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Friday, 15 May 2009
Oil Goes Bullish on Weak Dollar
Oil prices reached over $59.50 a barrel yesterday, an increase of a whopping 4%. It seems that the OPEC production cuts have worked. Traders should also take into account that the Crude prices were also fueled yesterday by bullish stock markets and a weak Dollar. The price of Crude Oil is only likely to increase further today if the U.S. and Euro-Zone continue to show optimism, and the Dollar continues its bearish run.
USD - Dollar Plummets on Jobless Claims Data
The U.S. Dollar plummeted considerably versus its major rivals on Thursday. This was amid uncertainty about the economic outlook, buoyed by modest safe-haven flows. The Dollar dived against the EU after a report showing U.S. jobless claims rose last week more than analysts originally forecasted. However, the U.S. and global stock markets made gains yesterday.
The USD fell by over 80 pips to 1.3634 against the EUR yesterday, after appreciating earlier to $1.3531, the strongest level since May 8. The Dollar also declined against the GBP by 110 pips to close at 1.5229. The U.S. currency, however, increased against the JPY to 95.99 Yen from a 95.47 opening. The Dollar has weakened in the past 3 weeks, falling to $1.3634 per EUR from $1.2886 on April 22, while the Standard & Poor's 500 Index reached its high for the year and Treasury yields rose amid an increase in risk appetite among investors.
The U.S. Dollar may appreciate further against the EUR after the 16-nation currency was unable to break above $1.3700 amid an increase in U.S. stocks. Stock markets remain a key driver of currencies, and their rise in yesterday's trading was clearly reflected in the bearishness of the Dollar, analysts said. Market players will be watching a heavy round of U.S. economic data on Friday, including April consumer price inflation, the University of Michigan consumer confidence survey.
EUR - The Euro-Zone Goes Defensive on ECB Policy Concerns
The EUR held on to gains made on Thursday against the greenback keeping within sight of recent highs made as optimism has grown that the worst of the global economic crisis may be over. The European currency, which hit a 7 week high at $1.3722 this week, was a shade softer at $1.3624 in early trading on Friday.
Against the Yen, the EUR headed for its first gain in 3 days on speculation the European Central Bank (ECB) will take additional steps to keep down borrowing costs, possibly increasing demand for the currency. The EUR/JPY currency pair finished trading at 130.92 Yen from 129.42 Yen yesterday. Traders now wonder if the EUR can extend this 1 day gain against the JPY.
The market offered limited initial reaction to comments by members of the European Central Bank Governing Council, who on Thursday stated the ECB's key rate may eventually approach zero. Some analysts said recent comments from the ECB underlined disagreement between policymakers regarding how much lower Interest Rates can fall, and if this disagreement continues the result may be a bearish EUR in the medium-term.
The Pound Sterling remained under pressure after the Bank of England (BoE) said on Wednesday that it expected British inflation and the economy to recover more slowly than previously forecast. The Pound made impressive gains against the Dollar on Thursday to finish higher by over 100 pips at 1.5229. Today, investors have their eye on German Prelim GDP figures at 6.00 GMT, as this is likely to lead to volatility in the EUR/GBP cross.
JPY - The Yen Declines vs. the USD as Stocks Rebound
The Yen fell against the EUR for the first time in 4 days as a gain in stocks encouraged investors to buy higher-yielding assets funded with Japan's currency.
The JPY declined by over 1% against the EUR to 130.92 from 129.42 yesterday .The Yen also weakened earlier 1% against the Dollar to 95.99, because of selling to protect options that would become worthless should Japan's currency rise further, according to analysts.
The Yen may reverse this year's decline against the Dollar as Japan's currency succeeds the greenback as the best refuge from the financial crisis. The Japanese currency may appreciate to 92 yen by the end of the year as the link between the greenback and risk aversion deteriorates. As for today, forex traders are advised to follow the U.S. Core CPI data release at 12.30 GMT, as the results of this are highly likely to determine USD/JPY trading going into next week.
Crude Oil - Crude Rises Above $59 a Barrel
Crude Oil prices rose on Thursday, tracking a rebound on Wall Street, though a gloomy demand forecast from the International Energy Agency (IEA) limited gains.
Crude prices rose $2, or 4%, to settle at $59.53 a barrel. Oil prices continue to track equities markets as traders look to stocks for signs of an economic recovery that could lift ailing world fuel demand. The other factor that helped Oil prices yesterday was the weak Dollar, directly leading to a bullish price of Oil.
The 11 members of the Organization of Petroleum Exporting Countries (OPEC) bound by production targets implemented 77% of planned cuts of 4.2 million barrels a day in April, down from a revised 82% for March. The cartel next meets on May 28, and is unlikely to alter production limits if prices remain strong, Iraq's oil minister said Thursday. The price of Crude may hit $65 by the end of the month if additional solid signs of an earlier-than-forecasted economic recovery become more apparent.
The bullish trend is loosing its steam and the pair seems to consolidate around the 1.3630 level. The pair currently sits near the upper border of the daily chart's RSI, suggesting a downward correction may be imminent. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.
There is a fresh bearish cross forming on the 4-hour chart's Slow Stochastic indicating a bearish correction might take place in the nearest future. The downward direction on the hourly chart's Momentum oscillator also supports this notion. When the downward breach occurs, going short with tight stops appears to be preferable strategy.
The hourly chart is showing mixed signals with its Slow Stochastic fluctuating at the neutral territory. However, a bullish cross forming on the daily chart's Slow Stochastic implies that upwards correction might take place in the nearest time frame. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
The typical range trading on the hourly chart continues. The 4-hour chart RSI is floating in neutral territory. However, the pair currently sits near the bottom border of the daily chart's RSI, suggesting an upward correction may be imminent. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
The Wild Card
Oil prices rose significantly in the last week and peaked at $59.50 per barrel. However, the daily charts' RSI is floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage.
|02:30||AUD||Trimmed Mean CPI||q/q||0.5%||-||-|
|09:30||GBP||MPC Asset Purchase Facility Votes||0-0-9||-||-|
|09:30||GBP||MPC Official Bank Rate Votes||0-0-9||-||-|
|09:30||GBP||BBA Mortgage Approvals||41.8K||-||-|
|11:00||GBP||CBI Realized Sales||4||-||-|
|13:30||CAD||NZD Core Retail Sales||m/m||0.7%||-||-|
|15:30||USD||Crude Oil Inventories||-7.5M||-||-|
|22:00||NZD||Official Cash Rate||3.25%||3.25%||-|
|22:00||NZD||RBNZ Rate Statement||*||*||*|