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Monday, 14 Feb 2011
Safe-Haven Currencies Continue to Rise on High Risk Aversion
Traders moving assets to safer, lower yielding currencies appear to be playing a factor in the correction of the major crosses. The USD and JPY, which are seen as a safer bet than others currencies in times of market stress, will likely keep drawing demand as investors stay away from riskier assets this week.
USD - Dollar Sees Modest Gains vs. Majors
The U.S. dollar rose against the euro last week, shaking off a brief dip after Egyptian President Hosni Mubarak stepped down. Investors had widely priced in his exit and technical factors were already weighing on the common currency. As a result, the USD rose against the EUR, pushing the oft- traded currency pair to 1.3496. The dollar experience similar behavior against the GBP and closed at 1.6000.
In addition, the recent spate of U.S. economic data has been supportive of the greenback and most strategists are looking for more outperformance on the dollar.
It currently seems that the market is showing signs of renewed confidence in the American economy, and as a result in the USD itself. Considering the somewhat surprising turn of events, large volatility could be expected in dollar-trading in the near future, which will provide forex traders opportunities to see unusual profits.
As for the week ahead, many interesting economic releases are expected from the U.S. Traders are advised to focus on the Retail Sales, TIC Long-Term Purchases, Building Permits, weekly Unemployment Claims, and the PPI reports, as these are likely to have a large impact on the USD. Traders should take under consideration that if the major reports will fail to reach expectations, the US dollar may erase its profits from the past week.
EUR - EUR Falls as a Result of Renewed Debt Crises
The euro extended losses last week, falling to a three-week low beneath $1.35, as traders bet higher U.S. yields and growth expectations would continue to support the greenback. The euro fell to $1.3496, its lowest since Jan. 21, though for now support around that area was holding. Traders cited several options-related barriers around $1.35.
In addition, the euro remained under pressure against the dollar after falling last Thursday, weighed down by renewed jitters about the euro zone debt crisis and waning expectations that the European Central Bank (ECB) will raise interest rates soon.
Euro zone debt markets became increasingly unsettled in recent days as Portuguese 10-year bond yields reached record highs, sparking fresh concerns about funding costs in peripheral euro zone economies.
Looking ahead to this week, a batch of data is expected from the euro zone. Special attention should be given to the German ZEW Economic Sentiment and the German Prelim GDP reports. If their end results will provide disappointing data as well, investors will see it as another indication that the economy is sluggish, and the EUR might see further bearishness as a result.
JPY - Yen Rises vs. Euro and CHF; Weakens vs. Dollar
The Japanese yen finished yesterday's trading session with mixed results versus the major currencies. The Japanese currency extended gains versus the EUR on Friday, to trade around 112.60 amid a broad sell-off in the EUR. The yen experienced similar behavior against the CHF as the pair fell from 86.14 to 85.45 by week's end. The JPY did see some bearishness, however, as it lost 150 points against the USD and closed at 83.25.
Further strengthening could be seen in the yen if other nations begin to raise interest rates in order to ward off inflation. This could potentially wreak havoc on the Japanese economy by making Japanese exports relatively more expensive when compared to their foreign counterparts.
Looking ahead to this week, several interesting economic releases are expected from the Japanese economy, yet at least for the near future, the political developments in the Middle East might have a larger impact on yen trading. Traders should take under consideration that if the unrest in the region will grow, the yen might strengthen further.
Crude Oil - Crude Oil Trades at 10-week Low
Crude Oil prices fell to a 10-week low last week to around $85.50, after Egyptian President Hosni Mubarak stepped down and handed over power to the army.
Mubarak's departure came after 18 days of mass protests that had raised concern about potential for supply disruptions and a spread of the turmoil to major oil producers in the region.
As for the following week, traders are advised to follow the leading economic releases from the U.S. and the euro zone, as they usually have a large impact on crude prices. Traders should also focus on the U.S. Crude Oil Inventories report, which is scheduled for Thursday, as this release tends to have an immediate impact on the market.
The EUR/USD cross has experienced a bearish trend for the past week. However, it seems that this trend may be coming to an end. The RSI of the 4-hour chart shows the pair floating in the over-sold territory, indicating that an upward correction will happen anytime soon. Going long with tight stops might be a wise choice.
The pair has been range-trading for a while now, with no specific direction. The daily chart's Stochastic (slow) is providing us with mixed signals. All oscillators on the 4-hour chart do not provide a clear direction either. Waiting for a clearer sign on the hourlies might be a good strategy today.
The pair has recorded much bullish behavior in the past several days. However, the technical data indicates that this trend may reverse anytime soon. For example, the daily chart's Stochastic (slow) signals that a bearish reversal is imminent. Going short with tight stops might be a wise choice.
There is a bearish cross forming on the 8-hour chart's Stochastic (slow) indicating a bearish correction might take place in the nearest future. The downward direction on the daily chart's RSI also supports this notion. When the downward breach occurs, going short with tight stops appears to be preferable strategy.
The Wild Card
Crude Oil prices are once again dropping, and it is currently trading around $85.55 per barrel. And now, the 4-hour chart's Stochastic (slow) is giving bullish signals, indicating that crude oil prices might go up. This might give forex traders a great opportunity to enter a very popular trend.
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