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Friday, 26 Aug 2011
Jackson Hole Symposium Generating Volatile Swings
Federal Reserve Board Chairman Ben Bernanke's testimony during the weekend Jackson Hole Symposium is expected to cause a stir in forex markets at this week's closing with expectations for an update on the speculated third round of quantitative easing (QE3).
USD - US Dollar Gains ahead of Jackson Hole Symposium
The US dollar was seen trading moderately higher yesterday as traders began to reevaluate the recent dip in stock values and as anticipation to Fed Chairman Ben Bernanke's testimony during the weekend Jackson Hole Symposium. The EUR/USD was seen meeting resistance near 1.4500 yesterday and flopping towards 1.4400 in late trading. The greenback saw similar movements against most other currency pairs as well.
A short series of data released yesterday painted a weaker picture for the US economy's growth. Weekly unemployment claims saw a worse than forecast rise, hitting 417,000 for the past week. A housing report showed growing sluggishness in mortgage lending growth and the Richmond Manufacturing Index dropped from last month's reading. So far this news has helped drive the USD higher as traders flee risk.
With a relatively heavier news day expected Friday, dollar traders should be anticipating some moderate currency movements brought about by average end-of-week liquidity. The economic calendar will be lacking in specific focus with several reports coming from Australia, Great Britain, Japan, the US and the euro zone. The US economy will be strongly in focus with reports on GDP, consumer confidence, and Bernanke's testimony.
EUR - Declines in Global Stocks Weighing on EUR
The euro was seen trading lower yesterday in light of data releases suggesting stagnation in Germany. The lackluster performance of global stocks also drove many regional investors away from the EUR despite the relative potential is has for making gains should more investment flee the United States.
While growth variances between the US and Europe came into view this past week, the higher yielding assets like the GBP and EUR appeared positioned to lose as traders turned away from risk. The growth in risk aversion may have many investors choosing to store their value in lower yielding currencies, like the USD and CHF as the week comes to a close, though investments in US Treasuries contradict the idea behind the ratings downgrade by S&P. Nevertheless, the greenback is on the rise once more.
As for Friday, the euro looks to be anticipating an evaluation of its recent downturn against the other major currencies with mild bias further leaning to the downside. The euro zone will be publishing few economic events on today's calendar, though. Traders should try and follow the significant publications emanating from the American and Great Britain economies today as a mild string of significant reports are expected from both.
JPY - JPY Trading Mixed as Investors Digest BOJ Intervention
The Japanese yen (JPY) was seen trading with mixed results versus most other currencies this week after news began to shift many traders back into safe-haven assets and the Bank of Japan (BOJ) intervened once more in the forex market. The yen has been a top performer these past several months considering many traders bank on the Japanese carry trade during times of intense risk appetite and move towards the JPY in times of risk aversion, making it an appealing currency in these recent times of ominous debt talks.
The JPY was in a position to take losses yesterday as the $100 billion fund set up by the BOJ to address the meteoric rise of the yen began to gouge the currency's value. Moves toward riskier currencies halted as pessimism took hold and drove much of yesterday's trading liquidity towards traditional stores of value. As such, traders appear to be anticipating an uptick in the JPY prior to this week's close, though the sentiment is being matched by pressures generated by the BOJ intervention.
Crude Oil - Oil Price Still Holding Near $86
Crude Oil prices held fast yesterday, sticking near the support line of $86 a barrel in late trading. Growth differentials between the Atlantic states have risen into view this week while manufacturing output and service data revealed growing weakness in Europe. This has so far led several large investors and analysts to consider a shift away from the EUR and other risky assets in exchange for the safety of the USD and JPY, despite the inherent weakness growing in the American economy due to the recent ratings downgrade.
As investors sought safety, the value of crude oil, which has been seen holding steady through most of the week, remained as such near $86.50 a barrel. A boom in dollar values due to this week's risk sensitive environment has helped many investors move hesitantly away from assets like gold and silver, with crude oil also appearing to get touched by this sentiment. Oil prices appear to have reached the decision point alluded to all week, with a strong bearish sentiment taking hold, though pressures are mounting to keep the price stable.
The push to 1.4500 found willing offers and the falling resistance line from the May high has kept the pair trading in a relatively defined 500 pip range since late-July. This scenario could change this week as the pair encroaches on the bottom of a triangle pattern that runs underneath the July and August lows at 1.4190. A move below this trading range is favored as both daily and monthly stochastics are declining. A break here could test the rising trend line from May 2010 and may have long term technical ramifications. To the upside last week's high of 1.4515 will serve as initial resistance followed by 1.4700.
Following a failure to move below its 200-day moving average Cable has underwent an impressive run to the 1.66 level. However, three failed attempts to close above the 1.6540 level points to sterling weakness. The pair also looks to be oversold as daily, weekly, and monthly stochastics are all turning lower. An initial move lower could run into support at the 20-day moving average at 1.6370 followed by the August 11th low at 1.6110. A deeper move could test the July low at 1.5780. Should the momentum continue to the upside initial resistance is found at 1.6580 with the most likely target at the April high of 1.6750.
Last week the pair briefly moved below the March low and the 76 yen level but the dollar was quickly bid and the daily candlestick formed a doji. While often a sign of an impending reversal a doji by itself is not enough to change the technical picture. Bias remains to the downside and a close below 76 would signal further declines in the pair. A lack of support on the long term charts makes it problematic to forecast a target but the big round number of 70 yen stands out. Should the doji pattern hold and a reversal ensue; the pair will encounter plenty of selling opportunities with the most likely of entry points found at 78.50, 79.50, and 80.20.
A rebound in the pair made it as high as 0.8015, just above the 50% retracement level from the May to August move. This move looks like it may have more room to run as weekly and monthly stochastics are rolling higher. Additional resistance comes in at the falling trend line from the February high at 0.8150. A break here would target the 61% Fibonacci retracement at 0.8220. However, traders should remember the long term trend is to the downside and support is found at 0.7800 followed by 0.7550.
The Wild Card
The pair continues to find resistance at the long term trend line that falls off of the April high which comes in today at 126.75. Forex traders should note that a break of the 125.50 support level may have scope to test the August low at 123.25. To the upside resistance is found at the trend line followed by 127.30 and the August spike at 130.80.
|16:30||USD||Crude Oil Inventories||1.9M||1.3M||-3.9M|
|19:30||USD||FOMC Member Lockhart Speaks||-||-||-|
|01:30||AUD||AIG Construction Index||50.1||-||-|
|07:45||CHF||SECO Consumer Climate||-6||-11||-|
|08:00||EUR||German Factory Orders||m/m||-0.9%||1.6%||-|
|08:45||EUR||French Industrial Production||m/m||0.0%||0.1%||-|
|08:45||EUR||French Trade Balance||-3.4B||-3.5B||-|
|09:00||CHF||Foreign Currency Reserves||522.3B||-||-|
|10:15||EUR||Spanish 10-y Bond Auction||-||-||-|
|13:30||USD||Challenger Job Cuts||y/y||6.4%||-||-|