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Tuesday, 20 Jan 2009
Obama Inauguration Sparks Dollar Rally
Fueled by illiquid markets and a new optimism surrounding the pending inauguration of President Obama, the Dollar finished the day significantly higher. A revised Euro-Zone economic forecast and more trouble for the British banking sector helped to sink the EUR and the GBP.
USD - Dollar Jumps Ahead of Obama Inauguration
On Monday, the U.S. Dollar made extremely significant gains against most of its major currency pairs ahead of Barack Obama's inauguration, which takes place later today. This is in contrast to Sunday's trading session that saw the Dollar go bearish against its main currency pairs, such as the GBP and the EUR. The Dollar's rebound since the start of Tuesday's trading session has left many traders excited at the prospects of what lies ahead of them in the coming trading days.
The Dollar gained a massive 300 pips against the EUR, and a massive 550 pips versus the GBP, to close yesterday's trading at 1.3038 and 1.4308 respectively. The Dollar also rose against the JPY to close yesterday's session at 90.34. The Dollar has also continued to maintain its strength since the start of today's trading. There are a number of important factors that contributed to the Dollar's spike yesterday.
These include optimism in the U.S. ahead of Barack Obama's inauguration, low trading volume, and the bleak outlook for Britain and the Euro-Zone.
As the Obama's inauguration becomes closer, the Dollar has been responding with bullishness. Investors have been attracted to the Dollar, due to renewed optimism of a new U.S. administration that may do away with adversary politics in the U.S. Not only that: it seems that there is wide support for Obama's additional $850 billion stimulus plan. As of late, he seems the only man that can rescue the U.S. from her dire economic situation. Therefore, as the excitement builds, so does the value of the Dollar.
The low trading volume on Monday, owed to few news events coming out of Europe and the U.S. as the Martin Luther King Jr. bank holiday also helped the Dollar gain strength. Adding to this, officials from the European Central Bank (ECB) said that the Euro-Zone's economy is likely to slump 1.9%, rather than the previously forecasted 1%. This obviously added to the EUR's decline against the Dollar
Yesterday, in regards to the GBP's decline, the Royal Bank OF Scotland (RBS) set shock waves through Britain and Europe as RBS's shares declined 67%. This led to renewed fears of nationalization of Banks across Britain. These different factors show that economic woes across the Atlantic may continue to support the Dollar.
EUR - Gloomy Economic Forecast Drops EUR
The EUR declined over 300 pips against the Dollar, but increased over 130 pips against the GBP. The EUR also declined a massive 350 pips vs. the JPY, to close at 117.79. The EUR's slump yesterday came about as investors took advantage of the low-volume due to the bank holiday in the United States. Adding to this, the Chairman of the European Central Bank (ECB) Jean-Claude Trichet revealed yesterday that the Euro-Zone's economy may decline by 1.9% this year. This is double the previously forecasted 1%. Additionally, much of the EUR's volatility yesterday was owed to the acknowledgment that would-be members, such as the Czech Republic may further destabilize the EUR when they do join the single currency.
Shock waves hit Europe as Britain's Royal Bank of Scotland (RBS), Britain's second largest bank saw shares drop by nearly 70%. This did help the EUR increase versus the GBP. However, there was a knock-on consequence as European bank shares fell sharply yesterday. This helped the EUR plummet against the Dollar and JPY, as investors fled to the two safe-haven currencies. This may continue as the Euro-Zone and Britain continue to show economic weakness as the global economic recession deepens.
The issue that may have played mostly into trading when it came to the EUR and the GBP against the U.S. is the inauguration of Barack Obama later today. Investors and most of the U.S. populous see Obama as the only man that may be able to pull America out of the worst economic crisis since "The Great Depression." This is likely to play into investor's behavior in the coming trading days too. Traders are advised to play close attention to economic news coming from both sides of the Atlantic tomorrow, such as Britian's CPI figures due to be released at 9.30 GMT. Matching or lower-than-expected figures may drive the GBP lower against its major currency pairs.
JPY - JPY is Boosted by British Banking Woes
The Yen rose against the EUR and GBP as the Euro-Zone economy weakens, and the British banking crisis deepens. Britain's second largest bank, the Royal Bank of Scotland's posted a 28 billion Pounds loss, the biggest ever of any British company. This in turn sparked fears that the British government will have to take over the company. The EUR fell to its lowest level in over a month against the Dollar yesterday ahead of data released today, which will show an 18 month consecutive decline in German consumer confidence. This was also echoed by a worse than anticipated decline in the Euro-Zone's economy this year.
