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Friday, 17 Jun 2011
Republican Debates Factoring into UoM Sentiment Report?
With the Republican debates kicking off this past week, and Rep. Anthony Weiner (D-NY) stepping down from office from his recent scandal, criticism of President Obama's economic policies and stimulus will likely get revved up, possibly leading to a steep decline in American confidence levels, which will get reported on by the University of Michigan (UoM) today. The US dollar may not see much weakness from this turn of events, however, as it tends to do well in times of risk aversion.
USD - US Dollar Mixed as Traders Weigh Manufacturing Data
Poor economic data out of the United States continued to weigh on the US dollar yesterday as investors continued to eye the interest rate differentials between the US and Europe. Yesterday's manufacturing data out of Philadelphia highlighted a stark downturn in the manufacturing sector of the American northeast over the past month, raising risk aversion.
The data comes on the coattails of similar downturns across Europe seen earlier this month. A decline in British retail sales yesterday may also translate over to a flight to safety. News out of the American economy continues to reveal softness and stagnation as global output levels enter a period of decline. If data remains as weak as they are now, traders will likely continue to see weight applied to the value of the world's riskier assets while the USD sees mixed results.
On tap today will be consumer confidence levels from the University of Michigan (UoM). The reports on consumer sentiment will likely support the latest news of stagnation and declines in growth. With the Republican debates kicking off this past week, and Rep. Anthony Weiner (D-NY) stepping down from office due to his recent scandal, criticism of President Obama's economic policies and stimulus will likely get revved drastically, possibly leading to a steep decline in American confidence levels. The US dollar may not see much weakness from this turn of events as it tends to do well in times of risk aversion.
EUR - EUR Makes Mid-Day Gains as US Data Falters
The euro rose in yesterday's late-trading sessions as economic news, mixed with some political drama, has had investors balancing between debt concerns and interest rate differentials. Soft data out of the American economy, however, has held many traders leery of seeking safety in the greenback. After yesterday's severe downturn in the Philly Fed Manufacturing Index, investors appear to have shifted their gaze on Greece's potential for a bailout, with optimism beginning to take hold late yesterday.
As for today, the euro zone turns its economic data engine back on with the publication of two less significant reports. At 9:00 GMT, Italy will publish its trade balance. The figure is expected to reveal a mild slowdown in the growth of Italy's deficit. The news may help support an impending growth in Italy's home market.
Following Italy's data release will be a 10:00 GMT publication of the euro zone's regional trade balance. This report measures the change in value for imported and exported goods. Expectations are for a growth in the region's trade deficit which may put pressure on the EUR ahead of the week's close. News surrounding the appropriation of funds for Greece is gripping the market right now after the data falter in the United States drastically altered many portfolios. Look to a mildly strengthening EUR if the dollar can't find its footing today.
JPY - JPY Experiencing Relatively Flat Trading
The Japanese yen (JPY) has been trading with somewhat mixed results since Thursday, with gains made against several currencies and losses elsewhere. After a week of ups and downs, the Japanese yen appears set to make gains today as investors appear to be seeking safety. The dominant stance of risk aversion overarching yesterday's environment of optimism has many traders moving towards the yen against the higher yielding currencies like the euro, which dropped to a six-week low during yesterday's afternoon sessions.
However, the yen was slightly lower versus the US dollar as the pair moved up from previous intervention levels near 80.00. The USD/JPY held steady at yesterday's low, finding support near 80.30 and moving up towards 80.90 by today's opening Asian sessions. Japan's morning release of its Monetary Policy Meeting Minutes should have shed light on JPY values and direction, but so far the forex landscape appears calm. If this past week's soft data from the Western powers proves pivotal, the JPY could find solid support ahead of this week's closing.
Oil - Oil Prices Sent Lower as Investors Seek Safety
Oil prices slumped below $92 a barrel yesterday morning following a report out of the United States on Wednesday which revealed a decline in its oil stockpile data. These US oil stockpile reports had shown significant growth for a few weeks before finally experiencing a downturn. The sudden halt of this inventory growth had a sharp effect on the value of Crude Oil as its price fell from a recent high near $103 a barrel to a current low just under $92.
The value of the US dollar versus the euro in recent trading has pushed towards a three-week high near 1.4160, which originally hurt the value of oil. With today's steady sideways movement, traders appear likely to see oil faltering somewhat before this week's market close. Whether oil traders decide to lift oil prices from a buy-in on physical assets, or whether they decide to pull away from the black gold out of a perceived risk averse environment, is a point traders will bear witness to next week.
A three week rally was met with a failure of the pair to breach 1.4700, a level not far from the previous trend line which opened the door for a significant pullback that retraced 50% of the late May to early June gains. The week's declines ended at the 20-day moving average at 1.4330 and will serve as initial support. Falling daily stochastics suggest the move lower may have scope to continue where the pair may find resistance at 1.4250, a level that coincides with the 61% retracement and the rising trend line from the May low. A breach here and the pair will test the 100-day moving average followed by the May low at 1.3970. To the upside, resistance will likely come in 1.4570 followed by 1.4700.
The weekly candlestick suggests further declines may be in store as last week's candlestick ended on a shaven bottom, indicating momentum is moving to the downside. A confirmation will be needed from this week's trade to confirm the bearish pattern. In the meanwhile the move lower finished at the 38% retracement level of the December to April move and is quickly approaching the trend line off the May 2010 low at 1.6180. The pair could receive a bounce from this level, as was the case in late May. Resistance is located at 1.6400 and 1.6460, and 1.6550. Should the pair not receive a bounce at the trend line declines could mount to 1.6060 and the April low at 1.5935.
The yen was relatively unchanged from the previous week after an attempt to breach below the 80 yen level was only briefly successful before the pair was bid higher. While most oscillators remain in neutral territory, the pair continues to trade lower with resistance at the falling trend line from April high which comes in near the 20-day moving average at 81.00. This level may offer traders a better price to enter short. Further resistance is located at 81.75 from the May 31st high followed by 82.25 of the May 19th high. Support comes in at the May low of 79.50 followed by the all-time low at 76.11.
The pair is testing a short term resistance level at 0.8450 and a breach here would expose the resistance at 0.8550 which lies just below the 20-day moving average. A rise to this price may offer traders better levels at which to enter short. Above these levels rests the falling trend line from the mid-February high which comes in at 0.8670. Support is found at the all-time low at 0.8325.
The Wild Card
The pair is a favorite to play the Greek debt crisis and yesterday the EUR/CHF hit a new all-time low at 1.1985. Daily stochastics are falling indicating further potential moves to the downside. Forex traders may want to be short on the pair with resistance located at 1.2315 followed by 1.2470.