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Thursday, 17 Feb 2011
Market Optimism Temporarily Pulls Down Safe-Havens
The U.S. dollar slid against the euro following a rally in global equity markets yesterday. The rally prompted investors to turn to higher yielding assets and away from safe havens like the USD. With recent market optimism, traders may continue to see a small downward trend in the dollar as positions are unwound in exchange for riskier assets.
USD - USD Declines Following Heavy News Day
The U.S. dollar slipped against the EUR and CHF Wednesday, erasing some early morning gains after encouraging U.S. economic data sent traders into riskier, higher-yielding assets. By yesterday's close, the greenback had fallen against the EUR, pushing the oft-traded currency pair to 1.3600. The dollar experienced similar behavior against the Swiss franc, closing at 0.9580.
The producer price index (PPI) rose 0.8% last month, nearly in line with the consensus forecast of 0.9%. The manufacturing sector has been steadily growing in recent months, indicating the pace of economic recovery could be picking up.
Yesterday's economic reports bolstered U.S. Treasury yields, but higher yields weren't enough of an incentive to get the active market participants to continue buying dollars. Instead, traders saw the upbeat news as a reason to search out riskier assets. U.S. stocks and crude oil were among the biggest beneficiaries of increased risk demand.
Looking ahead to today, the most important economic indicators scheduled to be released from the U.S. is the CPI figures at 13:30 GMT. Traders will be paying close attention to today's announcement as a stronger than expected result may continue to boost risk appetite in the short-term.
EUR - EUR Bullish vs. Majors as Traders Turn to Riskier Assets
The euro rallied broadly against most of it major currency pairs on Wednesday as U.S. stocks rose, though gains were likely temporary given doubts about the ability of euro zone members to tap bond markets.
The 17-nation common currency extended gains against the U.S. dollar and closed around 1.3600. The EUR experienced similar behavior against the GBP as the pair rose from 0.8355 to 0.8436 by day's end.
The EUR was affected by a U.S. stock market rally and a bearish dollar. Growth in stocks led investors to buy back into the EUR, as they looked for returns on buying commodity-linked and higher-yielding currencies in yesterday's trading.
Turning to today, traders will want to pay particular attention to inflationary and manufacturing data out of the United States. Should these figures indicate further improvements in the U.S. economy, the euro could maintain its current course, and could even push towards the 1.3700 resistance level against the greenback.
JPY - Yen Lower vs. Major Currency Pairs
The Japanese yen saw a very bearish trading session yesterday, losing ground against all of its currency crosses. The JPY did gain mildly against the USD, however, closing around 83.50. The yen lost almost 100 points versus the EUR, closing at 113.60; and just about 30 points versus the CHF, ending the day at 1.3020.
The JPY's trends will be affected by the rallies of its primary currency pairs today. It seems that the USD and EUR are expected to continue trading volatile today, especially against the Japanese currency.
Traders should keep a close look on the news coming from the U.S. and Canada as these economies will be the deciding factors in the JPY's movement today. It is also advisable for traders to follow any unexpected comments coming from key Japanese governmental figures, as this is also likely to lead to further JPY volatility.
Crude Oil - Oil Trading Higher after Inventories Rise Less than Forecast
Oil prices rose to a 10-day peak on Wednesday as upbeat European and US manufacturing data reinforced optimism about economic and energy demand growth. After U.S. inventory data revealed stockpiles growing less than expected, the price for a barrel of Crude Oil jumped back above $88, where it has remained throughout today's early trading sessions.
Manufacturing in the United States and Europe accelerated in December and growth in China and India slowed to a more sustainable level, helping to fuel a move by investors into commodity-link and higher-yielding currencies. Traders should focus on today's manufacturing reports from the United States as these will no doubt carry a direct impact on the supply-demand aspect of the equation for oil prices.
This pair is already showing indications of a correction to yesterday's spike in value. The daily MACD reveals a bearish cross, suggesting an imminent downward movement. The weekly Stochastic (slow) supports this notion with a bearish cross of its own. Traders may want to begin pricing in a downward movement of this pair today.
The pair has been range-trading for a while now, with no specific direction. The daily chart's MACD is providing us the only clear indication of direction with a fresh bearish cross suggesting an imminent downturn. It appears as if waiting for a clearer sign on the hourlies might be a good short-term strategy today.
The USD/JPY experienced a bearish movement yesterday. Moreover, it seems that this trend may be gaining strength. The daily Stochastic (slow) reveals a bearish cross and a sharply descending price movement, suggesting strong bearish momentum. Going short might be a wise choice today as a result.
The pair has recorded much bearish behavior in the past several days. However, the technical data indicates that this trend may reverse anytime soon. For example, the daily chart's MACD indicates that a bullish reversal is imminent. An upward trend today is also supported by the RSI. Going long with tight stops may pay off.
The Wild Card
Crude Oil prices rose significantly yesterday and peaked at $88.76 a barrel. The daily chart's MACD is floating in the over-sold territory with an impending bullish cross, suggesting that the recent bullish trend is gaining momentum and may persist over the next day or two. This might be a good opportunity for forex traders to enter this uptrend at a relatively early moment and capture this remaining price action for quick profits.
|07:00||EUR||German Import Prices||m/m||-0.7%||-0.1%||-0.3%|
|07:45||EUR||French Consumer Spending||m/m||0.0%||0.2%||-0.7%|
|08:00||EUR||Spanish Flash CPI||y/y||-0.7%||-0.5%||-|
|09:30||GBP||Second Estimate GDP||0.5%||0.5%||-|
|09:30||GBP||Prelim Business Investment||q/q||1.6%||1.5%||-|
|09:30||GBP||Index of Services 3m/3m||0.9%||0.8%||-|
|09:31||EUR||Italian 10-y Bond Auction||1.48|1.7||-||-|
|09:31||USD||ECB President Draghi Speaks||-||-||-|