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Thursday, 20 Jan 2011
Risk Aversion Leads to USD Gains in Overnight Trading
The US dollar saw gains across the board in overnight trading. Analysts attribute the bullish greenback to a positive US Building Permits figure released yesterday, which subsequently made the dollar more attractive to investors. Today, a batch of US data is predicted to show growth in both employment and home sales. It is possible a positive reading could extend the USD's gains, but a rise in risk appetite could also cause the opposite. Traders should be on the lookout today for any swings.
USD - Bullish USD Predicted to Extend Gains Today
The US dollar moved up against virtually all of its main currency rivals yesterday, following the release of a positive US Building Permits figure. Immediately after its release the GBP/USD began to tumble and has yet to stop. Currently the pair is trading at 1.5924, down from 1.6035 yesterday afternoon. Meanwhile, the USD/JPY pair started moving up yesterday evening. The pair is currently up over 30 pips and appears likely to extend its bullish rally.
Today, a batch of US news is scheduled to be released and will likely cause heavy dollar volatility in afternoon and evening trading. At 13:30 GMT, traders will want to pay attention to the weekly Unemployment Claims figure, while at 15:00 the Existing Home Sales figure is set to impact the market.
Employment and housing statistics have proven to be reliable indicators of overall economic health in the US. Today's indicators are both forecasted to come in better than their respective previous reports. If true, the dollar may see a boost in afternoon trading. That being said, the Unemployment Claims figure has proven to be notoriously hard to predict. The last two weeks have seen a higher number than forecasted, which has caused the dollar to drop. Should today's figure come in above 422K, the greenback could erase yesterday's gains.
EUR - Euro Drops after Hitting Key Resistance Levels
The euro had an unusually bearish day yesterday, after hitting some key resistance levels against the safe haven US dollar and yen. Investors did not seem willing to let the EUR/USD pair move very far above the 1.3500 level, as there are still some uncertainties regarding the extent of euro zone debt. Once the pair hit 1.3535 yesterday afternoon, it promptly corrected itself and has dropped close to 100 pips.
Meanwhile, the EUR/JPY was trading as high as 111.05 before changing direction. The pair has fallen over 60 pips since yesterday afternoon and is currently trading just above the 110.40 level. Analysts are warning that as long as the threat of another euro zone debt crisis exists, the 17-nation common currency is unlikely to reach the high levels it saw in the middle of last year.
Today, traders will want to pay attention to a batch of US data scheduled to be released this afternoon. At the moment, analysts are predicting that the data will show growth in the US economy, which would likely lead to further bearish movement for the euro. At the same time, such a rise may also signify a growth in risk appetite during this time of economic distress and push up on the EUR in the short-run.
JPY - Yen Sees Mixed Movement in Overnight Trading
The JPY has seen decidedly mixed movement against its main currency rivals in overnight trading. While the USD/JPY fell throughout most of the day yesterday, the pair started to reverse course in evening trading, and is currently up close to 30 pips.
Against the UK pound, the yen has had more luck. The GBP/JPY has been stuck in a prolonged bearish trend for the last few days, and seems unlikely to break from it in the near future. Currently the pair is trading at 130.87, down from 131.23 at the start of the overnight session.
Today, yen traders will want to pay attention to the batch of US economic releases scheduled for this afternoon. Positive US data is likely to boost the dollar against the yen. At the same time, that data may allow the yen to move up against the European currencies in the evening session.
Crude Oil - Oil Prices Dip Following Positive US Data
The price of crude oil tumbled throughout the day yesterday, as positive US data limited the commodity's appeal as an alternative investment to the dollar. After approaching the $93.00 mark in trading yesterday afternoon, oil began falling and has since dropped as low as $91.35 before staging a slight correction.
The commodity is currently trading around $91.65 a barrel, and analysts are warning that today's movements will likely depend on the US Unemployment Claims and Crude Oil Inventories, both scheduled for this afternoon.
Forecasts are calling for a decrease in the unemployment number and an increase in US crude inventories. Assuming these predictions are true, it would signal an improvement in the US employment sector and decreased demand for oil among American consumers. This in turn would likely cause the price of crude oil to continue to fall throughout the day.
Technical indicators are showing that this pair may have hit the over-bought territory and is likely to see downward movement today. A bearish cross has formed on the 8-hour chart's Slow Stochastic, while the Williams Percent Range on the daily chart is above the -20 level. Traders are advised to go short with tight stops today.
Technical indicators on the hourly charts are not giving clear signs as to the direction this pair is heading today. That being said, the daily chart's Relative Strength Index is in the over-bought territory, suggesting that a long-term downward movement could occur.
A bullish cross has formed on the 8-hour chart's Slow Stochastic, which typically means that upward movement is likely to occur today. This theory is supported by the Relative Strength Index on the 4-hour chart. Traders are advised to go long in their positions today.
Most technical indicators are not providing distinct signs as to where this pair is heading today. On both the 8 and 4-hour charts, the Relative Strength Index and Slow Stochastic are trading in neutral territory. Traders are advised to take a wait and see approach for this pair, as a clearer picture is likely to present itself later on.
The Wild Card
Technical indicators are showing that the Aussie is set to drop against its Canadian counterpart. The Slow Stochastic has formed a bearish cross on the 8-hour chart, while the Relative Strength Index on the 4-hour chart is in the over-bought territory. Forex traders are advised to open sell positions for this pair, as a downward breach is likely to occur in the near future.
|07:00||CHF||UBS Consumption Indicator||1.29||-||-|
|07:00||EUR||GfK German Consumer Climate||9.0||9.2||-|
|07:00||EUR||German Import Prices||m/m||-0.8%||-1.4%||-|
|15:30||USD||Crude Oil Inventories||10.1M||-||-|
|19:00||USD||Federal Funds Rate||<0.25%||<0.25%||-|
|20:00||NZD||Official Cash Rate||3.50%||3.50%||-|
|20:00||NZD||RBNZ Rate Statement||-||-||-|
|23:00||AUD||CB Leading Index||m/m||-0.2%||-||-|
|EUR||German Prelim CPI||m/m||0.0%||-0.8%||-|
|00:00||EUR||Italian 10-y Bond Auction||1.89|1.3||-||-|