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Wednesday, 19 May 2010
Safe Heaven 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.
USD - U.S Dollar Soars against the EUR and GBP
The dollar rose against the EUR on Tuesday, reversing the single currency's earlier gains, as investors grew more risk averse and sought safety in the dollar. By yesterday's close, the USD rose against the EUR, pushing the oft-traded currency pair to 1.2185. The dollar experienced similar behavior against the GBP and closed at 1.4295.
As the U.S economy stabilizes, currency traders have started to focus more on fundamentals such as economic growth and short-term interest rates. That shift, just getting underway, could take the shine off the soaring USD in the coming months. A stronger currency is important to the U.S. because it entices foreign investors to Treasury debt that finances the nation's record budget deficit. The downside is that it may restrain profit growth at companies with international sales by making U.S. exports more expensive.
Looking ahead to today, the most important economic indicator scheduled to be released from the U.S. is the CPI at 12:30 GMT. Traders will be paying close attention to today's announcement as a stronger than expected result may continue to boost the USD in the short-term. Traders are also advised to follow the FOMC Meeting Minutes at around 18:00 GMT. This meeting is very likely to Impact the Dollar volatility. Traders are advised to watch closely, as this is likely to set the pace of the Dollar going into the rest of the day's trading.
EUR - EUR Hits a Record Low against Dollar
The EUR tumbled against most of its currency crosses Tuesday on concern nations with the highest deficits will struggle to meet the European Union's austerity requirements.
The EUR's drop accelerated as speculation increased that European financial institutions are worse than anticipated after Germany said it will ban naked short-selling and naked credit- default swaps of euro-area government bonds and the Bank of Italy allowed lenders to exclude losses on government bonds.
Germany's BaFin financial-services regulator said that it will introduce a temporary ban on naked short-selling and naked credit-default swaps of euro-area government bonds starting at midnight. The ban will also apply to naked short-selling in shares of 10 banks and insurers.
The EUR hit a low of $1.2185 yesterday, the lowest level since 2006. Worries about the long-term economic impact of austerity measures adopted across Europe have weighed on the single currency in recent weeks. Since the beginning of the year, the EUR has lost more than 14% versus the greenback. The EUR also fell more than 1.5% to 112.10 against the JPY.
JPY - Yen Rises on All Fronts
The Japanese Yen strengthened against most of its major counterparts yesterday, continuing to prove that for the time being that this is the solid currency that traders can rely on to provide them with steady profits. The Yen extended gains versus the EUR on Tuesday, to trade at about 112.10 amid a broad sell-off in the EUR. The JPY also saw bullishness against the USD and closed at 92.20.
The JPY's trends will be affected by the rallies of its primary currency pairs today. It seems that the USD and EUR are expected to continue a volatile trading session today, especially against the Japanese currency. Traders should keep a close look on the news coming from the U.S. and Europe as these economies will be the deciding factors in the JPY's movement today, especially the U.S CPI at 12:30. It is also advisable for traders to follow any unexpected comments coming from key Japanese governmental figures, as this is also likely to lead to further JPY volatility.
Crude oil - Crude Oil Inventories Data to Drive Oil Trading Today
Crude Oil fell on Tuesday, ending at a seven-month low as Europe's debt problems revived risk aversion among investors and pulled the EUR and oil back from early gains.
A drop in the EUR against the dollar also has made oil a less appealing investment overseas. Crude is priced in dollars, so oil becomes more expensive for holders of other currencies when the dollar goes up. Analysts are concerned that the debt crisis could slow European economies and drag down demand for oil.
As for today, traders should pay attention to the U.S Crude Oil Inventories report scheduled, as it tends to have a large impact on Crude Oil's prices recently, especially for the short-term.
The pair has recorded much bearish behavior in the last few weeks. However, the technical data indicates that this trend may reverse anytime soon. For example, the daily chart's Stochastic Slow signals that a bullish reversal is imminent. An upward trend today is also supported by the RSI. Going long with tight stops may turn out to pay off today.
The cross has been dropping for the past month now, as it now stands at the 1.4290 level. However, the daily chart's RSI is already floating in the oversold territory indicating that a bullish correction might take place in the nearest future. Going long with tight stops may turn out to be the right choice today.
The USD/JPY has gone increasingly bearish yesterday, and currently stands at the 91.95 level. The daily chart's Slow Stochastic supports this currency cross to fall further today. However, the hourly chart's Stochastic Slow signals that a bullish reversal will take place today. Entering the pair when the signs are clearer seems to be the wise choice today.
This pair's sustained upward movement has finally pushed its price into the over-bought territory on the daily chart's RSI. Not only that, but there actually appears to be a bearish cross on the Slow Stochastic pointing to an imminent downward correction. Forex traders have the opportunity to wait for the downward breach on the hourlies and go short in order to ride out the impending wave.
The Wild Card
Oil prices are once again dropping, and it is currently traded around $72.05 a barrel. And now, the daily chart's RSI is giving bullish signals, indicating that oil prices might go up. This might give forex traders a great opportunity to enter a very popular trend.