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Friday, 25 Feb 2011
Political Turmoil in Libya Boosts Crude Prices To Over $100 a Barrel
The yen was about 0.4% from its strongest level in three weeks against the dollar and the Swiss franc climbed to a record as an uprising in Libya sent oil prices to a 29-month high, boosting demand for safe haven assets.
USD - Dollar Weakens on all Fronts
The dollar fell broadly against most of its major currency pairs on Thursday, with further losses seen as likely, pressured by a surge in oil prices as investors feared civil unrest in Libya could spill over to other top producers including Saudi Arabia. By yesterday's close, the USD fell against the EUR, pushing the oft-traded currency pair to 1.3800. The dollar experienced similar behavior against the JPY and closed at 81.85.
The safe-haven Swiss franc, on the other hand, hit a record high against the greenback, benefiting from the ongoing geopolitical turmoil in the Middle East. The franc has gained in eight of the last nine sessions versus the dollar. In the last two weeks, the Swiss currency has gained 5.1% so far, its best showing since late June last year.
A leading indicator released yesterday was U.S. Unemployment Claims. This number handedly beat last week's result but failed to provide strength to the Dollar as investors may be waiting for key data due to be released today to implement their trading strategies.
Looking ahead to today, there are several important news releases coming out of the U.S. These include the Prelim GDP and Revised UoM Consumer Sentiment at 13:30 GMT and 14:55 GMT respectively. Better-than-expected results may help the Dollar recover some of yesterday's losses against some of its crosses such as the EUR and JPY. On the other hand, if the results turn out to be lower than forecasts, then the Dollar may record a fairly bearish session in today's trading. Traders should pay close attention to the market as there is an opportunity for traders to capitalize on the fluctuations which are likely to follow these releases.
EUR - German Prelim CPI on Tap
The euro extended gains versus the U.S. dollar to hit a session high during early trading on Thursday on expectations interest rates in the euro zone will rise earlier than those in the United States. The euro rose as high as $1.3819, its strongest level since Feb. 3, before retreating to $1.3800, up 0.4% on the day.
A leading indicator released yesterday was the German Final GDP. Germany holds the largest and strongest economy in the Euro-Zone, and thus the relevant publications from this economy usually have a hefty impact on the EUR. The German economy may gather strength in the current quarter after the coldest winter since 1969 curbed construction activity in the final three months of 2010. Business confidence jumped to a record high this month and unemployment is the lowest in almost two decades. Bundesbank President Axel Weber last night indicated the central bank has raised its 2011 growth forecast to 2.5% from 2%. The economy expanded a record 3.6% in 2010.
Looking ahead to today, the most important economic indicator scheduled to be released from the Euro-Zone is the German Prelim CPI. Analysts are forecasting this figure to increase from its previous reading. Traders will be paying close attention to today's announcement as a stronger than expected result may boost the EUR in the short-term. Traders are also advised to follow the Revised GDP figures coming out of Britain at 9:30 GMT, and the U.S GDP figures at 13:30 GMT as these results may set the EUR's main currency crosses for the day.
JPY - Yen Continues to Strengthen
The yen experienced a bullish trading session yesterday, as it appreciated against most of its major currency pairs. The JPY extended gains versus the USD during yesterday's trading session and closed at 81.85. The Japanese yen also saw bullishness against the GBP as it jumped around 90 pips and closed at 0.8560.
Investors worry over a recent rise in the JPY as it makes Japanese products less competitive abroad and hurts the value of overseas sales when translated back into the Japanese currency. With steady gains primarily against the Dollar, much of the Yen's bullish movement could be contributed to the repatriation of overseas earnings by Japanese companies into the local economy. This has had a positive effect on major JPY currency pairings, as the rising turmoil in the market is leading to more investment in the Japanese currency.
OIL - Crude Oil Trades at 29-Month High
Crude oil jumped to a 29-month high of $103 a barrel , before retreating to $97.50 on Thursday, as investors weighed the risk of Middle East unrest spreading from Libya to bigger exporters including Saudi Arabia.
The standoff between an increasingly isolated Libyan strongman Muammar Gaddafi and rebel factions now in control of oil-rich eastern Libya has cut output in the world's No. 12 crude exporter by at least 25%, or 400,000 barrels a day.
As for today, the US Prelim GDP will likely determine crude's next move, with any mildly positive elements within them likely to keep the crude price on its upwards direction.
The EUR/USD cross has experienced a bullish trend for the past week. However, it seems that this trend may be coming to an end. For example, the 8-hour chart's Stochastic Slow signals that a bearish reversal is imminent. A downward trend today is also supported by the 4-hour chart's RSI. Going short with tight stops may turn out to pay off today.
The GBP/USD has gone increasingly bearish yesterday, and currently stands at the 1.6140 level. The daily chart's Slow Stochastic supports this currency cross to fall further today. However, the 2-hour chart's Stochastic Slow signals that a bullish reversal will take place today. Entering the pair when the signs are clearer seems to be the wise choice today.
The price of this pair appears to be floating in the over-sold territory on the 8-hour chart's RSI indicating an upward correction may be imminent. The upward direction on the 4-hour chart Slow Stochastic also supports this notion. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
The cross has been dropping for the past week now, as it now stands at the 0.9250 level. The Slow Stochastic of the 8-hour chart shows a bullish cross has recently formed, indicating that an upward correction is imminent. This view is also supported by the RSI of the 4-hour chart. Going long with tight stops may turn out to be the right choice today.
The Wild Card
Gold prices rose significantly in the last week and peaked at $1417 an ounce. However, daily charts' RSI is floating in an overbought territory suggesting that a recent upwards trend is losing 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.