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Tuesday, 12 Aug 2008
Heavy Decilne in Crude Oil Prices Spark Bullish Trend in Dollar Trading.
Yesterday, the greenback railed against all the major currencies. The EUR/USD dropped over 150 pips, descending beneath the 1.4900 level. The USD experienced similar sessions against the GBP and the CHF.
USD - Will a Bearish Correction Take Place?
Yesterday, the USD rallied against all the major counterparts. The EUR/USD dropped over 150 pips, descending below the 1.4900 level. The dollar experienced similar sessions vs. the GBP and the CHF as well.
The USD's rally sent the EUR/USD pair to a 5.5 month low, as the pair breached the 1.4900 support level. The clearest reason for the strong downtrend that the pair went through was the continuation of falling Oil prices. A barrel of Sweet Crude traded beneath $113 yesterday, down from $116 last week, boosting the USD further and further. In addition, the ongoing improvement in U.S economic outlook over the past month strongly contributed to push the USD up to its current peak.
Looking ahead today, the most important financial indicator scheduled from the U.S economy is the Trade Balance. Analysts forecast that the U.S deficit will grow from $-59.8B in May to $-61.8B in June. Another indicator that will see light is the Investor's Business Daily Economic Optimism. This index conducts a survey of about 900 consumers which asks respondents to rate the relative level of economic conditions including economic outlook, personal financial outlook and confidence in federal economic policies; it's expected to deliver a more positive U.S consumer's opinion on their economy condition. As the USD's bullish voyage is proceeding for almost 3 straight weeks, it seems that a minor correction might be quite unavoidable. Negative data, accompanied by a halt in dropping Oil prices, might generate such scenario for the USD's leading crosses. Traders are strongly advised to pay attention to today's Trade Balance announcement, as a weaker than expected result may launch such a correction.
EUR - Weak EUR Continues to Support The USD Rise.
Yesterday, the EUR experienced mixed results against most of its major currencies. Vs. the USD it underwent an intensive bearish trend and had especially volatile sessions against the GBP and the JPY.
Till now, several factors have led to the EUR's downfall against the USD. Yesterday's French Monthly Industrial Production index continued the series of unfavorable data coming from the Euro-zone. This indicator fell by 0.4% in June, following a 2.9% decrease in May. The uncertainty regarding the Euro-zone's economic outlook keeps pushing it's currency down. Another landmark in the EUR's falling trend was the recent statement made by the European Central Bank President Jean-Claude Trichet regarding the economic growth witch is expected to be particularly weak throughout the 3rd quarter of this year. In addition to EUR's gloomy condition, the Crude Oil prices are dropping on a daily basis now, significantly boosting the USD while further deteriorating the EUR.
Although it seems that in the short-term the USD may suffer a mild correction, on the long-term, a continuation of negative data from the Euro-zone will inject extra fuel to the USD's rally. During the nearest days, most attention should be focused on Thursday, when both the German Preliminary Gross Domestic Product and the European Consumer Price Index are due to be published. These 2 leading indicators should give a proper perspective on the European-Economic Zone's future developments.
JPY - Gross Domestic Product Data On Tap.
Yesterday, the JPY underwent volatile sessions against most of its major currency counterparts. The JPY began the trading day with falling signals, yet later it managed to appreciate and resume its former levels.
The Japanese economy released 2 financial indicators yesterday. The Yearly Machine Tool Orders that decreased by 8.9% which is greater decline than previously published a year ago. And the Corporate Goods Price Index had unexpectedly risen by 7.1% in July from a year earlier, making it the highest rise for the index since January 1981.
As for today, a very significant news day is scheduled for the Japanese economy, as the Preliminary Gross Domestic Product Indices will be released. These indicators are a leading measure for the economy inflation, and analysts forecast both to decrease. Such results should prevent the Japanese economy chiefs from rising interest rates, and might further weaken the JPY. Traders should place their positions before the release of the two indices, in order to benefit from a sharp price move that is likely to take place at that time.
Crude Oil - Markets Focuse on China Demand.
Oil prices finished at a three-month low Monday after briefly falling below $113 a barrel, as the dollar extended its rebound and more signs emerged that China's energy demand could be leveling off. In earlier trading, oil fluctuated as traders monitored the conflict between Russia and Georgia that some believe could disrupt supplies. But those worries faded as the dollar's recovery accelerated, and as the energy market focused on a report from China that the country's crude oil imports in July were down 7% from last year.
Few weeks back, global analysts were as hot as crude oil that was surging past $140 per barrel. Most analysts then predicted that crude oil would touch a record $200 soon. Now that crude oil prices are falling day by day, most analysts are changing their tones according to the times.
After a very sharp drop during yesterday's session which took the pair on a dip of 150 pips, there is a certain consolidation around 1.4880. 4 hour chart's Slow Stochastic shows a negative slope and indicates a possible continuation of the bearish trend. If the pair will breach the 1.4800 level, we may expect another bearish drop to follow the breach.
The 4 H chart indicates that there is still room for this pair to reach new lows, particularly after this pair breached the key 1.9300 support level 4 days ago. Both the RSI and Momentum are negative indicating that this pair may continue its bearish rampage. However the dailies indicate that the cable is deep into the overbought territory, so it may be a good time to begin pairing off some of those short positions.
This pair is still in the midst of a steady uptrend which is not yet showing any sign of leveling out. Daily chart's RSI and Momentum are still positively sloped indicating that there is still plenty of steam left in this bullish move. The 4 hour chart is still in a bullish formation, and it looks as if the pair is heading toward 111.00 again. A preferable strategy might be going long for the short run.
The pair continues its nonstop bullish journey overlooking every possible resistance level and shows no signs of stop. All oscillators are very bullish and the trend appears to have more room to run even on the daily level. Being on the long side appears to be a wiser move for today.
The Wild Card
There is a very distinct downwards channel forming on the daily chart as all oscillators on the 4 hour and the daily charts support this notion. After a failed attempt to break the upper barrier, this commodity is regaining its bearish momentum which provides forex traders with a great opportunity to enjoy a trend that may have a target price of 112.
|08:00||EUR||German Industrial Production||m/m||0.7%||-||-|
|08:01||JPY||BoJ Press Conference||-||-||-|
|08:45||EUR||French Trade Balance||-3.3B||-||-|
|09:00||CHF||Foreign Currency Reserves||540B||-||-|
|10:30||GBP||Manufacturing Production m/m||m/m||-0.8%||-||-|
|10:31||EUR||German 10-y Bond Auction||0.69|1.2||-||-|
|16:00||GBP||NIESR GDP Estimate||0.5%||-||-|
|16:30||USD||Crude Oil Inventories||4.0M||-||-|
|19:01||USD||10-y Bond Auction||2.24|2.7||-||-|
|01:01||GBP||RICS House Price Balance||53%||-||-|
|01:50||JPY||Core Machinery Orders||m/m||-3.6%||-||-|
|05:45||JPY||30-y Bond Auction||1.41|3.1||-||-|