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Friday, 23 Sep 2011
Safe Heaven Currencies Continue to Rise on High Risk Aversion
The U.S. dollar gained further against the euro and other major currencies Thursday as a sharp extended retreat for U.S. equities and weak data out of both China and the euro zone spurred investors to dump risky assets.
USD - Dollar Recovery Continues
The dollar rallied broadly on Thursday as mounting concerns about the global economy pushed investors to embrace safety while shunning riskier assets, with the euro tumbling to an eight-month low. By yesterday's close, the dollar rose against the EUR, pushing the oft-traded currency pair to 1.3440. The dollar experienced similar behavior against the GBP and closed at 1.5350.
The U.S. Federal Reserve said Wednesday it will shift its portfolio toward longer-term debt to bolster the economy, and investors' unwound leveraged positions funded in dollars in response. The Fed's program was intended to put more downward pressure on long-term interest rates. One important dollar-positive by-product of the Fed's program is higher short-term rates. The Fed's not increasing the money supply supported the dollar.
As for today, the calendar is lacking any major economic data releases for today's trading. As such, traders will want to follow the movements of the major equity indices as the dollar has recently been trading in an inverse relationship to equities. Weakness in stocks could propel the EUR/USD to its next support line which rests at 1.3200.
EUR - EUR Falls to 8 Month Low
The euro fell to a fresh eight month low against the dollar on Thursday a day after the Federal Reserve pointed to significant downside risks for the U.S. economy and stopped short of bold monetary easing. By yesterday's close, the EUR fell against the USD, pushing the oft-traded currency pair to 1.3440. The EUR experienced similar behavior against the JPY and closed at 103.00. The 16 nation currency did see some bullishness as well as it gained over 30 points against the GBP and closed at 0.8770.
Analysts questioned whether the move the Fed did make -- shifting its portfolio toward longer-term debt would bolster the economy and unwound leveraged positions funded in dollars in response.
Investors may look for the unusual price volatility to continue in the EUR/USD as the pair attempts to stabilize and find new support and resistance lines. Large price jumps such as these are not common place and present terrific opportunities to take advantage of the price swings for large profitable gains.
JPY - Yen Gains against Most Major Currency Counterparts
The Yen experienced a bullish trading session yesterday, as it appreciated against most of its major currency pairs. The JPY extended gains versus the EUR during yesterday trading session and closed at 103.00. The Japanese yen also saw bullishness against the USD as it jumped around 50 pips and closed at 76.30.
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. 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 Sinks below $80 a Barrel
Crude oil prices fell more than 4% to 79.80 on Thursday as equity markets in Europe and Asia tumbled after the US Federal Reserve said the economic outlook remained grim, which overshadowed an unexpectedly steep drop in crude supplies in the world's top oil consumer.
Oil prices had risen in earlier trade after government data showed US crude inventories last week dropped 7.3 million barrels, the biggest one-week drop since December, suggesting supplies were tighter than expected.
But the market turned bearish after the Fed said it would extend the maturity of its treasury holdings but didn't unveil more aggressive measures to boost a US economy it said faces "significant downside risks".
The EUR/USD has gone increasingly bearish in the past 2 days, and currently stands at the 1.3490 level. The daily chart's Slow Stochastic supports this currency cross to fall further today. However, the 8-hour 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.
The price of this pair appears to be floating in the over-sold territory on the daily chart's RSI indicating an upward correction may be imminent. The upward direction on the 8-hour chart's Momentum oscillator also supports this notion. When the upwards breach occurs, going long 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. All oscillators on the 4 hour chart do not provide a clear direction as well. 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.
The Wild Card
Crude oil prices are once again dropping, and it is currently traded around $80.40 per barrel. And now, the 8-hour chart's RSI 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.
|13:30||USD||Non-Farm Employment Change||204K||180K||203k|
|13:30||USD||Average Hourly Earnings||m/m||0.1%||0.2%||0.2%|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||0.1%|
|14:55||USD||Prelim UoM Consumer Sentiment||75.1||76.2||-|
|14:55||USD||Prelim UoM Inflation Expectations||2.9%||-||-|
|20:00||USD||FOMC Member Evans Speaks||*||*||*|