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Monday, 12 Sep 2011
Interest Rate Statements Favor USD Gains
Interest rate statements released by the world's leading central banks last week portrayed a global economy in crisis. Each central bank seemed to be taking a wait-and-see approach with monetary policies, holding rates steady and declaring a pessimistic outlook. The impact appeared to get magnified with each statement, forcing a sharp return in safe-haven appeal which has helped the US dollar (USD) make significant gains.
USD - US Dollar Surges against Currency Rivals
The US dollar (USD) was seen trading heavily bullish Monday morning as traders saw a sharp rise in risk aversion following last week's economic reports and interest rate statements. The EUR/USD dropped from week's high of 1.4281 to a low of 1.3581, a mark not seen since early February. The USD/JPY saw somewhat milder gains, with the greenback inching above 77.80 before leveling off.
Interest rate statements from last week portrayed a global economy in crisis. Each central bank seemed to be taking a wait-and-see approach with monetary policies, holding rates steady and declaring a pessimistic outlook. The impact appeared to get magnified with each bank statement, forcing a sharp return in safe-haven appeal which helped the greenback make significant gains, especially considering the removal of the Swiss franc (CHF) from buy status due to a pegging strategy by the Swiss National Bank (SNB).
As for this week, the US economic releases will focus mostly on retail sales, consumer confidence, and inflation. Today's publications appear to be JPY-heavy, however, with no significant reports coming out of the United States. Liquidity will likely be mild in today's afternoon trading as low market activity is being forecast.
EUR - EUR Bearish as Traders Seek Safety
The euro (EUR) was seen trading with largely bearish results this morning following last week's sobering assessments by central banks worldwide. Against the US dollar (USD) the euro was trading near a 7-month low of 1.3581, with few signs of halting this bearish movement. Against the Great British pound (GBP), the EUR witnessed a similar plummet in strength, hitting a March 2011 low of 0.8575.
Traders appear to be ditching the 17-nation common currency in exchange for safe-haven assets amid expectations of a double-dip recession. A pessimistic sentiment towards investing in the EUR at the moment has many investors on edge. An embattled euro zone, fending off market bears amid turmoil in its peripheral nations, looks to be standing on uncertain ground as traditional safe-havens, like the Swiss franc (CHF) and Japanese yen (JPY), are removed from such status by central bank maneuvers, making the USD the only stable store of value in the foreign exchange market.
Economic sentiment across the euro zone remains negative, with many analysts and economists expecting moves towards safety by traders this week following last Friday's sudden surge of risk aversion. With a light news day ahead, many traders are awaiting more data releases later in the week before coming back to the EUR. If today's data also turns negative, the EUR is likely to take another hit.
JPY - Japanese Yen Mixed as Traders Weigh its Safe-Haven Appeal
The Japanese yen (JPY) was seen trading moderately higher versus most currencies this morning as its value as an international safe haven begins to get challenged by the prevailing economic conditions. Being linked to international risk sentiment, the yen has experienced an expected uptick during a period when shifts away higher yielding assets became prominent. With several bank interventions from Japan's central bank, and a mood of seeking more stable stores of value among investors, the yen appears to be on shaky ground.
The latest moves of the JPY are causing some concerns, however, as many speculators were anticipating a downturn following the Bank of Japan's (BOJ) latest rate statement. A strengthening yen has benefits for the buying power of the island economy, though its dependence on exports makes a strong yen unfavorable for longer-term growth in Japan's current financial model. The persistence of the yen's rising strength is causing some furrowed brows in Japan's economic circles, and this may be a cause of its mixed trading behavior.
Gold - Gold Price Consolidating Near $1855 an Ounce
The price of Gold found weak support over the weekend amid the surging strength of the US dollar, the currency in which such assets are valued. Gold has been trading with stronger price action since early August, but traders have been awaiting a price correction from the rampant increase in risk aversion due to rising tensions from the euro zone's periphery and a sudden lift off in dollar values.
As investors seek safety, the value of Gold, which has been seen trading with mixed results, is expected to rise following its current consolidation pattern near $1855 per troy ounce, but a selloff in commodity futures pulled down on precious metals last week. A sudden rise in dollar values due to this week's uncertain environment is expected to assist the sentiment favoring Gold. Should risk sentiment continue to bounce in sporadic directions this week, the price for this precious metal may continue to experience similar swings in value.
A sharp decline in the value of pair and EUR/USD has put in serious technical damage when it closed below its long term uptrend from May 2010. Both weekly and monthly stochacstics are falling as the pair undergoes a sharp correction. Support comes in at a range of 1.3400-25 from the February low and the 50% Fibonacci retracement from the bullish move that took the pair from the May 2010 low to the May 2011 high. The 61% retracement at 1.3040 is a significant mile marker while long term players may be focused on the January pivot of 1.2875. To the upside the July low of 1.3835 is the initial resistance, followed by the previously trend line which could prove to be resistive as often occurs with broken trend lines and this level is found at 1.3990.
Three weeks of declines and cable has broken below its long term rising trend line from the May 2010 low. The pivot at 1.5780 is a significant support level which coincides with a 38% Fibonacci retracement from the May 2010 to April 2011 move. Below here the GBP/USD has support at the October lows/early January highs of 1.5650 followed by December pivot at 1.5350. Initial resistance may be found at 1.6080 followed by 1.6375 and the late August high of 1.6450.
The yen has been range bound between its all-time low of 75.94 and 78.85 to the upside. Price action in the crosses has been much more volatile. Daily, weekly, and monthly stochastics are mixed and the next major resistance level is found at the post intervention high of 80.20 followed by the long term trend line from the June 2007 high which comes in at 81.00. A lack of support on the daily chart makes it difficult to predict a downside target but the big round number of 75 stands out.
Last week the pair surged higher by almost 13% on the back of the SNB protective floor at 1.20 for the EUR/CHF. The USD/CHF continues to move higher and is now testing its falling trend line from November 2010 which comes in at 0.8890. This level has additional importance as it coincides with the 68% Fibonacci retracement from the November 2010 high to the August low. Both weekly and monthly stochastics are rising and with a break here the pair could extend its gains to the resistance at 0.8945 from the April 1st high. Support comes in at 0.8545 and 0.8250.
The Wild Card
The AUD/USD gapped lower this morning but failed to move below a key support level at 1.0315 from the August 19th low. The pair lacks support below this level and a break here could trigger declines to the August low of 0.9925. Forex traders should also note the additional resistance levels higher at 1.0480, 1.0660, and 1.0765.
|07:00||JPY||BoJ Outlook Report||-||-||-|
|08:00||EUR||German Retail Sales||m/m||2.5%||-0.8%||-|
|08:45||EUR||French Consumer Spending||m/m||0.7%||-0.3%||-|
|10:00||EUR||Italian Monthly Unemployment Rate||12.3%||12.4%||-|
|11:00||EUR||CPI Flash Estimate||y/y||0.3%||0.4%||-|
|11:00||EUR||Italian Prelim CPI||m/m||-0.3%||-0.1%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|13:30||USD||Employment Cost Index||m/m||0.7%||0.6%||-|
|14:55||USD||Revised UoM Consumer Sentiment||86.4||86.4||-|
|14:55||USD||Revised UoM Inflation Expectations||2.8%||-||-|