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Tuesday, 30 Jun 2009
Rally in Equities Pushes Investors to Riskier Assets
An extremely bullish day for the equity markets pushed investors back to riskier assets and away from the safe haven USD and JPY, causing them to plummet against their riskier counterparts. The rally in equities along with a weak Dollar has also helped push Oil prices above $73 for the first time in over a week. Today's numerous economic data releases from the U.S, Euro-Zone and Japan promise another volatile trading day and will help determine if the current trends will continue throughout the week.
USD - Dollar Plummets as Wall Street Rallies
The Dollar plummeted against the major currencies on Monday, as Wall Street rallied. The bullishness in the U.S. stock market also spread to Britain and the Euro-Zone. The Dow Jones rose by over 1%, while the S&P extended its best rally since 1998. Amongst the biggest gainers were banking stocks. The bullish stock market led to a fall in the Dollar across the board, as traders ditched the safe-haven USD for riskier assets in Monday's trading. This was exasperated due to traders wishing to further their profits in stocks as the quarter comes to an end.
The USD slipped about 80 pips vs. the EUR to finish trading at 1.4115. This was helped as Euro-Zone economic confidence increased more than expected this month. The Dollar's behavior was much the same against the Pound, as the GBP/USD pair rose 160 pips to the 1.6634 level. The GBP's strength may have been owed to its dependence on U.S. economic optimism. However, against the JPY the greenback extended its rally for the second day, as investors dropped the "ultra" safe-haven Yen for the "less" safe-haven USD.
Looking ahead today, there is plenty of economic news that is likely to help determine the volatility in the forex market. The releases from the U.S. are set to be the key to today. Traders are advised to pay attention to the Chicago PMI at 13:45 GMT and CB Consumer Confidence at 14:00 GMT. It is also advisable to follow the direction of the equity market, as this could be a key factor in determining the Dollar's strength later
EUR - GBP Boosted by U.S. Optimism
The Pound recorded a volatile, but bullish trading session yesterday against its major crosses, as it benefited from the optimism from the U.S. The rally in the British stock market was encouraged by Wall Street's rally. What has been much of a pattern recently has seen the Pound rising whenever equities make significant gains in the U.S. and Britain. This may be explained by Britain's dependence on the financial sector. With this sector doing well yesterday in the equities market lent the Pound a boost, helping us understand much of the behavior of the cable.
Both the GBP and EUR posted gains against the USD and JPY. The EUR/GBP was
32 pips lower at 0.8482. It seems that if global economies continue to prove, then we may see this pair continue to approach the 0.8400 level in the short-medium term.
The EUR was also helped yesterday by strong economic confidence figures from the Euro-Zone. This is a further signal that the economic situation in the Euro-Zone isn't as dire as some analysts originally forecast.
Today, there is plenty of data coming out of Britain and the Euro-Zone that is likely to determine the GBP and EUR crosses in today's trading against the major currencies. From Britain there is the release of the Nationwide HPI at 6:00 GMT and Current Account and GDP data at 8:30 GMT. From the Euro-Zone there is the publication of German Unemployment Change figures at 7:55 GMT and the CPI Flash Estimate at 9:00 GMT.
JPY - JPY Tumbles on Waning Safe-Haven Status
The Japanese Yen tumbled on Monday, as the Japanese and global equities recorded significant gains. Investors also lost confidence in the JPY yesterday, as Japan released figures showing that unemployment is at a 5-year high of 5.2%. Japan's government fears it will hit 6% by mid-2010. Much of the JPY's weakness is due to
traders dropping the safe-haven JPY for more risky assets. As of late, this seems to be equities and commodities.
The Yen slid for a second day against the USD by about 50 pips to 95.92. The EUR/JPY cross slipped to135.38 from 133.90. Against the GBP, the Yen slipped 235
pips to 159.63. The Yen's volatile movement is set to continue in today's trading. Later today, this will be even more so with the release of the important Japanese Tankan Manufacturing Index and Tankan Non-Manufacturing Index at 23:50 GMT.
Crude Oil - Crude Oil Surges Past $72 a Barrel
The price of Crude Oil surged passed $72 a barrel yesterday, rising an astonishing $4
to $72.68. This was fueled by 3 dominant factors. Firstly, there was yet another rebel attack in Nigeria, forcing the Shell Oil Company to close one of its refineries yesterday. Additionally, there was a bullish U.S. and European stock market session, leading to a boom in commodities, as investors sold-off safe-haven assets such as the U.S. Dollar.
Yesterday's gains came on the back of some bearishness in Crude in recent days, as the commodity failed to hold above $70 a barrel. Recent reports by the International Energy Agency revealed that demand will wane for the foreseeable future. However, OPEC is unlikely to cut supply in their next meeting in September. If there are more positive economic signs from the U.S. in the next 2 days, then Crude could hit $75 by the end of the week.
A bearish cross appears to be forming on the 4-hour chart's Slow Stochastic, suggesting a downward movement may be in the works. The price also floats in the over-bought territory on the daily chart, which supports this downward notion. Going short might be a wise choice today.
The recent upward spike has pushed most indicators into the over-bought territory while also generating a number of bearish crosses on all charts. Waiting for the momentum to die down, and then going short would be a good decision today.
With most indicators floating in neutral territory, this pair appears directionless. The bullish cross on the hourly chart's Slow Stochastic signifies an imminent upward move; however, the bearish cross on the 4-hour chart's Slow Stochastic suggests otherwise. Waiting for a clearer direction for this pair may be a good choice.
This pair's 4-hour chart shows an imminent bullish cross on the Slow Stochastic, which implies a coming upward correction. As the price floats near the over-sold territory on this chart's RSI, the upward notion seems justified. Going long with tight stops might be a preferable strategy.
The Wild Card
This pair has entered a long and steady downward trend and doesn't appear to be stopping. After the Bollinger Bands on the hourly chart tightened, a volatile downward movement occurred and there now appears to be bullish crosses on the 4-hour and daily chart's Slow Stochastic and MACD. Contrary to these indications, however, is the fact that the downward momentum still has plenty of room to run. Sticking with the downtrend, forex traders should enter their short positions and finish riding out this profitable move.