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Thursday, 21 Jul 2011
Heavy News Day Coincides with Fed Testimony on Dodd-Frank
Today's market should be highly volatile and traders will want to be on guard as they traverse today's investment landscape. The most impactful news of the day will come from both the United States and Europe which will be publishing a series of reports ranging from manufacturing, services, unemployment claims, housing and natural gas inventories. Fed Chairman Bernanke will also be giving testimony about the Dodd-Frank Act which regulates financial markets in the United States.
USD - USD Halts Climb as Risk-Taking Surges
The US dollar (USD) has experienced a rather sudden about face this week. The EUR/USD was seen moving back towards 1.4270 yesterday while the GBP/USD inched just above 1.61. Data from the American economy was largely bullish, which may have helped spark some risk-taking among investors, pulling additional capital away from the greenback.
The potential for the passage of a deficit reduction plan proposed by a bipartisan group called the “Gang of Six” has also helped boost this week's market optimism. With increased market volatility on today's forecast this momentum may find additional weight as a long series of reports get published out of Europe and the United States throughout the trading day. Most importantly, the US economy will be publishing a string of reports concerning unemployment, manufacturing, housing, and natural gas storage.
Federal Reserve Board Chairman Ben Bernanke is also due to testify on the implementation of the Dodd-Frank Act today, which was passed to further regulate financial markets. Should today's news foreshadow a continuation to this week's bullish outlook, there is a possibility that more investment will get pushed towards the higher yielding assets like the EUR, leading to a weaker USD over the coming days.
EUR - Euro Zone Flash Manufacturing and Services Data on Tap
The euro (EUR) has been trading bullish these past several trading days on recent shifts in investor risk appetite. The EUR was able to get some relief yesterday after a surge in optimism led investors to begin taking on more risk and expanding their outlook for additional growth this year. The catalyst was strong earnings statements by several large firms, as well as stable growth in the American and Canadian housing markets.
The news has been positive for risk taking, as was much of the data released by the American economy ahead of Bernanke's testimony later today. The EUR moved above 1.4260 against the USD before the market came to a close yesterday, but it continues to struggle against its regional currency counterparts, particularly the British pound sterling (GBP). With flash manufacturing and service data on tap today, forex traders should receive ample news to fill in part of the growth outlook which is missing for the month of July.
Today's market should be highly volatile and traders will want to be on guard as they traverse today's investment landscape. The most impactful news of the day will come from both the United States and Europe which will be publishing a series of reports ranging from manufacturing, services, unemployment claims, housing and natural gas inventories. Bernanke's testimony will also likely have a heavy impact on forex values today as he is set to speak about legislation regulating the financial markets in the United States.
JPY - Japanese Yen Mixed as Traders Assess Risk Landscape
The Japanese yen (JPY) was seen trading with largely neutral results versus most other currencies yesterday following this morning's less-than-surprising data reports by the Bank of Japan (BOJ). As was reported this week, regional growth in the Pacific has been only mildly better than forecasts, and in several instances worse. The Australian dollar (AUD) was seen in decline for the past two weeks after several data sets revealed an economic slump was underway; though it has regained some of those losses in the past two days.
This week's news has so far strengthened the higher yielding Pacific currencies like the Kiwi and Aussie, fueled by improvements to fundamental data from the world's leading economies and a general sentiment of risk appetite among investors. With this morning's release of Japan's trade balance data, many were expecting the island nation to begin addressing its growth outlook. As the JPY begins to take losses from external factors affecting its value, primarily a return of risk appetite, traders appear to be awaiting further news later today to more accurately gauge the direction that lies ahead for global risk sentiment. The JPY could be set to make gains if today's reports come out worse than forecast.
Oil - Oil Price Shifts Mildly Higher as Traders Anticipate Growth
Crude Oil prices found support near $97 a barrel Wednesday as sentiment appeared to favor a mild growth in global industry alongside a potential uptick in demand for the black gold. Data releases out of the US and China this week have been driving many investors back into riskier assets as most reports suggested a surprise flattening out in growth among global industrial output and consumer spending.
As investors sought higher yields, the value of crude oil, which has been seen swinging widely all week, in fact rose to a weekly high of $98.35 a barrel. A sudden slump in dollar values due to this week's earnings reports and housing data has helped lift oil values. The value of oil, therefore, found modest support and began to make strides. If this sentiment can persist, the value of Light, sweet crude may continue to gain through the rest of the week, targeting $100 a barrel.
After a gapping lower to start last week the pair moved below the 200-day moving average and on the subsequent rebound the EUR/USD found resistance at its 100-day moving average, a previous level the pair struggled to close below between the months of April and July. While the rebound higher was sharp the failure of the pair to move above the 100-day moving average and to close above the opening gap signals weakness in the pair. Initial support is found at last week's low at 1.3870 followed by the rising trend line from the June 2010 low which comes in at 1.3750. A break here is significant as it would compromise the long term uptrend for the euro, exposing the 50% retracement level at 1.3410. To the upside last week's high at 1.4290 is the first resistance followed by the falling resistance line from the May and July highs at 1.4490.
The GBP/USD price collapsed only to find support at the 38% retracement level of the May to April move at 1.5780 while the rebound higher was capped at the neckline from the head and shoulders reversal pattern. Positive divergence is found on the RSI-14 as the price made a new low but the RSI did not. This signals a potential warning sign for sterling bears. Resistance is located at 1.6230 off of the falling trend line from the April high. Above this level the previously broken trend line from the May to April move at 1.6330 will come into play. To the downside a break of 1.5780 would signal a resumption of the downtrend and would target 1.5650 which has served as both support and resistance in October and in December of last year.
The USD/JPY downtrend resumed with a vengeance last week as the pair broke below the 80 yen “line in the sand” and the support from May 5th at 79.55. This level has now turned into resistance as often happens to previously broken support levels. Only last week's low at 78.46 and the bottom of the long term wedge from Sept 2004 at 77.60 stands in the way of the all-time low at 76.11.
The Swissie has moved in one direction and one direction only. The pair made a halfhearted attempt close above its 50-day moving average and moved sharply lower from there setting a new all-time low at 0.8082 which serves as the initial support level. Any move higher may find resistance at 0.8275, the falling trend line from the February high which comes in at 0.8450, and 0.8550.
The Wild Card
The latest congestion pattern on the daily chart for spot crude oil prices has formed a triangle chart pattern. Resistance from the consolidation pattern comes in at $99, followed by $100 and $104.40. Forex traders should note that a break of the support at $95 would likely test the June low at $89.60.
|10:00||EUR||ECB President Draghi Speaks||-||-||-|
|10:00||EUR||German Ifo Business Climate||108.6||108.3||108.5|
|10:30||GBP||Public Sector Net Borrowing||6.7B||7.9B||6.0B|
|11:00||EUR||Italian Retail Sales||m/m||-0.2%||0.2%||-0.1%|
|11:45||GBP||MPC Member Besley Speaks||-||-||-|
|13:00||GBP||BOE Gov Carney Speaks||-||-||-|
|14:30||CAD||NZD Core Retail Sales||m/m||2.0%||0.7%||-|
|15:30||EUR||ECB President Draghi Speaks||-||-||-|
|15:30||GBP||BOE Gov Carney Speaks||-||-||-|
|15:30||JPY||BOJ Gov Kuroda Speaks||-||-||-|