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Thursday, 14 Apr 2011

Rising Risk Appetite Causes Volatile Shifts in Forex Market

The euro zone's fundamental data have lately been showing growing weakness in the region as global industrial production begins to slow on Japan's nuclear crisis and soaring oil prices. Monetary policy adjustments have many currencies trading more volatile than they have been recently. The British pound has experienced a few price swings and the move into and out of carry trades has made trading the Swiss franc, Japanese yen and even US dollar more unpredictable.

EUR/USDGBP/USDUSD/JPYUSD/CHFAUD/USDEUR/GBP
Daily Trendupupdowndownupup
Weekly Trendupupdowndownupup
Resistance1.46721.641585.360.90861.07120.8996
1.45651.634384.600.90231.06010.8943
1.45041.630484.200.89931.05540.8910
Support1.43971.623283.440.89301.04440.8858
1.43511.619883.090.88971.03800.8837
1.42441.612582.330.88351.02700.8785

Economic News

USD - Retail Sales Data Boosts USD

The US dollar gained some ground yesterday as positive figures from the retail sales data and poor fundamentals out of Europe helped drive investors into the greenback. The more volatile reading from general retail sales, including automobiles, showed only a 0.4% growth whereas the core data published 0.8% growth. Supporting the retail sales figure was a better than expected reading from this afternoon's business inventory report which had inventories growing only 0.5%.

The impact from these data was felt almost immediately on USD pairs as the greenback inched higher against a number of its currency rivals from the injection of positive news. Retail sales measures consumer spending and provides investors an early look into the month's estimates on consumer sentiment. It therefore tends to have a visible impact on dollar pairs; today was no exception.

Coupling the sales data with this morning's industrial production figures out of Europe, which revealed slower growth than was expected, helped the EUR/USD pull down from Tuesday's gains. Traders may begin to anticipate a draw-down in the pair as fundamentals tilt more and more towards the greenback. With today's PPI figures out of the United States, there is a chance that stable inflationary growth will help continue the recent trends in the market.

EUR - EUR Trades Lower as Industrial Production Figure Disappoints

The euro experienced a downturn yesterday as the region's industrial production figures failed to meet expectations. The EUR/USD bounced off its 1.45 resistance line and currently trades near the 1.4440 level as of this morning. Very little technical information supports the price to move in either direction, but fundamentals appear to be shifting in favor of the greenback.

The euro zone's fundamental data have lately been showing growing weakness in the region as global industrial production begins to slow on Japan's nuclear crisis and soaring oil prices. Monetary policy adjustments have many currencies trading more volatile than they have been recently. The British pound has experienced a few price swings and the move into and out of carry trades has made trading the Swiss franc, Japanese yen and even US dollar more unpredictable.

The euro zone is largely absent from the economic calendar today, with most news circling American inflationary and unemployment data as well as Canada's manufacturing sector. On a different note, the G7 begins its meetings today ahead of the weekend's G20 and IMF meetings. The topic will be on recent global economic activities, with special emphasis on the Japanese nuclear crisis. Major currencies will likely be experiencing heavy volatility as a result of these meetings.

JPY - Japanese Yen Meeting Resistance as Risk Appetite Returns

This week's talk of rising risk aversion may have come to a halt yesterday as American retail sales data helped highlight growing consumer optimism, higher oil inventories signaled resistance for over-bought crude oil, and British unemployment fell an unexpected 0.2%. The impact has been for safe havens, like the Japanese yen, to find its feet swept out from underneath it.

The yen has fallen against most of its currency rivals since yesterday. The USD/JPY has risen from 83.47 yesterday afternoon to 83.93 by this morning. Against the British pound, traders have witnessed a leveling-off effect as the pair consolidates around 136.40. With the economic calendar today focused on American economic news, the yen will likely not experience much change unless the US economy continues to release positive data. If that is the case today, traders may want to anticipate a second rise in risk appetite as traders move to higher yielding currencies.

OIL - Unexpected Rise in Inventories Lifts Oil Prices

After dropping almost 3.3% in trading since Tuesday, the price of Crude Oil appears to be receiving some support, though traders appear weary of a rising price of oil. US crude inventories grew last week by 1.6M barrels, beating expectations for a 0.9M barrel rise.

The price of oil has only gained modestly on the day, reaching from $105.20 towards $107.00 over the past 24 hours. Technical traders appeared to be weighing in at a buy mark located near the $105.30 mark, eventually tilting the commodity back into a bullish posture, albeit weakly. With much news expected out of the American economy today, oil prices could undergo significant volatility as traders begin to gauge the impact of price swings in the US dollar.

Technical News

EUR/USD

The pair continues to test the 1.4520 short term resistance level. Daily stochastics are beginning to decline and a pullback may be in store. The support of 1.4245 may provide a good entry level as this coincides with the rising trend line off of the January low and 20-day moving average. A bullish strategy remains in effect with a target at 1.4850.

GBP/USD

A bit of consolidation has occurred following a failed breach of the 1.6425 level. However, rising stochastics on the weekly chart point to an eventual break of this price level. As sometimes happens, the pair retraced back to the trend line from the 2007 high has moved higher. This level could be the weekly low. The next resistance lies at 1.6460, followed by 1.6880 for an initial target. On an extension, the target moves higher to the 2009 high at 1.7040, a level that coincides nicely with the 200-week moving average.

USD/JPY

The pair has sold off following a failed breach of the 85.50 level, a price that coincides with the trend line off of the 2007 high. Last night the pair found resistance at the March high of 83.30. A close below this level on the weekly chart could set the stage for a move lower to 81.00 and a further decline to the bottom channel line which comes in this week at 76.60. To the upside, a breach of 85.50 would set the stage to test the 88 level.

USD/CHF

Following a failure of the pair to close above the 50-day moving average the downtrend has resumed. 14-day Momentum is falling sharply and the pair should eventually test the all-time low from March at 0.8904.

The Wild Card

Silver

After a pullback at the $42 mark on Monday where the daily candlestick made an outside day pattern, a candlestick reversal pattern that engulfs both the high and the low of the previous day's candlestick, the commodity looks move higher. Yesterday's candlestick closed on a shaved head indicating that momentum has swung to the upside. Forex traders should look for a retest of the $42 level.

Current Time: 10/20 10:33 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
10/20
11:45NZD+ Visitor Arrivals m/m-3.0%--1
12:00EUR+ German Buba Monthly Report---3
13:01GBP+ Rightmove HPIm/m0.9%--1
13:30AUD+ RBA Assist Gov Kent Speaks---3
10/21
01:00GBP+ 10-y Bond Auction2.57|1.7--1
02:30AUD+ Monetary Policy Meeting Minutes---5
04:00NZD+ Credit Card Spendingy/y4.2%--1
04:00USD+ Existing Home Sales5.05M--3
06:30CAD+ All Industries Activity Indexm/m-0.2%--1
08:00CHF+ Trade Balance1.39B--3
10:30GBP+ Public Sector Net Borrowing10.9B--3
10:55AUD+ RBA Deputy Gov Lowe Speaks---3
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