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Tuesday, 14 Jul 2009
Risk Appetite Returns to Trading
The Yen slid against its major currency counterparts and the Dollar posted mild losses against all currency pairs except the Yen following a rally in global equity markets. The rally prompted investors to turn to higher yielding riskier assets and away from the safety of the USD and JPY. With risk appetite the main focus for today's trading and while market conditions remain mixed, traders should follow the vital economic data to be released today from the U.S and Europe as this will provide direction to the market for today's trading.
USD - Dollar Plummets as Wall Street Rallies
The Dollar plummeted on Monday against most of its major currency pairs. The Wall Street rally was initiated by positive comments from analyst Meredith Whitney about the financial Sector. She made her comments on CNBC (business channel), stating that banks shares will make short-term gains of 15%, and financial institutions will post better-than-expected results in the coming weeks. From this point on, Wall Street rallied, which led to risk-taking in U.S. equities and commodities. The result was a weak USD throughout yesterday's trading.
The USD lost 50 pips against the EUR to close at the 1.3974 level yesterday. Much of this behavior was due to investors' risk-taking. The GBP/USD climbed by a dramatic 120 pips to the 1.6244 level. This was partially due to the recent bottoming out of the British housing market. However, the greenback rose 50 pips against the JPY, marking the first daily rise in the pair for 2 weeks. This came about as forex traders dumped the Yen as it has been the number 1 safe-haven currency as of late.
Looking ahead to today, there is much vital data expected to come out of the U.S. economy. These are the Core Retail Sales, PPI (Producer Price Index), and Retail Sales, which are all set to be published at 12:30 GMT. If the results are worse than forecasts then we may see another day of USD bearishness. However, equal to or better-than-expected results may lead to a bullish Dollar going into mid-week trading.
EUR - EUR/USD Climbs Ahead of Economic Sentiment Publication
The EUR climbed against the Dollar on Monday ahead of the German ZEW Economic publication today. This is important as it is a leading measure of the health of the German and Euro-Zone economies. Analysts predict the figure to be 48.0, notably higher than the previous figure of 44.8. This helped the EUR climb against the USD yesterday. This pair also rose due to the equities rally in the U.S. and Euro-Zone. The result of this was traders dropping the USD in many cases for higher-yielding currencies, such as the EUR and GBP.
The EUR/USD climbed by 50 pips to the 1.3974 level, as the EUR recorded a bullish trading session against a number of its main currency pairs. The EUR/GBP rate, however, slipped 35 pips to 0.8601. This comes out as Britain saw sentiment in her housing sector at its highest since late 2007. The EUR saw its first gain against the JPY in several days, as the pair climbed by 120 pips to the 129.98 level due to traders buying into higher-yielding currencies. Additionally, traders realized that this pair had been undervalued in the past 2 weeks.
Today, there is much economic news coming out of both Britain and the Euro-Zone. At 08:30 GMT there is the release of the CPI (Consumer Price Index) and RPI (Retail Price Index) from Britain. At 09:00 GMT we can expect the publication of German ZEW Economic Sentiment and Industrial Production figures from the Euro-Zone. Today's data is vital in determining the levels of the EUR and GBP against their main currency crosses as Tuesday's trading gets under way.
JPY - Yen Collapses Against the Majors
The Yen collapse against the major currencies in Monday's trading session. This came about as global stock markets rallied, led by banking stocks. In turn, traders dropped the Yen for higher-yielding assets. This included currencies such as the GBP and EUR, and commodities such as Crude Oil. The Japanese currency also fell due to Japanese analysts stating that a downward correction for the Yen will soon be under way.
The USD/JPY slid about 50 pips to 92.89. The GBP/JPY pair rose dramatically by 180 pips to 150.89. The Yen's bearish behavior may continue into today's trading, as Monday's pessimistic Revised Industrial Production figures may put additional downward pressure on the JPY. Today, the Yen is expected to take the backseat due to a lack of key economic releases. Therefore, expect much market volatility to dominate JPY trading.
Crude Oil - Crude Oil Rebounds on Positive Sentiment
Crude Oil rebounded above $60 a Barrel yesterday on positive economic sentiment led by the U.S. The price of Crude benefited yesterday, as traders bought into risky assets. Additionally, the weak USD yesterday predictably led to bullish Crude prices. The other reasons for the bullish prices were due to Wall Street's rally and U.S Treasury Secretary Timothy Geithner stating that the U.S. recession will be over within a few months.
Looking to today, there are 2 things that may drive up the Crude prices above the $60.50 mark. These include a weak Dollar, as the price of black gold is in Dollar's; a bearish Dollar usually leads to bullish Oil prices. Also, good economic figures from the U.S. could increase risk-taking, and lead to higher Crude prices as a result. The question now is can Crude Oil extend this long awaited daily gain?
The daily chart shows that the pair is currently range-trading within a restricted price range. However, as the RSI on the daily chart has dropped beneath the 70 line, it appears that bearish momentum might be arising. Going short with tight stops could be the right choice today
The 4 hour chart is showing mixed signals with its Slow Stochastic fluctuating at the neutral territory. However, the hourly chart's RSI is already floating in the overbought territory indicating that a bearish correction might take place in the nearest future. When the downwards breach occurs, going short with tight stops appears to be preferable strategy
The bullish trend is loosing its steam and the pair seems to consolidate around the 93 level. The hourly chart's RSI is already floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. Going short with tight stops appears to be preferable strategy.
The pair has been quite choppy in the past two days yet no clear direction was seen. The 4 hour chart is showing bullish signals as the daily chart is still quite bearish.
Traders advised to wait for a clearer signal on the hourlies before entering the market.
The Wild Card
The pair is in the midst of a very strong bearish correction move, and seems to have more steam in it. The Slow Stochastic oscillator on the1 hour chart is also providing downward signal. This is a great opportunity for forex traders to join a very promising bearish correction.
|09:15||EUR||Spanish Manufacturing PMI||54.5||54.2||-|
|09:45||EUR||Italian Manufacturing PMI||54.1||54.6||-|
|09:50||EUR||French Manufacturing PMI (p)||49.6||49.6||-|
|09:55||EUR||German Manufacturing PMI||51.5||51.5||-|
|10:00||EUR||Final Manufacturing PMI||52.2||52.2||-|
|14:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|15:45||USD||Final Manufacturing PMI||53.8||53.8||-|
|16:00||USD||ISM Manufacturing PMI||53.5||53.6||-|
|16:00||USD||ISM Manufacturing Prices||49.5||49.5||-|
|16:50||USD||FOMC Member Powell Speaks||-||-||-|
|03:00||NZD||ANZ Commodity Prices||m/m||-3.1%||-||-|
|03:30||JPY||Average Cash Earnings||y/y||0.7%||0.9%||-|