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Monday, 31 Jan 2011
Political Turmoil in Egypt Boosts Crude Prices To $90.80
Recent developments in Egypt are having a significant impact on commodities and the major currencies. Just before the weekend, when protests in Egypt began escalating, crude prices jumped 500 pips to $90.80 a barrel. In addition, safe-haven currencies such as the yen were also largely supported, and the Japanese currency is currently strengthening against all of its major rivals.
USD - Dollar Closes a Volatile Week with Green Signals
The dollar saw a very volatile session during last week's trading. The dollar began last week's session with a falling trend against the euro and the British pound. The EUR/USD pair reached as high as the 1.3755 level and the GBP/USD reached as high as the 1.6015 level. Yet eventually both pairs reversed trends, the EUR/USD is now trading near the 1.3585 level, and the GBP/USD near the 1.5830 level.
The dollar recovered against most of the major currencies for two main reasons. First of all, the dollar strengthened following positive signals from the U.S. economy. The confidence among U.S. consumers rose in January to the highest level in eight months as Americans became more optimistic about job prospects. In addition, sales on new homes in the U.S. rose more than forecasted in December to a 329,000 annual pace.
The second reason for the appreciation of the dollar is the political turmoil in Egypt which has boosted demand for safer assets. The concerns are that the unrest will spread to oil-producing nations in the Middle East, and will damage oil supplies from the region.
As for this week, the most exciting economic release is expected on Friday, as the Non-Farm Employment Change is scheduled. Current expectations are that the labor sector in the U.S. continues to recover during January. Traders are also advised to follow the ADP forecast of this release, which is expected on Wednesday, as it is likely to create high volatility as well in the marker.
EUR - Euro Corrects Gains Vs. The Majors
The euro began last week's trading session with a rising trend against most of its major counterparts. However, close to the weekend the trend reversed and the euro lost about 170 pips vs. the U.S. dollar, and about 200 pips vs. the British pound.
The euro was strengthened early last week following hawkish comments by European Central Bank (ECB) President Jean-Claude Trichet. Trichet vowed to battle inflationary pressures and stressed the ECB is determined to fight inflation attributed to rising commodity and food prices. He also said that he doesn't see risks of an economic downturn due to sovereign budget cuts. This has boosted optimism regarding the euro-zone's outlook and as a result supported the euro.
However, close to the weekend the euro began correcting gains against most of the major currencies as unrest in Egypt has elevated risk-aversion in the market, and boosted demand for safer assets, such as the greenback and the yen. Demand for the euro, which is considered to be a relatively risky asset, was damaged.
Looking ahead to the following week, many interesting economic publications are expected from the euro-zone. The most significant of the all will surely be the Minimum Bid Rate, which is scheduled at Thursday. The Minimum Bid Rate is in fact the euro-zone's interest rates announcement for February, and analysts estimate that the ECB will leave rates at a record low of 1.00%. Traders are also advised to follow the ECB's press conference which will be held at the time, as this is also likely to generate high volatility in the market.
JPY - Yen Rallies as Protests in Egypt Spurs Demand for Safe-Haven Currencies
The Japanese yen saw an extremely volatile trading session over the past week. The yen saw several ups and downs against its major rivals, yet it ended the week with sharp uptrends, including a 120 pips gain vs. the U.S. dollar, a 250 pips gain vs. the euro and a 270 pips gain against the British pound.
The yen's trading was impacted by two significant events. The first one was the Standard & Poor's unexpected decision to downgrade Japan's credit ratings from AA- to AA. The credit rating was lowered due to persistent deflation and as political gridlock undermined efforts to reduce an $11 trillion debt burden. The yen instantly slid against the major currencies following the announcement.
However by Friday, protests in Egypt began escalating, provoking concerns that a political turmoil might be impending. This has boosted risk-aversion in the market, spurring demand for safe-haven currencies, such as the Japanese yen.
Looking ahead to this week, several interesting economic releases are expected from the Japanese economy, yet at least for the near future, the political developments in the Middle East might have a larger impact on yen trading. Traders should take under consideration that if the unrest in the region will grow, the yen might strengthen further.
OIL - Crude Oil Rallies to $90.80 a Barrel on Concerns Egyptian Unrest Will Spread
Following a bearish weekly session, crude oil prices are currently recovering. Crude oil began last week's session at around $89.20 a barrel, and fell to as low as $85.00. However, just before the weekend crude recovered, and hit $90.80 a barrel.
Crude oil prices rallied after protests in Egypt provoked concern that the unrest may spread to crude oil-producing parts of the Middle East. Protesters are demanding an end to Egyptian President Hosni Mubarak's 30-year regime, and are currently reluctant to accept the new prime minister and vice president. The fear in the market is that the unrest in Egypt, which was initiated in Tunisia, will spread to oil-producing nations, and will damage oil supplies from the region.
As for the week ahead, traders' attention should be devoted to all developments from the Middle East, as this is likely to continue to play a leading role in commodities trading. Traders should take under consideration that as long as the unrest in the region remain, crude prices might be further supported.
After seeing several failed attempts to cross the 1.3800 level, the EUR/USD pair saw a bearish correction which took it as low as the 1.3570 level. Currently, as both the MACD and the RSI on the 4-hour chart continue to point down, the pair might see further bearishness, with potential to reach the 1.3500 level.
The pair has been trading within a restricted range for the past three weeks, between the 1.5750 and the 1.6050 levels. A bearish cross of both the MACD and the Slow Stochastic on the daily chart signal that today's movement might be bearish. Going short might be the right choice today.
After climbing about 100 pips in Thursday's trading session, the USD/JPY pair has corrected all of its gains, and is currently trading near the 82.00 level again. If the pair will manage to cross the 81.85 support level, it has potential to drop as low as the 81.00 level today.
The USD/CHF pair continues with the flat trading around the 0.9420 level. The pair has remained around this level since January 25. Currently, as the daily chart is providing mixed signals, it seems that traders might prefer alternative investments today, and would stay out of this one.
The Wild Card
After falling about 800 pips in twelve days, crude oil managed to gain 500 pips in a single trading day, and a barrel of crude is currently trading near the $90 level. In addition, as all the oscillators on the daily chart are pointing up, it appears that another bullish session might be impending. This might be a great opportunity for forex traders to join a very popular trend.