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Friday, 19 Aug 2011
Safe-Haven Appeal Rising as Traders Flee Risk
A short series of data released yesterday painted a weaker picture for the global economy's growth. Weekly unemployment claims in the US saw a worse than forecast rise, hitting 408,000 for the past week. A housing report showed growing sluggishness in mortgage lending growth and the Philly Fed Manufacturing Index dropped from last month's reading. British retail sales came in below forecasts and Canada's Leading Index appears to have dropped since July's reading. So far this news has helped drive the USD, JPY and CHF higher as traders flee risk.
USD - US Dollar Gains from Risk-Off Trading
The US dollar was seen trading moderately higher yesterday as traders began to reevaluate the recent dip in stock values. The EUR/USD was seen meeting resistance near 1.4500 yesterday and flopping towards 1.4400 in late trading. The greenback saw similar movements against most other currency pairs as well.
A short series of data released yesterday painted a weaker picture for the US economy's growth. Weekly unemployment claims saw a worse than forecast rise, hitting 408,000 for the past week. A housing report showed growing sluggishness in mortgage lending growth and the Philly Fed Manufacturing Index dropped from last month's reading. So far this news has helped drive the USD higher as traders flee risk.
With a relatively lighter news day expected Friday, dollar traders should be anticipating some mild currency movements brought about by average end-of-week liquidity. The economic calendar will be lacking in specific focus with several reports coming from Canada, Great Britain, Japan and the euro zone. The US economy is less in focus, though the safe haven appeal of the greenback is likely to be a point of commentary as this week comes to an end.
EUR - EUR Tracks Declining Stocks
The euro was seen trading lower yesterday in light of data releases suggesting stagnation in Germany. The lackluster performance of global stocks also drove many regional investors away from the EUR despite the relative potential is has for making gains should more investment flee the United States.
While growth variances between the US and Europe came into view this past week, the higher yielding assets like the GBP and EUR appeared positioned to lose as traders turned away from risk. The growth in risk aversion may have many investors choosing to store their value in lower yielding currencies, like the USD and JPY as the week comes to a close, though investments in US Treasuries contradict the idea behind the recent ratings downgrade by S&P, which is now rumored to be under investigation by the US Department of Justice for the role it played in the mortgage crisis of 2007/08.
As for Friday, the euro looks to be anticipating an evaluation of its recent downturn against the other major currencies with mild bias further leaning to the downside. The euro zone will be publishing few economic events on today's calendar, though. Traders should try and follow the significant publications emanating from Canada and Great Britain economies today as a mild string of significant reports are expected from both.
JPY - JPY Seen in Ascent as Traders Seek Store of Value
The Japanese yen (JPY) was seen trading higher versus most other currencies this week after news began to shift many traders back into safe-haven assets. The yen has been a top performer these past several months considering many traders bank on the Japanese carry trade during times of intense risk appetite and move towards the JPY in times of risk aversion, making it an appealing currency in these recent times of ominous debt talks.
The JPY was in a position to make solid gains yesterday after debt auctions in Italy moved many investors away from the euro zone and into safer assets. Moves toward riskier currencies halted as pessimism took hold and drove much of yesterday's trading liquidity towards traditional stores of value. As such, traders appear to be anticipating an uptick in the JPY prior to this week's close.
Oil - Oil Price Plummets to $81.50 a Barrel
Crude Oil prices sunk rapidly yesterday, reaching near $81.50 in late trading. Growth differentials between the Atlantic states have risen into view this week while manufacturing output and service data revealed growing weakness in Europe. This has so far led several large investors and analysts to consider a shift away from the EUR and other risky assets in exchange for the safety of the USD and JPY, despite the inherent weakness growing in the American economy due to the recent ratings downgrade.
As investors sought safety, the value of crude oil, which has been seen holding steady through most of the week, suddenly began falling towards $81.50 a barrel. A boom in dollar values due to this week's risk sensitive environment has helped many investors move hesitantly into assets like gold and silver, with crude oil also appearing to get touched by this sentiment. Oil prices appear to have reached the decision point alluded to all week, with a strong bearish sentiment taking hold.
Despite the increased volatility the EUR/USD continues to trade in a defined range between 1.4400 and 1.4050. Falling monthly stochastics suggest any approaches to the 1.4400-1.4500 levels may be sold into. Initial resistance comes in at last week's high of 1.4400 followed by the falling resistance line from the May high at 1.4450. A close above 1.4700 would signal an end to the range trading environment. To the downside support is found at 1.4050 followed by the 200-day moving average at 1.3945 and the rising trend line from June 2010 at 1.3875.
Last week's declines found support near the previously broken trend line from the April high and the pair looks to move higher. Resistance comes in at 1.6475; a level sterling has failed to breach three times. A move above here and the technical picture would likely turn bullish with further resistance at 1.6550 and 1.6745. The 200-day moving average at 1.6090 could keep any declines in check with further support at 1.6000 and 1.5935.
The yen has made two attempts to break through the all-time low that was set in mid-March near 76.25. Rising stochastics on the daily and weekly charts point to potential gains in the pair but short term momentum studies look to have more room to fall before the pressure is relieved. Therefore, a break of 76.25 is favored. After this level there is a lack of support on the monthly chart. To the upside initial resistance is found at last week's high of 78.50 followed by the post intervention high of 80.20.
In an amazing run the USD/CHF has gone from a complete free-fall to trade above its 20-day moving average, a level the pair has not seen since early July. After gapping above its initial resistance at 0.7800 the pair could run into resistance at 0.8080 which is also near the 38% retracement from the February high, followed by the trend line that falls off of the February high at 0.8200. This may provide traders better reentry levels into the long term downtrend of the pair. A further resistance level is found out at 0.8550.
The Wild Card
After a sharp pullback in the value of the pair the NZD/USD broke below the trend line running from the March and July lows. As many times occurs after a trend line is breached the pair made a move higher only to find resistance at the old trend line. Forex traders should note that an increase in risk sentiment and the NZD/USD will be one of the first assets to rise. However, bias remains to the downside. The previous trend line will serve as initial resistance at 0.8340 followed by the August 1st high of 0.8840. Support is found at 0.7960. The 0.7750 level could be targeted as the support level coincides with the 61% Fibonacci retracement level.
|01:00||AUD||HIA New Home Sales||1.2%||*||-|
|EUR||German Prelim CPI||m/m||0.3%||0.0%||-|
|01:00||EUR||Italian 10-y Bond Auction||2.60|1.5||*||-|
|02:30||AUD||Private Capital Expenditure||q/q||-4.2%||-0.8%||-|
|08:55||EUR||German Unemployment Change||-12K||-6K||-|
|09:00||EUR||M3 Money Supply||y/y||1.5%||1.5%||-|
|09:00||EUR||Italian Retail Sales||m/m||-0.7%||-0.2%||-|
|11:00||GBP||CBI Realized Sales||21||25||-|
|13:30||USD||Prelim GDP Price Index||q/q||2.0%||2.0%||-|
|15:00||USD||Pending Home Sales||m/m||-1.1%||0.6%||-|
|15:30||USD||Natural Gas Storage||88B||79B||-|
|00:05||GBP||GfK Consumer Confidence||-2||-1||-|
|00:30||JPY||Tokyo Core CPI||y/y||2.8%||2.7%||-|