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Tuesday, 7 Jul 2009
Risk Aversion Subsides as Data Boosts Confidence
The USD and JPY went strongly bullish in yesterday's early morning hours, no doubt a remnant of the dire reports from the global economy faced last week. The sudden boost in risk aversion at the opening of London's market yesterday morning sounded a bell for the return of the safe-havens. However, upon the opening of US markets, economic data spurred investors back to life with positive results which made the safe-haven charge appear pre-mature. The question now is whether the gains recovered by the EUR and GBP can continue today.
USD - Dollar Moves on ISM Non-Manufacturing PMI Publication
The Dollar went bullish in early trading yesterday, as U.S. equities dropped.
However, the U.S. ISM Non-Manufacturing PMI publication pushed the USD closer to its opening levels. This release is significant as it measures a large portion of economic activity in the U.S. Optimism returned to the U.S. equity markets later in the day after the index's better-than-forecast results. Thus, risk aversion dissipated as the day dragged on, despite financial turmoil threatening the EUR and GBP, as the economies of the Euro-Zone and Britain face a possible long-term financial crisis.
The Dollar hit a 1-month high vs. the GBP before losing these gains to finish almost level for the day at 1.6261. The greenback hit a 5-week high against the EUR, before also finishing virtually unchanged at 1.3964. Monday's volatility in the forex market may have been due to slightly lower than usual trading volume, coming on the back of the U.S. Independence bank holiday. The factor that also played into investor's minds was the dire unemployment figures that came out of the U.S. last week. This led to sharp movements in the forex market on Monday.
As for today, there is a lack of primary economic news, which will be coming out of the U.S. The US Building Permits figures will be published at 12:30 GMT and the Ivey PMI will be released at 14:00 GMT. A wide set of economic results will be published from Britain and Japan though, meaning the GBP and Yen may be the most vulnerable currencies as today's trading gets under way.
EUR - EUR Hits 5-Week Low vs. USD
The EUR hit a 5-week low against the USD, before recovering in late-day trading. This behavior was due to a variety of factors, such as fears about the prolonged economic crisis, as unemployment continues to grow. Furthermore, Joaqin Almunia, the EU Economic Commissioner stated that the Euro-Zone is likely to be constrained by low economic growth for the foreseeable future. The reasons for these remarks were due to the nations of Europe spending very heavily on the financial crisis. In turn, this has resulted in mounting debt that may cripple their recovery in the long-run.
The EUR/USD pair hit the 1.3875 level before recovering back towards 1.3964. Analysts are now left wondering on the state of Britain too as the island economy faces losing its AAA debt rating. If it does indeed end up losing this, then Britain's economy would be in permanent retreat, meaning the GBP will be put on life-support. However, the recent worsening of the banking situation in Germany and the threat of collapse in other Euro-Zone currencies may mean even more dire consequences for the EUR in the long-run.
Looking ahead to today, there is plenty of news that is set to determine the EUR and GBP crosses for today's trading. At 10:00 GMT German Factory Orders are set to be published. From Britain, we can expect the Manufacturing Production figures and Industrial Production figures at 8:30 GMT and Consumer Confidence at 23:01 GMT. Positive results from Britain and the Euro-Zone may lead the way for the rest of the week. This could lead to lessening risk aversion, as traders ditch the USD and JPY, in favor of the EUR and GBP.
JPY - Yen Continues its Bullishness vs. Major Currencies
The Yen continued its bullishness against the major currencies on Monday on increased risk aversion. Yesterday saw traders ditch currencies such as the USD, EUR, and GBP in favor of the JPY. Additionally, the JPY benefited from reports from the Japanese government that the worst of the economic crisis in Japan may be over. The reason for yesterday's risk aversion was due to reports that the recession is set to be prolonged. This was compounded by the dire forecasts of the economic future of both Britain and the Euro-Zone.
Today, there are many economic releases that are set to be released out of Japan in late trading. These include the Core Machinery Orders, Bank Lending, and Current Account figures that will be released simultaneously at 23:50 GMT. Leading up to these releases, forex traders are advised to follow plans from the Obama administration regarding the rising unemployment in the U.S. If his administration fails to provide answers, then the JPY is likely to continue its winning streak.
Crude Oil - Oil Tumbles on Dismal Global Economic Outlook
The price of Crude slid to a 5-week low due to a dismal global economic outlook in yesterday's trading. The price of Crude hit $63.35 a barrel before recovering slightly to $64.20 by day's end. Monday's bearish behavior was exasperated by concerns of falling fuel consumption, pushing down Crude Oil even further. These fears are likely to continue as global unemployment continues to rise, which in turns is taking its toll on falling demand for Oil.
The 6th straight trading session fall in Crude Oil prices has also led to concern amongst OPEC ministers, who would prefer to see Crude at a healthier $75 a barrel. It's important to take into account that Crude prices also fell due to the bullish Dollar throughout much of Monday's trading. The thing which is likely to continue dominating the price of Crude is news surrounding the upcoming G8 Meeting in L'Aquila, Italy on July 8th.
As the price of this pair floats near the over-bought territory on the hourly chart's RSI, there is an indication of downward pressure. The impending bearish cross on the 4-hour chart's Slow Stochastic supports this notion. Going short might not be a bad idea today.
With a fresh bullish cross on the daily chart's Slow Stochastic, as well as on the 4-hour chart's MACD, there appears to be much in the way of an impending bullish movement in this pair. Going long with tight stops might be a wise choice today.
The short upward correction seen yesterday has pushed the price of this pair into the over-bought territory on the hourly chart's RSI, signaling downward pressure. With an impending bearish cross on the 4-hour chart's Slow Stochastic, this downward movement appears more imminent. Going short appears to be preferable.
An imminent bullish cross on the hourly MACD and the 4-hour Slow Stochastic suggest that an upward movement is on the way. As the price recently exited the over-sold territory on the hourly RSI, there may be only a small amount of momentum for this impending bullish movement. Going long with tight stops may be the safest bet for today.
The Wild Card
The price of this pair currently floats in the over-bought territory of the 4-hour chart's RSI, indicating downward pressure. The impending bearish crosses on the hourly MACD and daily Slow Stochastic both support the notion of a downward move. Those participating in the forex market today would be wise to pay attention to this pair as the downward pressure appears to be getting stronger and a bearish move may be impending.
|23:50||JPY||M2 Money Stock||y/y||4.4%||4.4%||-|
|00:00||JPY||Monetary Policy Statement||*||*||*|
|00:00||JPY||BoJ Press Conference||*||*||*|
|00:00||GBP||10-y Bond Auction||2.73|1.8||*||-|
|00:01||GBP||BRC Retail Sales Monitor||y/y||3.9%||*||-|
|00:30||AUD||NAB Business Confidence||8||*||-|
|06:00||JPY||Prelim Machine Tool Orders||y/y||40.3%||*||-|
|07:00||EUR||German Trade Balance||18.5B||19.3B||-|
|10:00||GBP||Inflation Report Hearings||*||*||*|
|15:00||GBP||NIESR GDP Estimate||0.8%||*||-|
|23:30||AUD||Westpac Consumer Sentiment||-3.0%||*||-|