Japanese economists fear that the credit losses in Japan will spread, as the recession in the country is set to deepen. However, despite this the JPY is likely to increase its strength against its major currency pairs. This may come about as the global economic situation becomes more unstable. For example, by the end of the year the European Central Bank (ECB) is likely to cut its Interest Rates by another 100 basis points to 1%. This would as a result make Japan's currency more attractive as people flock to the JPY, as carry trades unwind.
Oil - Crude Oil Tumbles on Bullish Dollar and Gaza War Conclusion
The price of Crude Oil tumbled $1.50 yesterday, to close at $40.85 as the Israel-Gaza crisis draws to a close. The reason why Crude has declined dramatically ahead of Barack Obama's inauguration is due to the de-escalation of tension in the Middle East and the strengthening Dollar as of late. It is important to note that despite the optimism of Obama, Crude prices continue to drop.
The Obama factor is also supported by the strengthening Dollar. For example, the bullish Dollar as expected led to a rapid decline in the price of Crude Oil since yesterday morning. Therefore, Crude Oil is likely to continue to decline with the anticipation of analyst's predictions. This is especially so as the Israel-Hamas War ended. Thus, less war and a rising Dollar should lead to falling Oil prices. By the beginning of next week, we may see the price of Oil start accelerate its decline as the Obama euphoria dies down.
After making a significant downward movement yesterday, the pair has been pushed into the over-sold territory on both the hourly and daily chart's RSI, indicating that an upward reversal may occur later today. The 4-hour chart's Slow Stochastic also appears to be showing an imminent bullish cross, which supports this notion. Going long with tight stops might be the right choice today.
It appears a violent breach of the lower border on the 4-hour chart's Bollinger Bands has occurred, signaling that there may be some upward pressure on this pair. The RSI on the hourly chart indicates the pair is being over-sold indicating an upward correction may in the near future. The recent bullish cross on the 4-hour chart's Slow Stochastic supports this notion. Going long with tight stops might be the right choice today.
The Bollinger Bands on the hourly chart appear to be tightening, indicating imminent price volatility. The Momentum oscillator on the weekly chart indicates the pair is receiving some upward support. However, few oscillators are giving an indication of price movement. Waiting for a clearer signal might be the right choice today.
The pair currently floats in the over-sold territory on the daily chart's RSI, indicating a downward correction may occur later in the day. A violent breach of the upper border of the 4-hour chart's Bollinger Bands has occurred as well, which puts downward pressure on the pair. The Momentum oscillator on the weekly chart also shows the current price is still carrying some bearish momentum. Going short might be a good strategy today.
The Wild Card
The price of this pair currently floats in the over-sold territory on the hourly chart's RSI, signaling an upward movement may occur soon. It appears a bullish cross is imminent on the 4-hour chart's Slow Stochastic, which will be putting upward pressure on the pair in the near future. The weekly chart's Momentum oscillator also shows that this pair is continuing to receive strong upward support. Today would be a good day for forex traders to join this upward price movement while it still has room to run.
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|21:45||NZD||Overseas Trade Index||q/q||0.3%||-4.3%||-|
|22:30||AUD||AIG Manufacturing Index||49.4||-||-|
|23:30||AUD||MI Inflation Gauge||m/m||0.2%||-||-|
|00:30||AUD||Company Operating Profits||q/q||-6.9%||-1.2%||-|
|01:35||JPY||Final Manufacturing PMI||52.1||52.1||-|
|08:15||EUR||Spanish Manufacturing PMI||52.6||53.1||-|
|08:45||EUR||Italian Manufacturing PMI||49.0||49.5||-|
|09:00||EUR||Final Manufacturing PMI||50.4||50.4||-|
|09:30||GBP||Net Lending to Individuals m/m||m/m||-||2.8B||2.7B|
|09:30||GBP||M4 Money Supply||m/m||-0.7%||0.2%||-|
|14:45||USD||Final Manufacturing PMI||54.7||55.0||-|
|15:00||USD||ISM Manufacturing PMI||59.0||57.9||-|
|15:00||USD||ISM Manufacturing Prices||53.5||52.6||-|
|17:15||USD||FOMC Member Dudley Speaks||-||-||-|