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Monday, 7 Dec 2009
Is the Dollar Recovering?
Due to a much better than expected U.S Non-Farm Employment Change figures for November, the Dollar rose against all the major currencies on Friday. Moreover, this has been one of the first times since the recession began that positive data from the U.S have boosted the Dollar. Does this mean that the Dollar is on its way to recovery?
USD - Dollar Soars on Unexpected Non-Farm Payrolls Figures
The Dollar rallied last week against most of the major currency pairs. Throughout most of the week, the Dollar continued its slow decline from the past few weeks. However, just before the weekend, the Dollar appreciated about 200 pips against the Euro, the Pound and the Yen.
Until Friday, the Dollar continued with its bearish trend due to the negative figures from the U.S economy. The Manufacturing Purchasing Managers' Index dropped to 53.6 points from 55.7 in October. In addition, the ADP forecast for November's Employment Change was quite gloomy. The estimate was that another 169,000 people have joined the unemployment circle in the U.S. The unsatisfying figures continued to weaken the Dollar.
However, the Non-Farm Employment Change result on Friday has put an end to the bearish trend. The end result showed that the payrolls on the U.S have declined by merely 11,000 in November, the best figures since the recession began. In addition, the Unemployment Rate has unexpectedly dropped from 10.2% to 10.0%. This result was truly unexpected, especially due to the former ADP forecast, boosting the Dollar as a result.
Looking ahead to this week, a lot of interesting data is expected from the U.S economy. Traders are advised to pay special attention to two major publications: The Trade Balance on Thursday and the Retails Sales reports on Friday. A continuation of positive figures has the potential to further boost the Dollar. In addition, traders should also follow Fed Chairman Bernanke's speech today. Bernanke is expected to refer to the economy's outlook, which could create volatility in the market.
EUR - Euro Drops against the Majors
The Euro tumbled against most of the major currencies during last week's trading session. The Euro's depreciation took place mainly against the Dollar and the Pound. The Euro dropped about 200 pips against the Dollar and the EUR/USD pair is now trading around the 1.4860 level.
It seems that there are two main reasons for the Euro's downfall last week. The first was the European Central Bank's (ECB) decision to leave the Euro-Zone's Interest Rates at 1.00%. The decision has left investors confused about whether the Euro-Zone economies are truly on the verge of putting the crisis behind them, or is it still to soon to tell. The second was the sharp uptrend of the Dollar, which took place due to the U.S Non-Farm Employment Change's unexpected positive figures. The combination of the uncertain outlook of the Euro-Zone and the upbeat data from the U.S have boosted the Dollar and weakened the Euro as a result.
As for the week ahead, a lot of potentially deep impacting economic publications are expected from the Euro-Zone. The German Industrial Production report for October is expected on Tuesday. The German economy is providing relatively positive data lately, and if this report will continue along this line it is likely to support the Euro. Traders should also follow the ECB President Trichet's speech today, scheduled for 13:00 GMT. If Trichet decides to refer to the possibility that the ECB will hike rates in the near future it could strengthen the Euro back towards last week's levels.
JPY - Has the Yen's Bullish Trend Reached its End?
The Yen underwent a trend reversal during last week's trading session. The Yen dropped against all the major currencies, including the Dollar, the Euro and the Pound. The Yen saw its sharpest slide against the Pound as the GBP/JPY pair rose by 600 pips and is currently trading around the 148.30 level.
The Yen's downtrend came as a result of the negative Japanese economic data which was published last week. The Preliminary Industrial Production report for October rose by 0.5%, failing to reach expectations for a 2.5% rise. In addition, the Japanese Capital Spending report, which measures the change in the total value of new capital expenditures made by businesses for this year's third quarter, dropped by 24.8%. This has shown that the Japanese economy has yet to recover from the recession, and that recovery may take longer than expected. Also last week, the Bank of Japan (BoJ) decided to leave Interest Rates at 0.10%, the lowest rates in the industrial world. This has also contributed to the weak Yen.
As for this week, a batch of data is expected from the Japanese economy. Nevertheless, traders are advised to follow the Core Machinery Orders report scheduled for Wednesday. This is a leading indicator of production, and if the end result will be negative as well, the Yen could be further weakened.
OIL - Crude Oil Stabilizes around $75.50 a Barrel
Crude oil saw a very volatile session during last week's trading. Crude oil began the week with a rising trend, reaching $78.85 a barrel. However, as the week continued, oil lost most of its gains and is currently trading around $75.50 a barrel.
Crude oil rose earlier last week due to hopes that economic recovery is on the horizon. The expectation that the U.S Non-Farm Payroll's result would show another halt in the unemployment condition led investors to believe that demand for energy will strengthen. The surprising end result, which showed that the Unemployment Rate in the U.S has improved during November, had two effects. First, expectations for a global recovery have supported crude oil prices, and the immediate reaction was a rise in crude oil's value. Second, the Dollar strengthened as a result. Considering that crude oil is valued in Dollars, an appreciation of the Dollar usually means a drop in crude oil prices. This is exactly what happened.
Looking ahead to this week, traders are advised to follow the main publications from the U.S economy, as they tend to determine oil's value. In addition, traders should also follow the U.S Crude Oil Inventories report on Wednesday, as this report has proven to have an instant impact on the market.
There appears to be a bullish cross forming on the 4-hour chart's Slow Stochastic, indicating an upward correction is expected in the near future. However, almost all other oscillators are stuck in neutral signaling that this pair may be less volatile than expected. Going long with tight stops might be the right strategy today.
The pair continues to hold its range-trading pattern with no clear sign of direction. The price sits evenly between the Bollinger Bands on all charts, and continues to float in neutral territory on all oscillators. Waiting for a clearer signal might be the right choice today.
There appears to be a bearish cross forming on the hourly chart's Slow Stochastic, signaling an imminent downward correction. The Bollinger Bands on the 30 min. chart also appear to be tightening, indicating some volatility could take place in the near future. Going short might be the right strategy today
On the daily chart the moderate bullish price movement continues within the upwards channel which still has yet to be breached. The 4-hour chart is also joining that notion with the Slow Stochastic pointing to the continuation of upwards momentum. Next testing point should be around 1.0195. Going long appears to be preferable today.
The Wild Card
There is still a bearish configuration on the daily chart, indicating that the momentum is still down. The RSI floats high supporting the notion that there is still room to run for this trend. In the shorter time frame there is a bullish cross forming on the 4 hour chart indicating that there might be a small bullish correction before the bearish move resumes. Forex traders can maximize profits by selling on highs and taking advantage of a currently bearish trend
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|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%||-||-|