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Wednesday, 16 Mar 2011
Japanese Nuclear Plant Crisis Creating Risk Flight; Boosting USD
The US dollar corrected losses against most of the major currencies over the past few days, as data showed that global recovery might take longer than expected. This decreased risk-appetite in the market and turned investors to look for safer assets, such as the dollar and the Japanese yen.
USD - Deteriorating Risk Appetite a Boon for USD Traders
The US dollar rallied versus most of the other major currencies over the past week. The greenback gained about 300 pips against the euro and British pound, with a paring of these gains experienced against the euro over the last 24 hours.
The dollar fell last week as a result of several disappointing publications from the US economy. The trade balance report, which measures the difference between imported and exported goods and services, showed that the US trade deficit widened to $46.3B in February, failing to reach expectations for a $41.4B deficit.
The US weekly unemployment claims also revealed a stark 397,000 people having filed for unemployment insurance for the first time during the past week, well above expectations for 375,000 individuals. This continued the negative employment data from the Non-Farm Payrolls publications which was released two weeks ago. The negative data keeps investors cautious regarding their portfolios, and as a result increases risk-aversion in the market.
Tensions in Japan regarding a potential nuclear meltdown following the recent earthquake and tsunami have also fed into global fears, driving investors into the safety of the greenback.
As for the rest of the week, many interesting publications are expected from the US economy. Traders are advised to follow the PPI and CPI inflationary figures, the Building Permits data, and the Philly Manufacturing Index being released throughout the week. These indicators tend to have a large impact on the market, and each publication is likely to influence the dollar's trading significantly.
EUR - EUR Mixed as Market Assesses Global Risk Sentiment
The euro gained against most of the major currencies over the past few trading sessions. The euro dropped about 300 pips against the US dollar, but the EUR/USD is now trading back around the 1.3980 level after recouping its losses.
While the euro was able to make moderate gains against the US dollar yesterday, the currency was virtually flat against the Japanese yen and British pound. Furthermore, against the Swiss franc the EUR saw a steep decline throughout the day.
Analysts attributed the euro's sluggish behavior to a combination of global events that are keeping investors away from riskier assets. Chief among these events is the prolonged doubt the euro zone will be able to effectively tackle its sovereign debt woes. Risk aversion brought on by the Japanese nuclear crisis has also shaken up many investors, causing a wave of portfolio reevaluations by large investment banks and a general flight to safety.
As for today, traders will want to eye the employment figure from Britain as well as the general inflationary figures out of the euro zone proper. The US economy will also be releasing inflationary figures that should carry a moderate impact onto today's trading. Any additional negativity injected into this trading environment will likely lead to added growth in risk aversion.
JPY - Yen Gaining from Risk Aversion; Appears Unstable
Over the past several trading sessions the Japanese yen has appreciated against most of the major currencies due to heightened risk aversion. The yen gained about 300 pips against the euro, and approximately 600 pips against the British pound. Against the US dollar the yen saw a volatile session without a clear trend, but appears to have turned downward against its American rival.
It appears that reports out of Japan regarding its recovery from a recent earthquake and tsunami, which has almost brought one of its nuclear facilities to a catastrophic meltdown, is driving investors to reassess the risk exposure in their portfolios. Without positive data from various global economies, it doesn't seem likely that the Japanese market will recover in a hasty manner. The yen appears poised for sharp gains while Japanese stocks and indices plummet from a capital shift.
Looking ahead to this week, traders are advised to follow the major economic publications from the US and the euro-zone, and to take under consideration that positive data might increase risk appetite, and as a result erase the yen's gains from the past week.
Crude Oil - Crude Oil Falls to $98 a Barrel
The price for a barrel of Crude Oil sunk yesterday as a rapid increase in risk aversion drove many investors away from higher yielding assets and commodities in exchange for safe-haven investments, like the US dollar and Japanese yen. Persistent turmoil in Libya has a number of investors concerned that oil prices will remain in a state of flux, more subject to risk sentiment than is typical.
With today's economic calendar focusing on European and American inflation it isn't likely that traders will see many strong price shifts brought on by fundamental data. Today's US Crude Oil Inventories report has the potential to affect prices, especially with expectations for a slight rise in inventories by 1.8 million barrels. With little supporting oil prices, it seems likely that traders will see a continuation of yesterday's downward price action.
Most technical indicators are showing that this pair is over-bought and is likely to see a downward correction in the near future. On the 8-hour chart, the Williams Percent Range has crossed into the over-bought region, while the daily chart's MACD shows a bearish cross has recently formed. Going short appears to be the wise choice today.
The Stochastic (slow) on the 4-hour chart has formed a bearish cross, indicating that downward movement is likely to occur. This theory is supported by the Williams Percent Range on the 8-hour chart, which is currently well into the over-bought territory. Traders will likely want to short this pair today.
Technical indicators are showing mixed signals for this pair. While the daily chart's Relative Strength Index (RSI) is in over-bought territory and the 4-hour chart's Stochastic (slow) has formed a bullish cross. Traders may want to take a wait and see approach today, as a clearer direction is likely to present itself later on.
Virtually all technical indicators are showing this pair in over-sold territory, meaning an upward correction is likely to occur in the near future. The Williams Percent Range on the 8-hour chart is at -90 while the Stochastic (slow) on the 4-hour chart has formed a bullish cross. Going long may be the preferred strategy today.
The Wild Card
The Williams Percent Range on the 8-hour chart of this pair is currently in over-sold territory, indicating that an upward correction is likely to take place. This theory is supported by the Stochastic (slow) on the same chart, as well as the 4-hour chart's RSI. Now may be a great time for forex traders to open up long positions before the upward breach occurs.
|03:30||AUD||Monetary Policy Meeting Minutes||-||-||-|
|11:00||EUR||German ZEW Economic Sentiment||54.8||56.0||-|
|11:00||EUR||ZEW Economic Sentiment||62.4||63.7||-|
|11:01||GBP||30-y Bond Auction||2.36|1.6||-||-|
|22:00||CAD||Annual Budget Release||-||-||-|
|02:30||AUD||MI Leading Index||m/m||0.3%||-||-|