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Wednesday, 9 Jul 2008

How will Oil prices respond after yesterday's $6 dip?

EUR/USDGBP/USDUSD/JPYUSD/CHFAUD/USDEUR/GBP
Daily Trenddowndownnodowndowndown
Weekly Trenddowndowndownnodownup
Resistance1.57521.9768108.021.04450.95980.8039
1.57251.9742107.871.04100.95700.8019
1.56991.9718107.701.03700.95350.7990
Support1.56601.9673107.301.03100.94820.7945
1.56321.9650107.021.02870.94500.7907
1.56081.9621106.801.02500.94320.7880

Economic News

USD -

Yesterday, the greenback rallied against most of its currency pair rivals. The USD gained close to 100 pips against the EUR, and saw bullish trends against the JPY and the GBP as well.

One of the main contributors to the USD's rising trends was a speech given by Federal Reserve Chairman Ben Bernanke yesterday, in which he stated that the Fed may extend its emergency-loan program for securities firms into next year. By saying so, Bernanke calmed the markets, almost reassuring market players that the Fed will be there in case any problem occurs. Another boost in support for the bullish USD was the unexpected drop in Oil prices. Crude Oil was traded in yesterday's session for less than $136 a barrel, $6 lower than the previous day and with the drop the USD climbed back up to rates below 1.57 versus the EUR and below 1.97 against the GBP.

Despite this, the US economy released a host of fundamental indicators yesterday that stifled the push in the USD. The leading indicator of the day, Pending Home Sales, which measures the change in number of signed real estate contracts for existing single-family homes, fell by 4.7% in May to 84.7 from an upwardly revised 88.9 in April. The Wholesale Inventories survey rose by 0.8%, slightly above expectations, mainly as a result of higher food and energy prices. The May U.S Consumer Credit rose by $7.78 billion to bring total consumer credit up to $2.57 trillion.

Today, the sole indicator for the USD will be the Crude Oil Inventories, which measures the change in the number of barrels of crude oil held in inventory by commercial firms during the past week. Analysts forecast it to descend by 1.5M. Traders are advised to pay close attention to this indicator, along with Crude Oil prices, as they have proved to have a significant effect on USD pairs.

EUR -

Yesterday, the EUR saw mixed results versus most of its currency pair counterparts. The EUR underwent a bearish trend against the USD, declining close to a 100 pips. Against the GBP and the JPY it mainly fluctuated within a small range.

The main reason for the EUR's drop vs. the USD was a press conference held by the European Central Bank (ECB) president Jean-Claude Trichet after the interest rate hike. Trichet said that price stability remains ECB's main concern, and that rising inflation is still a valid and calculated risk for the Euro-Zone. And yesterday, ECB member Tumpel-Gugerell contributed even further to speculation that no one in the monetary policy committee is committed to another rate hike, especially not with oil prices falling as much as they did yesterday. Along with the surging Dollar, the EUR's downfall was inevitable.

Today, in early morning EUR news, French and German Trade Balance was released close to expectations and contributed very little to market activity. A speech by ECB President Trichet could also set he tone for what could be a day of recovery for the EUR. A relatively slow afternoon of news today will keep investors pressed to 14:35 GMT release of US Crude Oil Inventories as the catalyst for any expected market volatility.

JPY -

The JPY underwent volatile sessions within most of its currency pairs. Until midday the JPY saw mainly downtrends against the USD, the EUR and the GBP. However, at that point a reversal took place, and the JPY had fully recovered.

Yesterday's trading began with some disturbing news for the JPY as the Japanese economy Watchers Current Index, which measures the current mood of businesses that directly service consumers, fell to a 4 years low, mainly as a result of high food and oil prices. Yet later on, the Core Machinery Orders rose by 10.4%, well above expectations for a 1.1% increase.
Today, the Corporate Goods Price Index is expected to rise by 5.2%, and the Japanese Current Account that measures the quarterly difference in value between imported and exported goods and services is forecasted by analysts to greatly rise from 1.51T to 1.90T.
Traders should follow carefully today's data, along with global developments, especially from the U.S.

