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Friday, 28 Jan 2011
S&P Cuts Japan's Credit Ratings; Yen Falls in Response
Yesterday's most significant economic news was clearly the S&P's announcement that Japan's credit ratings will be downgraded from AA- to AA. The Japanese yen saw sharp falls against all the major currencies in response. In addition, disappointing U.S. economic data have weakened the dollar against the euro and the British pound.
USD - Dollar Weakens Following Disappointing Economic Data
The U.S. Dollar fell against most of its major currency rivals on Thursday's trading session. The dollar fell about 60 pips vs. the euro, and the EUR/USD pair reached a daily high of 1.3757. The greenback also dropped about 60 pips vs. the British.
The dollar fell yesterday after a report showed that the number of Americans that filed for the first time for unemployment benefits rose by 51,000 to 454,000 in the week ended in January 22. The end results failed to reach expectations for 407,000 claims. In addition, the total value of new purchase order placed with manufacturers for durable goods unexpectedly fell in December by 2.5%, failing to reach projection for a 1.6% rise.
The dollar's fall has been moderated due to some positive data. The number of Americans singing contracts to buy previously owned homes rose in December by 2.0%, following a revised 3.1% gain the prior month. Positive data from the American housing sector are vital for the economy, as this remain the most fragile sector in the industry. In addition, orders for U.S. Capital equipment increased in December for the second month in a row. Bookings for equipment like computers and communications gear climbed by 1.4 after a 3.1% gain in November.
As for today, the most significant news event from the U.S. economy looks to be the Advance Gross Domestic Product (GDP). The GDP measures the change in the value of all goods and services produced by the economy, and its release usually has a large impact on the market. Traders are also advised to follow the Consumer Sentiment report which will be released from the University of Michigan.
EUR - Euro Strengthens After ECB Warns Of Imported Inflation
The euro rose against most of the major currencies during yesterday's trading session. The 17-nation currency gained about 60 pips vs. the U.S. dollar and about 30 pips against the British pound. The euro also saw a 120 pip gain vs. the Japanese yen.
The euro strengthened yesterday after two leading European Central Bank policymakers warned of a rising trend of imported inflation. The policymakers have issued the warning after inflation exceeded the ECB's preferred level of just below 2% for first time in two years in December, hitting 2.2 %.
Lorenzi Bini Smaghi, one of the six ECB executive board members, said that a permanent and repeated increase in the prices of imported products will tend to impact on inflation in the advanced countries, including the euro area. Bini Smaghi added that the ECB should address the rising inflation; otherwise monetary policy has to become more restrictive than it should be which leads to slower growth.
Looking ahead to today, the most significant economic release from the euro-zone seems to be the M3 Money Supply report. This report measures the change in the total quantity of domestic currency in circulation and deposited in banks. A positive data has potential to further support the 17-nation currency against its major rivals.
JPY - Yen Tumbles as S&P Cuts Japan's Credit Ratings
The Japanese yen fell against all its major currency counterparts yesterday. The yen fell about 90 pips vs. the U.S. dollar, and about 120 pips vs. the euro. The yen also dropped about 150 pips against the British pound, and the GBP/JPY cross reached as high as the 132.65 level.
The Japanese currency slid yesterday after Japan's credit rating was downgraded for the first time in nine years by the Standard & Poor's. Japan's credit rating was lowered to AA- from AA. The credit rating was lowered due to persistent deflation and as political gridlock undermined efforts to reduce an $11 trillion debt burden. As a result, the yen instantly slid against all the major currencies.
As for today, no significant release is expected from the Japanese economy. Traders are advised to follow official comments from the Japanese leadership regarding the credit rating cut; any development on this issue is likely to have a large impact on the Japanese currency today.
Crude Oil - Crude Oil Falls To $85.10 a Barrel
Crude oil prices continued to plunge on Thursday's trading session. Crude began yesterday's trading session at $87.50 a barrel. The session began with a fall to $86.30 a barrel, which was promptly corrected. Yet by midday another sharp fall took place, and crude reached as low as $85.10 a barrel.
Crude dropped yesterday on concern that the pace of fuel demand recovery in the U.S. will falter. The U.S. is the world's biggest crude-consuming nation, and a reduced demand for oil in the U.S. has a negative impact on crude prices. In addition, crude fell after Japan's credit rating was cut by Standard & Poor's, which stated that the Japanese government lacks a coherent strategy to reduce the nation's debt.
Looking ahead to today, traders are advised to follow the leading economic releases from the U.S. and the euro-zone as these usually have a large impact on crude prices. Traders should also follow any developments regarding the Japanese credit cut, as this may also play a leading role in today's trading.
There is a very distinct bullish channel formed on the 4-hour chart, as the pair is currently floating in the middle of it. In addition, as the MACD on the daily chart continues to point upwards, it seems that the pair might see another bullish session today. Going long with tight stops might be the right choice today.
The cable has been range-trading over the past 12 days, staying between the 1.5750 and the 1.6000 levels. Currently, after the pair saw another failed attempt to cross the 1.6000 level, a bearish correction might be in place, with potential to reach as low as the 1.5800 level.
The USDJPY pair saw a sharp 100 pips climb yesterday, reaching as high as the 83.20 level. Since then, the pair is gradually correcting losses, and is currently treading near the 82.70 level. As a bearish cross has just taken place on the 4-hour chart's Slow Stochastic it looks that the bearish correction might proceed today. Going short with tight stops might be the right strategy today.
The USD/CHF pair has been flat trading for the past three days, as the pair is constantly trading near the 0.9430 level. Nevertheless, as the daily chart's RSI is cross the 30-line, it seems that a bullish move might be impending. Going long might be the preferable choice today.
The Wild Card
Ever since gold peaked at $1,422 an ounce about three weeks ago, it has steadily corrected its gains, and is currently trading near the $1,310 level. In addition, as both the MACD and the RSI on the daily chart are providing bearish indications, it seems that gold may drop further today. This might be a great opportunity for forex trader to join a very popular trend.
|03:00||CHF||Daylight Saving Time Shift||-||-||-|
|03:00||EUR||Daylight Saving Time Shift||-||-||-|
|03:00||GBP||Daylight Saving Time Shift||-||-||-|
|01:00||EUR||German Prelim CPI||m/m||0.9%||-||-|
|01:00||EUR||Italian 10-y Bond Auction||1.36|1.5||-||-|
|01:50||JPY||Prelim Industrial Production||m/m||3.7%||-||-|