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Monday, 22 Mar 2010
Is the EUR/USD on its Way Towards a New Low?
After two weeks in which the Euro saw a bullish correction against the Dollar, the EUR/USD pair seems on its way downwards. The pair is currently trading around the 1.3515 level, and a drop of 100 pips will mark a year low. Will it take place later on in the week?
USD - Recovery Indications from the U.S. Economy Strengthen the Dollar
The Dollar continued to strengthen during last week's trading session. The Dollar soared against the Euro, and the EUR/USD pair has reached the 1.3502 level. The Dollar saw a rising trend against the Pound as well.
The bullish trend of the Dollar came in a week on which several economic indicators proved that the U.S. economy is stabilizing. The Building Permits report showed that 0.61M new residential building permits were issued during the month of February. This has been the third month in a raw that at least 0.60M permits were issued. In addition, the Core Consumer Price Index (CPI), the leading inflation gauge rose by 0.1% during February. The latest CPI results showed that there are no worries of either inflation or deflation, which is a very reassuring notification for a recovering economy. The unemployment condition also seems to be stabilizing as the weekly Unemployment Claims decreased by 5,000 to 457,000 during last week. At the current timeline, when global economies still struggle to pull out of recession, investors understand that it is often better to see solid data from the economy. This shows that the economy is truly recovering and is likely to continue to provide recovery indications.
As for the week ahead, many interesting news events are expected from the U.S. economy. Traders are advised to pay special attention to the Existing Home Sales, the Durable Goods Orders index, the New Home Sales and the weekly Unemployment Claims. Traders should also follow Fed Chairman Ben Bernanke's speech which is expected on Thursday as he is expected to discuss potential interest rate changes.
EUR - Euro Continues To Tumble Vs. The Majors
The Euro saw a bearish trend against most of its major counterparts during last week's trading session. The Euro dropped about 250 pips against the Dollar, about 100 pips against the Pound and over 200 pips against the Yen.
Two main reasons continue to push the Euro lower against the major currencies. The first reason is the Greece debt crises. The Euro-Zone seems to be reluctant to offer a final rescue plan at the moment, and investors respond with less and less faith in the European currency. It appears that the Euro will continue to slide until the problematic Greek financial issues will be resolved. The second reason of the Euro's freefall is the disappointing economic data from the Euro-Zone. The European Economic Sentiment failed to reach expectations for 40.1 points and has dropped from 40.2 on February to 37.9 points on March. This has been the sixth consecutive drop in this survey. This further indicates the fragile condition of the Euro-Zone that still seems as if the economic recession is not completely over.
Looking ahead to this week, a batch of data is expected from the Euro-Zone. Special attention should be given to publications from the German economy such as the German Business Climate and the German Consumer Climate. In addition, the European Central Bank President Trichet is expected to deliver two speeches this week and traders are advised to pay attention as harsh volatility usually takes place during his speech.
JPY - Yen Corrects Losses against the Major Currencies
The Yen rose against most of the major currencies during last week's trading session. The Yen gained about 200 pips against the Euro and the EUR/JPY pair is trading at the 122.20 level. The Yen gained about 200 pips against the Pound as well.
The most significant reason for the Yen's bullish trend is the pessimism regarding the Euro-Zone which takes place mostly due to the Greece debt crises. This has lowered risk appetite in the market, and led investors to look for safe-haven assets such as the Dollar and the Yen. Another catalyst for the Yen's appreciation is the positive data that was published from the Japanese economy. The Tertiary Industry Activity, which measures the change in the total value of services purchased by businesses during January, rose by 2.9%, beating expectations for a 1.3% rise. In addition, the All Industries Activity report showed that the total value of goods and services purchased by businesses has grown by 3.8% during January. These two indicators further strengthen the notion that the Japanese economy is recovering, and thus supporting the Yen.
As for this week, traders are advised to follow two leading indicators: the Japanese Trade Balance on Tuesday and the Tokyo Core Consumer Price Index (CPI) on Thursday. These publications tend to have a large impact on the Yen, and traders should take under consideration that positive result are likely to further boost the Yen.
