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Friday, 22 Oct 2010
Markets Cautious Ahead of G20 Meeting
With speculations about further quantitative easing and possible currency agreements dominating this week's trading, the meeting of G20 central bankers is going to continue to be the focus coming to next week and will likely provide a volatile trading day, particularly for the USD.
USD - Dollar Unable to Reverse Downward Trend
The USD seems unable to bounce back from the downward spiral it has been experiencing for the last several weeks. Investor concerns regarding the quantitative easing package likely to be unveiled by the Fed as early as next month, have led to steady losses for the greenback. In addition, disappointing employment and housing figures have caused confidence in the US economy to tumble. It appears that the new norm for the EUR/USD pair is to trade above the $1.4000 level, while the USD/JPY consistently hits fresh 15-year lows.
Despite yesterday's better than expected unemployment figure, the greenback was unable to capitalize on the positive data. In addition, the Philly Fed Manufacturing data came in well below expectations. Barring any significant positive data from the US economy, the dollar is likely to remain at its current levels.
Today, a lack of significant news means that dollar values will be determined by indicators from Europe and Canada. Traders will want to pay attention to the German Ifo Business Climate figure as well as the Canadian Core CPI, scheduled to be released at 8:00 and 11:00 GMT respectively. Positive results for either indicator will likely lead to a further drop in dollar values.
EUR - Euro Maintains Gains against Most Currency Rivals
Despite significant economic concerns throughout the euro-zone, the 16-nation single currency has been able to capitalize on the investor return to risk taking. Yesterday, positive data from both Germany and China helped boost the currency throughout the day. The euro has made gains against most of its main currency rivals in recent weeks, specifically against the USD. The EUR/USD pair continues to trade around the $1.4000 level.
Ahead of this weekend's meeting of the G20, investors appear to be fairly certain that recent improvements in the global economy will continue to occur. Analysts are predicting that the euro will largely maintain, if not increase, its recent gains to close out the week. Traders will want to pay attention to today's German Ifo Business climate figure. As the largest economy in the euro-zone, German data tends to have a large impact on the marketplace. The Ifo figure is a survey of businesses throughout Germany, and is considered to be a leading economic indicator. A figure above the forecasted level of 106.5 may boost the euro in afternoon trading.
JPY - Investors Remain Concerned About Possible BoJ Intervention
A return to risk taking has led to big losses for the Japanese yen against the euro. That being said, the currency is consistently hitting fresh 15 year highs against the US dollar. With the USD/JPY pair trading around the 81.00 level, investors are fairly concerned that the Bank of Japan will once again move in to devalue the yen. Japan, which is largely dependent on its export industry, relies on a weak yen to prop up its economy.
Today, JPY pairs will largely be influenced by data coming out of Europe. Should any of the indicators set to be released today generate more investor risk taking, traders can assume the yen will take more losses against the euro. At the same time, the JPY is considered a much safer bet than the dollar at the moment. Any significant bullish trend for the USD/JPY pair seems unlikely to occur in the near future.
Crude Oil - Crude Oil Continues to Rise as the USD Falls
With the US dollar consistently hitting fresh lows against several of its main currency rivals, crude oil has quickly become a solid alternative for investors looking for a safe investment. The commodity has seen significant gains as of late, and will likely maintain its high levels as long as the greenback remains down.
Today, should positive data from both the euro-zone and Canada cause the greenback to take further losses, traders can anticipate crude oil will increase its recent upward trend. At the same time, negative data may lead to a return to risk aversion in the marketplace. Should this occur, traders may want to go short in their crude oil positions, as a downward correction may take place.
After seeing a very volatile session yesterday, the pair is currently trading near the 1.3960 level. A bullish cross of the 4-hour chart's Slow Stochastic suggests that the pair might resume its bullish trend today, with potential to reach the 1.4100 level.
The cable continued with the bearish correction yesterday, and has fallen below the 1.5700 level. It recovered slightly, however, and is currently trading around the $1.5740 level. As the MACD on the daily chart continues to point down, the pair might see further bearishness today. Going short might be the right choice.
The pair's bearish trend was halted during the past few days, as the USD/JPY is now trading above the 81.00 level. However, as all the oscillators on the weekly chart are pointing down, the pair might see further drops today. Going short with tight stops might be the right strategy today.
Over the past few days the pair has corrected some if its losses, and is currently testing the 0.9700 level. If the pair will manage to breach through the resistant level it could reach as high as the 0.9775 level today.
The Wild Card
Gold saw a significant bearish correction since the last weekend, and is now trading around $1,327 an ounce. At the moment both the 4-hour chart and the daily chart provide bearish indications, suggesting that the bearish move has more steam in it. This might be a great opportunity for forex traders to join a popular trend.