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Friday, 22 Apr 2011

Oil Prices Top $112; Is Global Supply Truly Adequate?

Traders watching the price of oil climbing with despair were disheartened yesterday as shifts in risk sentiment and thin holiday trading conditions helped push the price of oil over $112 a barrel. Both US President Barack Obama and ministers from the Organization of Petroleum Exporting Countries (OPEC) have affirmed that current oil supply levels are adequate for global demand, arguing that speculation is a prominent factor driving the price to its recent highs.

EUR/USDGBP/USDUSD/JPYUSD/CHFAUD/USDEUR/GBP
Daily Trendupupnoupnoup
Weekly Trendupupdowndownupno
Resistance1.46801.661082.900.89501.08300.8930
1.46501.658082.600.89201.08000.8900
1.46201.655082.200.88901.07800.8870
Support1.45501.647081.500.88101.07000.8790
1.45201.644081.200.87701.06600.8760
1.45001.640081.000.87400.06300.8740

Economic News

USD - USD in Decline for Third Straight Day

The US dollar continues to lose ground as positive data helps generate risk appetite in the global market. Many have speculated that this downturn is also being fueled by record low interest rates that are beginning to reveal dissonance with public attitudes towards inflation.

The USD found itself in a downward spiral after Standard & Poor's ratings agency attached a negative outlook atop US debt. The agency warned that a downgrade to the US's AAA standing may be in order if measures are not taken in the next two years to tackle their over burgeoning debt level. The fact that the greenback has been in a steady decline ever since the downgrade reveals the pessimism among global traders about the possibility of such action being taken.

A number of analyst have written on the disparate monetary policies between the US and Europe, but yesterday's remarks from Jean-Claude Trichet about softening the European Central Bank's (ECB) stance on interest rate hikes may prove the US vindicated over the short-run.

Traders may begin to anticipate a corrective downturn in the EUR/USD pair next week as markets digest Trichet's remarks. With today's bank holidays around the world, traders should be on guard against intense volatility as thin market conditions tend to produce wide swings.

EUR - EUR Mixed after ECB Softens Position on Rates

The euro experienced mixed results after the European Central Bank (ECB) President Jean-Claude Trichet made remarks that appeared to soften the bank's official stance on monetary policy. As a result, the EUR/USD bounced off its 1.4600 resistance line and currently trades near the 1.4590 level as of this morning. This week's thin market conditions from the Easter holiday provide little support to move the price of the euro in either direction, and yesterday's comments only confused market direction even further.

The British pound has also experienced a few volatile price swings from thin market conditions and the move into and out of carry trades has made trading the Japanese yen and Swiss franc more unpredictable. But yesterday's shift into riskier assets is providing some normalcy for short-term traders though Trichet's comments did not help.

The economic calendar today is utterly empty short of retail sales figures out of Italy. Overall, most traders will be absent today's market as banks shut down in observance of Good Friday prior to this weekend's Easter celebrations. Italy's retail sales data may give a bump to the EUR if it comes out positive, but any significant shifts will be offset by the return of normal volume on Monday. Traders simply need to guard their positions against intense market volatility today in expectation of violent swings due to thin trading.

JPY - Japanese Yen Bullish vs. Dollar as US Manufacturing Plummets

The sudden sharp drop in the US Philly Fed Manufacturing Index sparked a sudden shift into the Japanese yen against the dollar yesterday. Traders appear to be revealing a bias away from the greenback in favor of the yen as global risk appetite levels bounce rapidly between economic regions. The unexpected softening of the ECB's stance on monetary policy yesterday also convinced a number of investors to shy away from the euro zone in favor of some level of safety during this uncertain period, exasperated by thin holiday trading.

Lower oil stockpiles in the US may also have signaled positive industrial growth in the US, and Australian import prices and inflationary data grew more than expected, leading many to speculate a tightening of monetary policy by the Aussie giant. Yesterday's claim had the impact pulling down on the JPY, but the ECB's remarks mixed with the Philly Fed data has actually helped the yen in short-term trading. As most other markets close today, traders may want to eye the Japanese market a little closer since it will remain active during the holiday session.

Crude Oil - Thin Market Helps Extend Oil Price Gains

Traders watching the price of oil climbing with despair were disheartened yesterday as shifts in risk sentiment and thin holiday trading conditions helped push the price of oil over $112 a barrel. Both US President Barack Obama and ministers from the Organization of Petroleum Exporting Countries (OPEC) have affirmed that current oil supply levels are adequate for global demand, arguing that speculation is a prominent factor driving the price to its recent highs.

Looking through a variety of recent analyses may support this notion given that most expect either continued unrest in the Middle East-North Africa (MENA) region, or a flare-up of new conflicts as tensions continue to spread. This expectation convinces many large investors to bet on a rising price, thus driving the price higher than it otherwise would be, exactly the sentiment President Obama made in a town hall meeting in Virginia just days ago. If true, oil traders may continue to expect rising prices through the days ahead since such speculation is not likely to come to an end anytime soon.

Technical News

EUR/USD

There is a very distinct bullish channel formed on the 1-day chart, as the pair is now floating in its upper section. In addition, as both the MACD and the Slow Stochastic in the daily chart provide bullish signals, it appears that the pair might see another rising trend today, with potential to reach the 1.4700 level.

GBP/USD

Ever since peaking near the 1.6600 level, the cable began correcting downwards, and is currently trading around the 1.6500 level. In addition, as the RSI in the 4-hour chart is pointing down and is about to cross the 70-line, it seems that the bearish correction might extend. Going short with tight stops appears to be the right strategy today.

USD/JPY

There is a very accurate bearish channel formed on the 4-hour chart, and the pair is now floating in its middle. Currently, all the technical oscillators on the daily chart are pointing down, suggesting that another bearish session could be expected. Going short seems to be the right choice today.

USD/CHF

The USD/CHF pair continues with its free-fall and is currently trading near the 0.8860 level. Currently, as a bearish cross takes place on both the daily chart's Slow Stochastic and MACD, it looks that the pair might see another bearish session today, with potential to reach the 0.8750 level.

The Wild Card

AUD/CAD

The AUD/CAD pair climbed about 200 pips over the past few days and is currently trading near the 1.0220 level. In addition, as the MACD on the 4-hour chart and the RSI and Slow Stochastic on the daily chart are providing bullish signals, it seems that the pair may rise further before the weekend. This might be a good opportunity for forex traders to join a very popular trend.

Current Time: 10/23 17:06 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
10/23
23:45NZD+ Trade Balance-472M-620M-5
10/24
01:00EUR+ EU Economic Summit---3
08:00EUR+ GfK German Consumer Climate8.38.1-3
10:00EUR+ Italian Retail Salesm/m-0.1%0.2%-1
10:30GBP+ Prelim GDP q/q0.9%0.7%-5
10:30GBP+ Index of Services 3m/3m1.0%0.9%-1
15:00EUR+ Belgium NBB Business Climate-7.2-7.8-1
16:00USD+ New Home Sales504K473K-5
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