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Monday, 18 Aug 2008
Oil Likely To Dictate the Pace of the Market This Week.
Last week was a very good week for the US dollar as it continued its appreciation for the fourth straight week.More remarkable then the numbers was the reason behind the movement, as results from last week's US economic indicators could be defined as “mixed” at best. Still, with yet another week dominated by declining Oil prices, the USD was once again the biggest winner.
USD - USD Geared Up To Continue Bullish Trend.
Last week was a very good week for the US dollar as it continued its appreciation for the fourth straight week. During the previous week, the most notable gain came against its European counterpart as the oft-traded EUR/USD lost 360 pips by weeks end and close at 1.4675. In addition, the USD posed quite a remarkable appreciation vs. the GBP last week. The dollar gained almost 550 pips bringing the British Pound to its lowest in almost a year.
More remarkable then the numbers was the reason behind the movement, as results from last week's US economic indicators could be defined as “mixed” at best. Still, with yet another week dominated by declining Oil prices, the USD was once again the biggest winner.
This week, the market should begin with lower volatility for the USD, as there are no real important news releases scheduled for today. Later on this week, the market can expect significant news from the U.S. that will likely rekindle volatility. Tuesday will be a very eventful day, as it is packed with market moving indicators such as Building Permits, PPI, Core PPI and Housing Starts. While initial forecasts for the aforementioned events are considered to be un-encouraging for dollar investors, FOMC Member Fisher will give a speech titled "Monetary Policy in a Technology Driven World" which, if hawkish could strengthen the dollar. Wednesday will be a day dominated by Oil news as the new found importance of Crude Oil Inventories should drive market movement for the day. Thursday the Unemployment Claims and Philadelphia Fed Manufacturing Index indicators should come out with encouraging results for the US economy and Friday the market's direction will be derived by the words of Fed Chairman Bernanke speech concerning financial stability.
Today, the NAHB Housing Index is the only expected indicator from the US, and is expected to provide little to market movement. Investors are advised to follow news events of the USD counterparts before placing there transactions.
EUR - Euro-Zone Slowdown Continues To Hurt EUR.
The EUR depreciated versus most of the major currencies last week. The European currency lost just less than 350 points against the USD, closing below the 1.47 level last Friday. The EUR did see a small bullish trend last week versus the GBP with a high of 0.7988 on Wednesday, before closing its weekly trading at 0.7871. This deprecation of the EUR appears to be in direct response to a batch of weak economic indicators published last week from the Euro-Zone. Industrial Production and Gross Domestic Product numbers from France, Germany and the whole of the Euro-Zone all saw lower than expected results, solidifying ECB President Jean-Claude Trichet's outlook of a slowdown in the Euro-Zone economy.
The crucial economic indicators expected this week probably cause the EUR to have another bearish week. With a rising USD, it is hard to see the EUR seeing any real gains with economic data traveling in the opposite direction. Monday and Wednesday should be calm on the European side as no major indicators are forecasted, however the rest of the week should prove eventful. On Tuesday the German PPI is expected to show another month of gains, though it could be offset by ZEW sentiment from the EZ and Germany. Thursday, Manufacturing PMI data from France, Germany and the whole of the EZ could be vital to EUR recovery, however current forecasts show no real change in the data from last month.
The early morning release of Trade Balance was the sole economic indicator expected from the European economic-zone today. Investors are advised to pay close attention to the overall market reaction to last weeks EUR/USD sell-off to see how to open the correct EUR orders.
JPY - JPY Bullishness Primed To Continue With BoJ Conference on Tap This Week.
The Yen completed last weeks trading session in bullish territory versus a batch of its major currency rivals. The Japanese currency saw mixed results against the greenback closing the trading session at 110.55, 30 pips off the weeks starting point. A notable gain for the JPY was against the Euro, gaining for the third consecutive week to close at 162.24, shaving almost 350 points off of the EUR/JPY cross. This bullish result took place despite an overall poor week for economic indicators that came to light from Japan. Preliminary GDP and Tertiary Industry Activity Index indicators had a declining trend when they came in at -0.6% and -0.8% respectively, but were not significant enough to provide any real change in the overall direction of the JPY.
This week Japan will provide even more indicators to the economic calendar and will likely contribute to its currency volatility. The Overnight Call Rate, All Industries Activity Index and Trade Balance are expected to see mixed results. Investors should look toward the BOJ Press Conference; BOJ Monthly Report and Monetary Policy Meeting Minutes for any hawkish direction from Japanese officials, as it could define the JPY's direction this week.
With a slow news day expected throughout the Forex market, JPY investors should keep up to date with the movement of equity markets to gauge the direction of the JPY for today.
Oil - Fay Alert Keeps Oil Up.
Crude Oil is continuing to go through mixed sessions. Since the recent slump of $111.33 a barrel, the Crude has appreciated and is now being traded around $115 a barrel.
The sharp rise in Oil prices took place predominantly as a result of the tropical storm Fay that is threatening the Gulf of Mexico. 'Fay' alert led to a large evacuation from the working staff on the Gulf, and a sharp price movement was imminent since the Mexican Gulf accounts for about a fifth of the U.S total oil production.
However, despite the recent rising prices, it is widely accepted that Crude Oil is still in the progress of a downtrend, and as long as the storm's damages remains minimal, Sweet Light is likely to resume its falling prices. Traders are highly advised to pay attention to Fay's developments as they will probably play a leading role in Oil's prices for the near future.
After reaching the low of 1.4658 during the previous week the pair is now showing sharp bullish correction on a daily chart. However, a bearish cross on the hourly chart's Slow Stochastic indicates that the bearish trend may resume in a short run. Thus, going short with tight stops might be the right choice for today.
The 4 hour chart shows that the pair's strong bearish move was halted, as the cable is now going through a bullish session since the beginning of this week. As all oscillators on the 4 hour chart are also pointing up, it seems that going long might be preferable.
The 4 hour chart is showing that the bullish momentum is weakening, and has turned slightly bearish. The bearish cross on the Slow Stochastic strengthens the pair's bearish inclination, and might see a valid target price at 109.00.
Ever since the pair reached its peak of over 1.1000, it's been showing bearish momentum exclusively. As all oscillators on the 4 hour chart are providing bearish signals, a breach through the 1.0915 level will probably validate the bearish move, with the next possible target price of 1.0860.
The Wild Card
After a sharp bearish move that took place last weekend, the pair is showing potential for a reversal. The bullish momentum was originated at the lower border of the Bollinger Bands, meaning that there is still more room left for this trend. Forex traders might have a great opportunity to enter the trend at a very convenient entry price.
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