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Tuesday, 19 May 2009
Safe Haven Currencies Tumble as Optimism Returns
An increase in optimism led by a bullish stock market as well as positive comments made by U.S. Treasury Secretary Timothy Geithner yesterday led to an increased demand for riskier currencies. Expect a busy news day today, with important news coming from the U.S, Euro-Zone and Japan.
USD - Dollar Declines as Stock Market Rallies
The Dollar declined against most of its currency pairs as the U.S. stock market rallied in yesterday's trading. The rally was sparked by positive comments by U.S. Treasury Secretary Timothy Geithner in which he changed his views as he voiced his opposition against pay caps. He went further and stated that in the coming weeks there will be more big reforms in the U.S. financial system. Another factor that led to volatile Dollar trading and the bullish stock market was the intent of JP Morgan, Goldman Sachs and Morgan Stanley to repay the $45 billion that was lent to them through TARP (Treasury's Troubled Assets Relief Program). The optimism also led to massive increases in shares including those of Citigroup and Bank of America.
The Dollar declined by a hundred pips versus the EUR to close at 1.3540. This comes as investors dropped the safe-haven USD, and returned some confidence to the EUR. The British Pound recorded an impressive 160 pip gain against the Dollar to close at 1.5305. This comes as the Dollar lost ground over the last several weeks against the British currency. The reason for this may be as the global bullish stock market rallies continue so does a weak USD. However, against the Japanese Yen, the USD gained 170 pips to close at 96.49. This rebound may be the result of a correction in the pair, and traders dropping the safe-haven Yen, as investors turn to riskier assets.
Looking ahead to today, much news is expected from the U.S. The 2 main events are the Building Permits and Housing Starts data that will both be released simultaneously at 12:30 GMT. The 2 results are interrelated, and are a strong indicator of a recovery of the U.S. property market. If results are positive, then we can expect much of the same behavior in the forex market as on Monday. On the other, hand gloomy data may lead to a stronger Dollar as investors return to the safe-haven currency and drop more risky assets.
EUR - EUR Soars Against Dollar
The EUR soared against the Dollar in Monday's trading. This was largely due to a global stock market rally that was led by the U.S. The pattern of late is when stock markets are bullish the EUR climbs against the U.S. Dollar. Analysts continue to misread the market as they expect the Dollar to recover against the EUR to 1.2500 levels. However, this is unlikely to happen anytime soon. If the equity markets continue to rally in the coming weeks, then the EUR may continue to strengthen versus the USD. The EUR/USD behavior was also a surprise, as German Prelim GDP figures on Friday morning showed that the German economy declined by a massive 3.8%. Though, the EUR remains in some respects to be resilient.
The EUR/USD pair closed higher yesterday by 100 pips at 1.3540. The EUR/GBP pair finished Monday's trading lower by 25 pips at 0.8841. This may be due to the Bank of England (BoE) revealing that it made profits of a billion Pounds, as it took advantage of the financial crisis over the past year. Against the JPY, the EUR ascended by a massive 300 pips as demand for the safe-haven Japanese Yen plummeted, as traders put their money into riskier, more volatile assets. It seems that over the coming week this pair may continue its correction higher.
Today, there are several important economic news events that are set to be released from Britain and the Euro-Zone. Britain is set to release the PPI and RPI figures at 8:30 GMT. The Euro-Zone is expected to release German ZEW Economic Sentiment and ZEW Economic Sentiment figures at 9:00 GMT. Negative figures may lead to bearish trading for both the EUR and GBP. However, positive results, may lead to a bullish GBP and EUR in Tuesday trading. This is likely to be compounded if it seems that British Prime Minister Gordon Brown produces optimism in Britain as he attempts to rescue her economy.
