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Thursday, 21 May 2009
Prices Hit Highs Unseen since 2008
With recent market volatility, the price level for a few currencies and commodities have begun to see prices not seen since last year. For instance, the price of the EUR/USD pair has now risen to a level not seen since the first week of January, 2009. Crude Oil has also shocked the market lately with a continuous uptrend, rising above $62 for the first time since last November. With rallies this large, the forex market becomes more predictable, and traders can reap the benefits!
USD - USD in Down-Trend since April
The USD witnessed a steady depreciation against most of its major currency counterparts on Wednesday. The Dollar has lost ground for 3 straight sessions against the EUR, and 3 of the last 4 sessions against the Yen. The USD was trading at 1.3604 per EUR and 94.85 per Yen at the close of Wednesday's trading sessions.
According to the FOMC meeting minutes there is willingness by the Federal Reserve to go beyond the $1.75 trillion it has already committed to purchasing, and increase the amounts of mortgage and Treasury securities-purchase programs. The Fed made a similar announcement on March 18, stating it would buy $300 billion in Treasuries; this announcement led to the U.S. Dollar plunging. Purchase of Dollar-denominated debt can have a negative affect on the value of the currency since the Fed pays for these purchases by printing more money and therefore devaluing the currency. In addition, the U.S. recession appears to be deeper than expected and a slower recovery is being factored in over the next two years since labor markets remain under pressure.
While the USD recovered some of its immediate losses since the release of the FOMC meeting minutes, it has been declining significantly since the start of the week and shown a downward trend since mid-April. This is due in part to the recovery in equities markets, which increased traders risk appetite. Important economic indicators to watch today are the Unemployment Claims, to be released at 12:30 GMT, and Fed Chairman Ben Bernanke's speech tomorrow. Positive news will put further pressure on the Dollar.
EUR - EUR Benefits from Heightened Risk Appetite
Yesterday's release of the U.S. Federal Open Market Committee's (FOMC) meeting minutes sent the EUR to its highest level against the USD since early January. The EUR advanced 1% to 1.3768 from 1.3630 yesterday. Earlier the EUR touched the 1.3830 price level, the highest since Jan 5th. However, the EUR slid against the USD slightly after a German report showed producer prices fell at the fastest rate in almost 22 years. The EUR also decreased 0.2% to 130.51 yen from 130.81 Wednesday.
Currently there is a shift into a risk-taking environment spurred by a rally in the stock markets and a decrease in volatility. The USD is the anti-risk currency. It also appears that investors are still confident that the U.S. is set first for a recovery compared to others like Japan, the U.K or the Euro-Zone. According to the International Monetary Fund (IMF), the Euro-Zone regional economy will contract 4.2% this year, more than the projected 2.8% contraction in the U.S. and the 4.1% fall in the U.K.
The EUR may gain for a 4th day versus the USD as the Flash Manufacturing PMI and the Flash Services PMI (German, French and Euro-Zone) reports are due to be released today at 7:30 and 8:00 GMT, respectively, and may show that the region's manufacturing and service sectors contracted at the slowest pace in 7 months.
JPY - Yen Rises after News of Japan's Record Economic Contraction
The Yen rose versus all 16 of the most-traded currencies yesterday after Japan reported that its economy shrank at a record pace. The Japanese currency advanced to 130.04 per EUR, up from 130.77 yesterday. The Yen appreciated 1.3% to 94.75 per Dollar, up from 95.97 Wednesday.
The JPY gained modest ground after Japan's Cabinet Office said the economy shrank an annualized 15.2% in the 3 months ending March 31st, following a revised 14.4% contraction in the previous quarter. Japanese Gross Domestic Product (GDP) fell 3.5%, the most since records began in 1955. Speculations that the recession in the U.S, the world's largest economy, is far from over helped to further boost demand for the Japanese currency as a refuge from the international downturn. However, there are signals that the U.S. currency may have fallen too quickly against the Yen and could strengthen.
Crude Oil - Crude Oil Surges above $62 a Barrel
Crude Oil surged yesterday above $62 a barrel, increasing by $1.94 in a relatively short time-frame. This marks one of the largest price jumps seen in almost 6 months! However, early this morning, Crude Oil for July delivery dropped as much as 69 cents, or 1.1%, to $61.35, breaking three days of gains. This was due to a decline in U.S. stocks after the Federal Reserve predicted a deeper recession and a government report showed a drop in fuel demand.
Prices also climbed after refinery fires and unrest in Nigeria threatened supplies. A falling Dollar further assisted the price increase. However, U.S. oil demand hardly improved, and remained 7.6% weaker than a year ago when Americans were already consuming less. There is doubt that the fundamentals of the oil market can support prices above $60 a barrel since there isn't any improvement in demand and no sign the Organization of Petroleum Exporting Countries (OPEC) is likely to reduce output any further in their meeting at the end of this month.
Monday's Memorial Day holiday signals the unofficial start of the U.S. summer driving season. So far gasoline demand gained 3.6% this past week. A continued increase in demand will help push the Oil price further up, however, with the latest report from the Federal Reserve a quick economic recovery in the U.S seems less likely.
This pair has witnessed a sustained upward movement for many days now. This movement has pushed the price of this pair into the over-bought territory on the RSI of the 4-hour chart, signaling that there may be a medium-term downward correction. However, the longer-term trends still appear to be pointing up. Going long appears to continue being the solid choice today.
This pair's strong bullish behavior has resulted in most oscillators indicating that a correction is imminent. While this has been the case for the past two days, it remains to be so. The RSI on the hourly, 4-hour and daily charts all show this pair floating in the over-bought territory, and there are bearish crosses forming on the 4-hour and daily charts' Slow Stochastic. Waiting for the downwards breach and then entering the correction may be wise today.
There appears to be a fresh bullish cross on the Slow Stochastic of the 4-hour chart, signaling an upward correction may be experienced soon. The price appears to be floating in the over-sold territory on the RSI of the hourly and 4-hour charts as well, which supports the above notion. Going long with tight stops might be a decent strategy today.
Even though a sustained downward movement like the one this pair has seen typically pushes the price into levels which indicate a correction, that does not seem to be the case here. Most oscillators for this pair are signaling neutrality. The price does, however, appear to be in the over-sold territory on the 4-hour chart's RSI, which may indicate an impending upward correction. Going long with tight stops might be wise today.
The Wild Card
The strong bullish movement in the price of Gold recently has pushed the price of this pair into the over-bought territory on the RSI of the hourly, 4-hour, and daily charts, signaling strong downward pressure. There also appears to be a fresh bearish cross on the Slow Stochastic of the hourly and 4-hour charts, which supports this notion. Considering the potential downward correction, forex traders may have a fantastic opportunity to join this trend reversal at a very early stage and with a great entry price.
|EUR||French Bank Holiday||-||-||-|
|EUR||German Bank Holiday||-||-||-|
|07:00||JPY||BoJ Monthly Report||-||-||-|
|17:00||USD||FOMC Member Fisher Speaks||-||-||-|