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Monday, 30 Aug 2010
NFP Week Gives Prospects for Trend Reversals in Forex Market
This week may provide the decision point for the USD. With Non-Farm Payrolls due this Friday, the uncertainty surrounding the American recovery will undoubtedly be made clearer. Today's report on US personal spending at 12:30 GMT may provide a glimpse into other growth prospects before this week's more important data releases get published.
USD - USD's Rise Slowing Prior to NFP Week
The rising value of the US dollar over the past week has begun to meet resistance against a number of currency pairs. The EUR/USD fell as low as 1.2600 on Friday, before returning to trade near 1.2745 in today's early morning hours. The GBP/USD also hit as low as 1.5390 before popping back up to 1.5545 today.
The sudden rise in risk aversion was one explanation being offered for this most recent USD boost. The American economic recovery is currently being viewed as standing on shaky ground. Estimates are putting growth at lower figures than previously thought, and other data is not supporting the once optimistic signals towards growth. This has led many investors to temporarily shift away from riskier assets and seek safety in the dollar.
This week may provide the decision point for the USD however. With Non-Farm Payrolls due this Friday, the uncertainty surrounding the American recovery will undoubtedly be made clearer. Today's report on US personal spending at 12:30 GMT may provide a glimpse into other growth prospects before this week's more important data releases get published.
EUR - EUR Set for Gains; Market Awaits Clearer Direction
The EUR remains in bearish trading patterns against most of its rivals, except for the Japanese yen. The flight away from riskier assets as of late has convinced many investors to seek out safer assets. The EUR/USD currently trades around 1.2745, up slightly since Friday; the EUR/GBP trades near 0.8200 down a bit from last week.
Fiscal concerns continue to plague Europe and, despite forecasts for a sluggish economic recovery in the US, the euro zone remains categorized as too risky for many investors at this time. As such, the EUR continues to trade lower, but recent signals have indicated that risk appetite may be on the rise, with news about monetary easing in Japan and the potential for more positive employment figures from the US NFP report on Friday.
The euro zone will be absent from today's economic calendar, making the US dollar today's primary currency for investors. It isn't likely that any of the major pairs will see sharp movements today or tomorrow, given that this week will experience very significant data releases on Wednesday and Friday. It is more likely that we should expect sluggish, thin trading environments until those releases.
JPY - Bank of Japan to Alter Monetary Policy; Yen Weakening
The Japanese economy has been brought sharper into focus this past week with news surrounding the speculation that the Bank of Japan (BOJ) will alter its monetary policies to help weaken the yen. It appears the BOJ has called for an emergency meeting this morning to discuss easing its monetary policy.
With the USD/JPY rising towards highs unseen in over a decade, Japan appears anxious to push back against its currency's rising value but is hesitant in doing so. While the JPY continues to advance, the BOJ has appeared to have come to the decision to alter its policies and attempt a weakening of its currency before its export industries suffer any further. This morning's policy statements by the BOJ will likely set the trend for the yen for the next few weeks.
Crude Oil - Oil Prices Rising on Market Optimism, Growth Forecasts
The price of spot crude oil has dipped as low as $71 a barrel this past week. However, as of this morning, news of a speculative drop in safe havens such as the USD and JPY has helped bring commodity prices back up slightly. The price of crude oil has rebounded back above $75 a barrel as a result.
Last week's rising dollar was explained as being part of risk aversion. This week it appears as if risk aversion has begun to come to an end and the USD is expected to drop a fair amount. Optimism about a speedy recovery is back in swing and this has many speculators forecasting a rise in oil demand. If this speculation proves true then we should see oil prices reaching back towards $78 a barrel, if not higher, over the next few weeks.
A number of technical indicators are showing this pair is in overbought territory, indicating a downward correction could occur today. The Relative Strength Index on the 4-hour chart is approaching the upper resistance line, while the Williams Percent Range on the 8-hour chart is right at the -20 mark. Traders are advised to go short with tight stops today.
Most technical indicators are showing the pair trading in neutral territory at the moment, which typically means that no major price shifts will occur today. That being said, the Relative Strength Index on the 8-hour chart is showing the pair in overbought territory, meaning the potential exists for a downward correction. Traders may want to take a wait and see approach today, as a clearer picture may present itself later on.
There are a number of technical indicators showing that this pair is currently in overbought territory, meaning a bearish move is likely at some point today. This includes the Stochastic Slow on the 4-hour chart, which shows a cross has formed above the upper resistance line. In addition, the Williams Percent Range and Relative Strength Index on the 8-hour chart both show the pair as overbought. Traders are advised to enter into short positions today.
Technical indicators are showing that the pair is in oversold territory, meaning upward movement may occur later in the day. The MACD on the 8-hour chart is showing a cross has formed well below the signal, while the Relative Strength Index on the daily chart is hovering right along lower support line. Traders are advised to go long in their positions today.
The Wild Card
According to a number of technical indicators, the Russell 2000 has reached overbought territory and is likely to fall over the course of the next day. The Relative Strength Index on the 4-hour chart is hovering right over above the upper resistance line, while the Williams Percent Range on the 8-hour chart is currently well about the -20 level. CFD traders may want to enter into short positions today, as a bearish correction is likely to occur.
|13:30||USD||FOMC Member Bullard Speaks||*||*||*|
|14:00||USD||Flash Manufacturing PMI||52.1||52.3||-|
|15:00||USD||New Home Sales||417K||429K||-|
|15:30||USD||Natural Gas Storage||99B||-||-|
|07:00||EUR||GfK German Consumer Climate||6.2||6.2||-|
|07:00||EUR||German Final GDP||q/q||0.1%||0.1%||-|
|09:00||EUR||German Ifo Business Climate||104.4||104.6||-|
|09:30||GBP||BBA Mortgage Approvals||31.2K||32.7K||-|