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Tuesday, 18 Aug 2009
Greenback Trades Lower Ahead of the U.S Housing Starts Report
The U.S dollar came slightly off highs against major counterparts on Monday, after a report that showed improved manufacturing conditions in the New York region in August. The Dollar earlier received a boost as commodities sold off following a sharp drop in Chinese equities overnight. Today the greenback declined before the Commerce Department reports housing data at 12:30 GMT on speculation the U.S recession probably eased further. The impact of a stronger- then-expected number will be positive from a risk point of view, analysts said, hence reducing demand for the dollar as a refuge.
USD - Dollar Gained from Drop in Equities However the Correction Is Imminent
Yesterday's trading experienced a moderate level of bullishness for the USD with the sudden weakness in equity markets bringing back a level of risk aversion. Expectations for a bearish Dollar in the optimistic environment that emerged at the start of this month have now begun to dwindle as stock markets continue to get squeezed. The safety of currencies such as the USD and JPY has grown throughout the beginning of this trading week.
Climbing as high as 1.4048 against the EUR, and as high as the 1.6275 price level against the Pound, the greenback is finally starting to show signs of bearishness after a long day of upward trading. Market fundamentals may have less to do with today's early morning movement, however, as economic data shows a continuation of yesterday's trends. A technical correction is underway, but data releases expected at the opening of European and American markets should drive some volatility in today's trading.
The opening of the European markets will reveal consumer sentiment in Germany and the Euro-Zone in the form of the ZEW sentiment reports at 9:00 GMT today, while the US markets will release data concerning inflation and the number of building permits issued last month for the construction of new homes. These will mark the important calendar events for today and traders should be on guard for further USD depreciation if a market correction is indeed underway.
EUR - EUR Dampened from Risk Aversion; ZEW Report on Tap
After the recent drop in equities, the EUR has fallen off its latest gains against its primary currency counterparts. While still holding above the 1.40 level against the USD, the EUR was nevertheless trading at a two-week low versus the greenback yesterday. On the other hand, the EUR continued to out-perform the British Pound, climbing as high as 0.8645 before the opening of European markets yesterday. Versus the Yen, the EUR also suffered a set-back from equity losses, trading as low as 132.50.
On the positive side, Euro-Zone exports have risen, signaling growth in the troubled region and pointing to future appreciation for the EUR against most of its rivals. However, the demand for riskier assets took a beating yesterday after the sharp fall in global stock markets. Most information regarding the 16-nation currency this week point to sharp movements in both directions following individual data releases. EUR traders should anticipate the heavy news week ahead and prepare for volatility.
Being released today at 9:00 GMT are the ever-important ZEW economic sentiment reports from Germany and the Euro-Zone. Both reports are expected to show an increase from the previous reading, while remaining below the significant 50.0 mark. This sends the mixed signal of demonstrating growth in optimism, but a modicum of hesitation about market strength as well. British inflationary data may also generate volatility for the GBP, but traders should focus more closely on the ZEW reports as these will drive today's market
JPY - JPY Correction Due, European Confidence Deciding Factor
As one of yesterday's leading currencies following the sharp drop in equity markets worldwide, the JPY is now experiencing a distinct technical correction. Whether this recent downward move will sustain itself may depend largely on the data releases at the opening of the European and US markets for each of the Yen's currency rivals individually.
Climbing as high as 94.20 against the USD, 132.50 against the EUR, and 153.50 versus the Pound, things now appeared to have reversed ever since this morning's trading witnessed a sharply declining JPY opposite these leading currency rivals. If market optimism is shown to have increased in Europe following the ZEW sentiment reports at 9:00 GMT, the JPY could continue to see sharp losses versus its rivals as risk aversion begins to abate.
Crude Oil - Oil Slumps below $68 a Barrel, but Returning to Bullishness
After last Friday's surge above $73 a barrel, Crude Oil now trades near the $69 price level with a few bullish signals being provided by the market. Yesterday's drop in equities, and subsequent boost in the value of the USD, helped drive oil prices below $70 a barrel, but this morning's rally in risk appetite is proving positive for commodity prices. Since the start of today's trading, Crude Oil has climbed over $1.00 and continues to experience bullishness.
With European consumer sentiment reports expected, there is the possibility that a growth in optimism will help rally investors to riskier assets, thus lowering the Dollar in today's trading. With the greenback losing value, Crude Oil could gain strength on the USD's behalf. Traders should be on the lookout for any signs of positive growth in the Euro-Zone as this may trigger a return to risk appetite, and a potential sell-off of USD, helping to push oil prices higher.
The Slow Stochastic and the RSI on the hourly chart are showing a continuation of the current bearish correction. There is also a very accurate bearish channel forming on the daily chart. In addition, all indicators on the hourly chart are pointing down. Going short might be the right choice today.
The Cable is in the middle of a very intensive downtrend that started a week ago and shows great momentum that on a bigger scale appears to have more room to run. In the shorter time frame a bullish cross on the 30 min chart indicates that there might be a minor correction before the bearish move resumes. Selling on highs appears to be preferable today.
Narrow range trading continues as the pair did not make a significant move in either direction, and is currently traded around the 94.80 level. The hourly chart's Slow Stochastic is showing a fresh bearish cross suggesting that downwards correction might take place in the nearest time frame. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.
The pair has been range-trading for a while now, with no specific direction. The Daily chart's Slow Stochastic providing us with mixed signals. The 4 hour charts do not provide a clear direction as well. Waiting for a clearer sign on the hourlies chart might be a good strategy today.
The Wild Card
Gold prices are once again dropping, and it is currently traded around $937 per ounce. And now, the 4 hour chart's Slow Stochastic is giving bullish signals, indicating that gold prices might go up. This might give forex traders a great opportunity to enter a very popular trend.
|03:00||CHF||Daylight Saving Time Shift||-||-||-|
|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%||-||-|