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Monday, 27 Dec 2010

Low Liquidity Leads to Erratic Price Shifts

Markets were relatively muted in overnight trading, as a lack of news events have created a low liquidity environment. Still, there were some erratic price movements to start of the week. The EUR/USD pair once again dropped below the 1.3100 level and the GBP/USD has dropped over 40 pips since last night. Today, traders are warned that even the slightest activity in the market can create huge price shifts, seemingly for no reason.

EUR/USDGBP/USDUSD/JPYUSD/CHFAUD/USDEUR/GBP
Daily Trenddowndowndowndownupno
Weekly Trenddowndowndowndownupdown
Resistance1.31241.544783.060.96311.01010.8501
1.31181.544282.940.96211.00580.8495
1.31151.544082.860.96151.00310.8492
Support1.31091.543582.740.96060.99880.8486
1.31061.543382.690.96020.99720.8483
1.31001.542882.570.95920.99290.8477

Economic News

USD - Dollar Ekes Out Small Gains in Slow News Day

The dollar was able to extend its bullish run to start the week off by making gains on virtually all of its major counterparts. While the EUR/USD pair had dropped over 50 pips in overnight trading, it managed to stage a slight correction. Currently the pair is trading around the 1.3100 level. Similarly, the greenback was able to make small gains on both the Japanese yen and Swiss franc.

Whether or not the dollar will be able to prolong its upward trend remains to be seen. The low liquidity environment in the marketplace often times causes dramatic price shifts for seemingly no reason. With very little news scheduled for the day, it is anyone's guess how the USD will respond.

Turning to the rest of the week, traders will have to wait until Tuesday for the first piece of significant US news. The CB Consumer Confidence figure will provide solid evidence regarding the current state of the US economic recovery. With analysts predicting an increase over last month's figure, the dollar may find further support in the days ahead.

In addition, a batch of US news on Thursday is likely to impact the market. Both the weekly Unemployment Claims figure and the Pending Home Sales report are certain to generate heavy volatility.

EUR - Euro-Zone Debt Still Concerns Investors

The ability of the euro-zone to combat its debt crisis is still weighing down on the common currency as we start off the week. The euro saw downward movement against both the yen and US dollar in overnight trading, before staging corrections against both currencies. While the markets are very unpredictable at the moment, analysts are warning that all signs are pointing to further bearishness for the euro in the days ahead.

Euro traders will want to pay attention to both US and Asian stock indices this week. There is widespread agreement that any dip in the stock market will likely spurn demand for the safe-haven yen, likely at the expense of the euro. In addition, with no significant euro-zone news forecasted for this week, the currency's value will likely be determined by external events.

JPY - JPY Likely to Make Gains in Slow News Day

Analysts are predicting the yen to come out on top today, as the combination of a slow news day and persistent euro-zone debt worries may turn investors to the safe-haven currency. There have already been some small signs in overnight trading that the JPY has bullish momentum. The GBP/JPY is already down almost 30 pips from when markets opened for the week. Currently the pair is trading at around the 127.75 level.

Traders will want to pay attention to a batch of Japanese news events scheduled to be released later tonight. In particular, traders will want to keep an eye on the Household Spending and Retail Sales figure, scheduled to be released at 23:30 and 23:50 GMT. With analysts calling for positive figures for both indicators, the yen is likely to see further gains throughout the day.

OIL - Oil Above $91 Once Again

Crude oil dropped some 70 pips in overnight trading before staging a correction. Currently, the commodity is back above $91 a barrel, although analysts are torn about its current direction. On the one hand, the price of oil may drop because of China's decision to raise a key interest rate over the weekend. China has overtaken the US as the world's biggest energy consumer, and their interest rate decision was widely seen as a way to slow down economic growth.

On the other hand, this week's US Crude Oil Inventories are expected to fall, which typically leads to a higher demand for oil while increasing prices. Traders will want to pay attention to oil. Once a clearer trend presents itself, there will likely be an opportunity to enter into positions at a great price.

Technical News

EUR/USD

Virtually every technical indicator shows this pair trading in neutral territory. This includes the Slow Stochastic and Relative Strength Index on both the 8-hour and daily charts. Traders will want to take a wait-and-see approach for the pair today.

GBP/USD

The Relative Strength Index on the daily chart shows this pair currently in oversold territory, indicating that a bullish correction is likely to take place. This theory is supported by the Williams Percent Range on the same chart. Traders will want to go long in their positions today.

USD/JPY

The Slow Stochastic on the daily chart looks like it may form a bullish cross very soon. In addition, the Relative Strength Index on the 8-hour chart is currently in the oversold region. Going long with tight stops may be the preferred strategy today.

USD/CHF

Most technical indicators are showing this pair trading in neutral territory. This is mostly due to the low level of activity in the market place at the moment. Traders are advised to take a wait-and-see approach before opening any new positions today.

The Wild Card

AUD/USD

The Williams Percent Range on the 8-hour chart is currently in overbought territory, indicating a downward correction is likely to take place. In addition, a bearish cross has formed on daily chart's Slow Stochastic. Forex traders will likely want to go short in their positions today, as there is definite downward pressure for the pair.

Current Time: 04/24 12:15 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
04/24
13:30USD+ Core Durable Goods Orders m/m0.1%0.6%-5
13:30USD+ Unemployment Claims 304K309K-5
13:30USD+ Durable Goods Orders m/m2.2%2.1%-3
15:30USD+ Natural Gas Storage 24B40B-1
00:30JPY+ Tokyo Core CPI y/y1.0%2.8%-3
00:30JPY+ National Core CPI y/y1.3%1.4%-1
04/25
05:30JPY+ All Industries Activity m/m1.0%-0.5%-1
09:30GBP+ Retail Sales m/m1.7%-0.4%-5
09:30GBP+ BBA Mortgage Approvals 47.6K48.9K-3
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