OIL -

The cost of oil dropped in dramatic fashion yesterday, as a stronger USD and economic jitters helped push crude futures down more than $5.

Crude oil traded near a 2 week low in New York after falling the most in 3 months yesterday as Iran downplayed the possibility of a war and the dollar rose, limiting the appeal of commodities. Crude has dropped more than $9 since reaching a record $145.85 a barrel on July 3. Crude oil for August delivery was at $136.14 a barrel, up 10 cents, at 10:50 a.m. Singapore time on the New York Mercantile Exchange. A stronger dollar also helped keep Oil prices lower by discouraging investors from pumping more money into commodities. In addition, the US government stated that worldwide Oil consumption would rise by almost 1.2 million barrels a day.
Along with that, the US Energy Department raised its outlook for the average price of a barrel of crude and a gallon of gasoline this year. The Energy Information Administration's Short-Term Energy Outlook now say oil will average $127 a barrel this year, up from the $122 a barrel forecast in last month's report.

Technical News

EUR/USD

The pair has been going through choppy sessions with no distinct direction for the past 6 trading days. Several attempts to breach through the 1.5600 support level failed, and the pair is consolidating around 1.5700. the 4 hour and the daily chart provide mixed signals. However, the hourlies are showing signs of local bullish momentum. The hourly Slow Stochastic has a positive slope that implies a bullish correction might continue in the near time.

GBP/USD

The bearish flag formation on the daily chart is still valid, as no major breaches occurred. The momentum is still very bearish as pointed by the daily RSI. Forex traders should wait for an additional break through the 1.9600 level to validate the next sharp bearish move.

USD/JPY

After bottoming at 105.00 on the 4 hour chart, the pair now shows a relatively volatile price movement with strong bullish momentum. The pair is in the middle of a bullish trend as the attempts to breach through the 109.00 resistance level continue. The daily chart's Slow Stochastic also indicates that the bullish momentum might continue. Going long appears to be preferable.

USD/CHF

The pair continues to float without a distinct trend. No significant breach has been seen on the daily chart, and the 4 hour chart is giving mixed signals. Traders are advised to wait for a clear break before swinging into the trend

The Wild Card

Crude Oil

This commodity is in the midst of a very strong bearish corrective move and appears to be heading towards $130 per barrel again. The bearish channel together with the sharp negative slope of the 4 hour Slow Stochastic, makes it quite lucrative for forex traders to join the downtrend and swing in with stops.

Current Time: 09/01 13:03 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
09/01
00:50JPY+ Monetary Base y/y42.7%43.7%-1
09/02
02:00NZD+ ANZ Commodity Pricesm/m-2.4%--1
02:30AUD+ Building Approvals m/m-5.0%--5
02:30AUD+ Current Account-5.7B--3
02:30JPY+ Average Cash Earningsy/y1.0%--3
04:45JPY+ 10-y Bond Auction0.52|4.3*-1
05:30AUD+ Cash Rate2.50%2.50%-5
05:30AUD+ RBA Rate Statement***5
06:45CHF+ GDPq/q0.5%--1
08:00EUR+ Spanish Unemployment Change-29.8K--3
09:30GBP+ Construction PMI62.4--5
10:00EUR+ PPI m/m0.1%--1
14:45EUR+ Final Manufacturing PMI58.0--1
15:00USD+ ISM Manufacturing PMI57.1--5
15:00USD+ Construction Spending m/m-1.8%--1
15:00USD+ IBD/TIPP Economic Optimism44.5--1
15:00USD+ ISM Manufacturing Prices59.5--1
00:01GBP+ BRC Shop Price Indexy/y-1.9%--1
00:30AUD+ AIG Services Index49.3--1
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