Lehman Brothers. Both the EUR and GBP rose against a string of other currencies, such as the JPY, as demand for higher yielding assets rose, along with risk appetite, as yesterday's trading dragged on.
Tuesday's trading is set for another action packed day. The 2 most important releases from Britain will be the Construction PMI at 08:30 GMT and Nationwide Consumer Confidence figures at 23:01 GMT. From the Euro-Zone, we can expect the PPI figures at 09:00 GMT. These releases are expected to help drive market volatility for the EUR and GBP throughout the trading day. Furthermore, it is advisable to follow economic events coming out of other leading economies, such as the U.S. as they are likely to also impact these 2 currencies.
JPY - JPY Falls against All the Major Currencies
The Japanese Yen fell against all of its major currency pairs yesterday, following the release of optimistic manufacturing data from the world's leading economies. This helped push-down demand for lower yielding assets such as the JPY and USD, and push-up demand for high yielding assets such as the GBP and EUR. Also, as the day dragged on, so did risk appetite. This led to the sell-off of the JPY and the buy-up of foreign assets. Analysts said this is trend is likely to continue as the global economy continues to recover.
The JPY fell by 70 pips against the USD to the 95.43 mark. The Japanese currency plummeted to 137.38 from 134.84 on Monday vs. the EUR. Against the British Pound, the Yen dropped nearly 360 pips to the 161.91 level. As a whole, the Yen it still a strong currency. However, if economies such as the U.S., China and Britain start showing growth in the coming months, then we may see the JPY lose lot of the strength that it gained since the start of the current economic crisis.
OIL - Crude Oil Climbs to Over $72 a Barrel
The price of Crude Oil climbed to over $72 a barrel yesterday, before closing at around $71.25. Monday's trading saw Oil at the highest level since July 1st. Yesterday's bullish behavior in Crude can is largely owed to the optimistic manufacturing data that was published by the leading economies, led by the U.S., Britain and China. This is important, as the U.S. and China are 2 of the biggest consumers of Oil, which also played into higher Crude prices yesterday.
The high expectations surrounding the improved global economic sentiment, increased risk appetite, which also led to a fall in demand of the USD. In turn, this helped push-up the price of Crude Oil. The price of Crude was unable to hold above the $72 mark due to a lack of demand. However, if the global economy continues to recover, and positive economic results continue to be published, we may see stronger Oil prices for the foreseeable future.
The pair has been showing a strong and consistent uptrend since the beginning of this week, and the momentum appears that it will continue uninterrupted. The small local correction is slowly losing its energy, and the daily chart is showing that the renewal of the bullish trend is quite imminent. Buying on lows might be a good strategy today.
On a daily chart the pair is showing consistent bullish momentum for a while now and today is no difference. Although the signal is not strong the pair might have a local target at 1.6990, which might make it feasible for forex traders to go long with tight stops.
Since the last bearish move, the pair has been consolidating around the 95.10 level for quite a while now. The hourlies provide bearish signals, suggesting that the restoration of the bearish momentum is due. Going short appears to be preferable today.
The bullish move the pair is going through appears to have diminishing momentum, and lacks the ability to make a significant breach above the 1.0660 level. The hourly studies show mixed signals, and the daily chart's Stochastic Slow is indicating a mild bearish direction. Waiting for a clearer signal on that pair appears to be a good decision today.
The Wild Card
On the daily chart the moderate bullish price movement continues within the upwards channel which still has yet to be breached. The 4-hour chart is also joining that notion with the Slow Stochastic pointing to the continuation of upwards momentum. Next testing point should be around 0.8510 Forex traders have a good opportunity to enter what appears to be the beginning of a steady rising trend.
|11:00||EUR||CPI Flash Estimate||y/y||0.2%||0.2%||0.2%|
|11:00||EUR||Italian Prelim CPI||m/m||-0.1%||0.2%||0.2%|
|00:45||NZD||Overseas Trade Index||q/q||1.5%||-1.9%||-|
|01:00||NZD||GDT Price Index||14.8%||-||-|
|01:00||USD||Total Vehicle Sales||17.6M||17.3M||-|
|01:30||AUD||AIG Manufacturing Index||50.4||-||-|
|03:35||JPY||Final Manufacturing PMI||51.9||51.9||-|
|05:45||JPY||10-y Bond Auction||0.40|2.8||-||-|
|06:30||AUD||RBA Rate Statement||-||-||-|
|09:15||EUR||Spanish Manufacturing PMI||53.6||53.9||-|
|09:45||EUR||Italian Manufacturing PMI||55.3||56.2||-|
|09:55||EUR||German Unemployment Change||9K||-5K||-|