JPY - JPY Tumbles Against Dollar
The JPY tumbled against the Dollar in Monday's trading, as traders dropped the ultra safe-haven Yen, and returned to the lesser safe-haven Dollar. This also marks a correction in the USD/JPY, as the pair tumbled in the past 2 weeks. The behavior was sparked by a stock market rally from the U.S. that was initiated by economic optimism in the U.S. economy. This soon led to bullish equity markets in other industrialized countries. This in turn led to traders to take more risks in yesterday's trading. Japan's government hopes for more of this as the country struggles to climb out of the economic recession, as the bullish JPY has helped prevent this.
The Yen slid 170 pips or nearly 2% against the Dollar to close at 96.49. The JPY declined by 420 pips versus the British Pound as traders ditched the safe-haven Yen for the cable. This helped reverse much of the losses that the Pound made against the JPY in last week's trading. The JPY also declined by a breathtaking 340 pips against the EUR, as investors ditched the safe-haven currency, in order to diversify their portfolios. There are 2 important sets of data that will be released from Japan later today. These are the Prelim GDP and the Prelim GDP Price Index at 11:50 GMT respectively.
Crude Oil - Crude Oil Climbs 5%
The price of Crude Oil rose by an impressive $2.42 to $59.45 a barrel, or 5%. This is remarkable in a commodity that has recorded so much volatility as of late. Much of the price increase was spurred by a weak Dollar, and strong commodity and equity markets. The main way for Crude to continue this bullishness, is for investors to feel that there are increasing signs of a global economic recovery.
In recent weeks, it seems that the price of Crude has been stabilizing. This is partly owed to the production cuts that OPEC has made. The question now is will OPEC continue enacting production cuts over the next several months? If they do, then Oil prices may reach $65-$70 by the end of June. It's also important to note that Crude prices can be used as a measure of economic health in the economy.
There is a fresh bearish cross forming on the 4- hour chart's Slow Stochastic indicating a bearish correction might take place in the nearest future. The downward direction on the hourly chart's Momentum oscillator also supports this notion. When the downward breach occurs, going short with tight stops appears to be preferable strategy.
The hourly chart is showing mixed signals with its Slow Stochastic fluctuating at the neutral territory. However, a bearish cross forming on the 4-hour chart's Slow Stochastic implies that downwards correction might take place in the nearest time frame. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.
The typical range trading on the hourly chart continues. The daily chart Slow Stochastic is floating in neutral territory. However, the pair currently sits near the upper border of the 4-hour chart's RSI, suggesting downward correction may be imminent. When the downwards breach occurs, going short with tight stops appears to be preferable strategy
The pair has been range-trading for a while now, with no specific direction. The Daily chart's Slow Stochastic providing us with mixed signals. The 4 hour charts do not provide a clear direction as well. Waiting for a clearer sign on the hourlies chart might be a good strategy today.
The Wild Card
After a few days of sustained upward movement, the price of this commodity now appears to be floating in the over-bought territory on the RSI of the daily chart. There also appears to be fresh bearish crosses on the 4-hour chart's Slow Stochastic, which signifies that forex traders may be capable of entering the impending downward correction at a great entry price by going short on this commodity today.
|00:00||JPY||Monetary Policy Statement||-||-||-|
|00:00||JPY||BoJ Press Conference||-||-||-|
|00:30||JPY||Tokyo Core CPI||y/y||2.6%||2.5%||-|
|00:30||JPY||National Core CPI||y/y||3.1%||3.0%||-|
|01:05||GBP||GfK Consumer Confidence||-1||0||-|
|01:30||AUD||Private Sector Credit||m/m||0.4%||0.4%||-|
|07:00||JPY||BoJ Outlook Report||-||-||-|
|08:00||EUR||German Retail Sales||m/m||2.5%||-0.8%||-|
|08:45||EUR||French Consumer Spending||m/m||0.7%||-0.3%||-|
|10:00||EUR||Italian Monthly Unemployment Rate||12.3%||12.4%||-|
|11:00||EUR||CPI Flash Estimate||y/y||0.3%||0.4%||-|
|11:00||EUR||Italian Prelim CPI||m/m||-0.3%||-0.1%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|