OIL - Harsh Volatility Drives Crude Oil towards $80 a Barrel
Last week's trading session was mostly characterized with ups and downs for crude oil trading. Crude began the past week with a drop to $79 a barrel, which was followed with a sharp rise to $83 a barrel. However close to the weekend crude oil dropped again and is currently trading around $80.00 a barrel.
Crude oil saw a bullish trend during the beginning of last week mainly due to speculations that the Euro-Zone will declare a final bailout plan for Greece. However, as the week progressed it seemed quite certain that the Euro-Zone leaders would fail to agree on such rescue plan. This has reduced risk appetite and drove investors to look for safer haven assets such as the Dollar and the Yen. In addition, the appreciation of the Dollar also contributed to the weakening crude oil. Crude is traded in Dollars and thus when the Dollar rises, crude oil's value tend to drop.
As for the week ahead, traders are advised to follow the main publications from the U.S. economy and the Euro-Zone as these seem to have the largest impact on crude oil. Traders should also follow the U.S. Crude Oil Inventories report on Wednesday, as its publication tends to have an instant impact on the market.
During Friday's trading the pair broke out of the bearish flag consolidation pattern that had formed over the past two weeks. However the pair may have become oversold during this continuation of the bearish trend. The daily chart shows a bullish cross may be forming on the Slow Stochastic Oscillator, indicating the potential for an upward price movement. This is supported by the 4-hour chart that also shows a bullish cross on the Slow Stochastic. The 7-day Relative Strength Indicator has broken its downward sloping trend line and is moving higher. Traders may want to liquidate long positions as the pair could begin to move higher.
The bearish streak continues and the daily chart shows signs that the downward price movement could accelerate. The MACD histogram is downward sloping and a bearish cross appears to be forming, indicating a downward price trend and the potential for the price to head lower. The price has also crossed below the 20-day moving average line on the Bollinger Bands, indicating the pair could extend as far as the lower Bollinger Band line. Traders should use this level as a take profit target of 1.4870.
A consolidation pattern has been forming on both the daily chart and the 4-hour chart with a majority of the price action taking place above the 20-day moving average of the Bollinger Bands. This shows a tight trading range for traders to enter the market. For those that go long, a limit order should be placed near the resistance level of 90.70. Traders going short will want to target the 90.30 support.
The pair has been range-trading for a while now, with no specific direction. The Daily chart's Slow Stochastic providing us with mixed signals. All oscillators on the 4 hour chart do not provide a clear direction as well. Waiting for a stronger sign on the hourlies might be a good strategy today.
The Wild Card
Oil prices are once again dropping, and are currently traded around $80.50 per barrel. And now, the 4-hour chart's RSI is giving bullish signals, indicating that Oil prices might go up. This might give forex traders a great opportunity to enter a very popular trend.
|15:55||USD||Revised UoM Consumer Sentiment||89.4||90.2||88.8|
|15:55||USD||Revised UoM Inflation Expectations||2.6%||2.8%|
|16:00||USD||New Home Sales||467K||471K||458K|
|16:00||USD||Pending Home Sales||m/m||0.3%||0.9%||-1.1%|
|16:30||USD||Crude Oil Inventories||2.6M||0.4M||1.9M|
|18:00||USD||Natural Gas Storage||-17B||-|
|00:00||AUD||HIA New Home Sales||0.0%||-||-|
|00:00||EUR||German Prelim CPI||m/m||-0.3%||0.0%||-|
|00:00||EUR||Italian 10-y Bond Auction||2.44|1.5||-||-|
|01:30||AUD||Private Capital Expenditure||q/q||1.1%||-1.7%||-|
|09:00||EUR||Spanish Flash CPI||y/y||-0.1%||-0.3%||-|
|09:55||EUR||German Unemployment Change||-22K||-1K||-|
|10:00||EUR||M3 Money Supply||y/y||2.5%||2.6%||-|
|10:00||EUR||Italian Quarterly Unemployment Rate||12.5%||12.4%||-|