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Friday, 22 Jul 2011
Oil Prices Approaching $100 a Barrel Mark
Crude Oil prices rose yesterday, reaching as high as $99.60 per barrel in late trading. Growth differentials between the Atlantic states have risen into view this week while manufacturing output and service data revealed mild weakness in Europe. The news so far has not generated enough resistance to stop the surge in price seen on Crude Oil after China's reported increase in demand.
USD - US Dollar Regains Losses as Thursday Data Slumps
The US dollar was seen trading higher yesterday as traders began to reevaluate the recent dip in USD values from notions of growing risk appetite brought about by optimistic housing and earnings data. The EUR/USD was seen meeting resistance near 1.4250 yesterday and plummeted towards 1.4200 in late trading. The greenback saw similar movements against most other currency pairs as well.
The series of data released yesterday painted a relatively weak picture for the US economy's growth; but growth is shown to be occurring nevertheless. Weekly unemployment claims saw a worse than forecast rise, hitting 418,000 for the past week. A manufacturing index out of Philadelphia, Pennsylvania, showed a solid uptick, beating expectations. The frontrunner in yesterday's data, however, was a long string of reports out of Europe that showed the region experiencing stagnation which has gouged investor appetite for risk.
With a moderately heavy news day expected Friday, dollar traders should be anticipating some exciting currency movements brought about by heightened liquidity. The economic calendar, though, will be focused on Canada with several reports on CPI and retail sales. The greenback is in focus as the week concludes considering the intense rollercoaster it experienced these past few trading days. If news continues bearish, the dollar may see some added gains before the week comes to an end.
EUR - EUR Bearish as Flash Data Disappoints
The euro was seen trading lower yesterday in light of data releases suggesting stagnation across the euro zone. Following yesterday's flash manufacturing and service reports in the euro zone, traders appeared more concentrated on news out of the US to determine values, and we've seen a retracement of the USD versus its primary currency counterparts as a result of this sentiment.
While growth variances between the US and Europe came into view this past week, the higher yielding assets like the GBP and EUR appeared positioned to lose as traders turned away from risk, despite the uptick in risk taking seen by mid-week. The growth in risk aversion may have many investors choosing to store their value in lower yielding currencies, like the USD and JPY as the week comes to a close.
As for Friday, the euro looks to be anticipating an evaluation of its recent downturn against the other major currencies with mild bias to the downside. The euro zone will be publishing a few economic events on today's calendar. Traders should try and follow the significant publication emanating from the Canadian and German economies today, however, as a heavy string of reports are expected throughout the day, the German Ifo Business Climate report at 9:00 GMT primarily among them.
JPY - JPY Seen in Ascent as Traders Seek Store of Value
The Japanese yen (JPY) was seen trading higher versus most other currencies yesterday after news began to shift many traders back into safe-haven assets. The yen has been a top performer these past several months considering many traders bank on the Japanese carry trade during times of intense risk appetite and move towards the JPY in times of risk aversion, making it an appealing currency in these recent times of ominous reports.
The JPY was in a position to make solid gains yesterday after a series of flash manufacturing and service data reports revealed stagnation in Europe. Moves toward riskier currencies halted as pessimism took hold and drove much of yesterday's trading liquidity towards traditional stores of value. As such, traders appear to be anticipating a mild uptick in the JPY prior to this week's close.
Oil - Oil Price Floats near $100 a Barrel
Crude Oil prices rose yesterday, reaching as high as $99.60 in late trading. Growth differentials between the Atlantic states have risen into view this week while manufacturing output and service data revealed mild weakness in Europe. This has so far led several large investors and analysts to consider a shift away from the EUR and other risky assets in exchange for the safety of the USD and JPY.
As investors sought safety, the value of crude oil, which has been seen holding steady most of the week, rebounded to a weekly high of $99.60 a barrel. A sudden jump in dollar values due to this week's risk sensitive environment has helped many investors move hesitantly away from assets like gold and silver, but crude oil appears untouched by this sentiment. Should Crude Oil prices hold steady this week, we may continue to see some gains going into the week's final hours.
After a gapping lower to start last week the pair moved below the 200-day moving average and on the subsequent rebound the EUR/USD found resistance at its 100-day moving average, a previous level the pair struggled to close below between the months of April and July. While the rebound higher was sharp the failure of the pair to move above the 100-day moving average and to close above the opening gap signals weakness in the pair. Initial support is found at last week's low at 1.3870 followed by the rising trend line from the June 2010 low which comes in at 1.3750. A break here is significant as it would compromise the long term uptrend for the euro, exposing the 50% retracement level at 1.3410. To the upside last week's high at 1.4290 is the first resistance followed by the falling resistance line from the May and July highs at 1.4490.
The GBP/USD price collapsed only to find support at the 38% retracement level of the May to April move at 1.5780 while the rebound higher was capped at the neckline from the head and shoulders reversal pattern. Positive divergence is found on the RSI-14 as the price made a new low but the RSI did not. This signals a potential warning sign for sterling bears. Resistance is located at 1.6230 off of the falling trend line from the April high. Above this level the previously broken trend line from the May to April move at 1.6330 will come into play. To the downside a break of 1.5780 would signal a resumption of the downtrend and would target 1.5650 which has served as both support and resistance in October and in December of last year.
The USD/JPY downtrend resumed with a vengeance last week as the pair broke below the 80 yen “line in the sand” and the support from May 5th at 79.55. This level has now turned into resistance as often happens to previously broken support levels. Only last week's low at 78.46 and the bottom of the long term wedge from Sept 2004 at 77.60 stands in the way of the all-time low at 76.11.
The Swissie has moved in one direction and one direction only. The pair made a halfhearted attempt close above its 50-day moving average and moved sharply lower from there setting a new all-time low at 0.8082 which serves as the initial support level. Any move higher may find resistance at 0.8275, the falling trend line from the February high which comes in at 0.8450, and 0.8550.
The Wild Card
The current rally in equity prices could nullify a potential head and shoulders reversal pattern on the daily chart of the S&P 500. A move above the right shoulder of the pattern at 1,353 would be likely go on to test the yearly high of 1,372. The neckline of the chart pattern runs underneath the March and June lows and comes in at 1,260. A break below the neckline would confirm the reversal pattern. Another key level to watch is the 200-day moving average at 1,285. Forex traders should note that a measured move from the chart pattern shows a potential decline of 120 points.
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