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Monday, 16 Aug 2010
Signs of Slowdown in Global Economic Recovery Supports the Dollar
The U.S. dollar corrected looses against most of the major currencies during last week's session, as data showed that global recovery might take longer than expected. This decreased risk-appetite in the market, and turned investors to look for safer assets, such as the dollar and the Japanese yen. Crude Oil prices also fell as a result. With a heavy news week ahead, this trend might extend if the economic publications will continue to provide signals for a slowdown in the global recovery.
USD - Negative Economic Data Boosts the Dollar
The U.S. dollar rallied vs. most of the major currencies during last week's trading session. The dollar gained about 500 pips against the euro and about 400 pips against the British Pound.
The dollar fell last week as a result of several disappointing publications from the U.S. economy. The U.S. Trade Balance, a report which measures the difference between imported and exported goods and services, showed that the U.S. trade deficit widened sharply to $49.9B in June, failing to reach expectations for a $42.0B deficit. In addition, the U.S. employment condition continues to deteriorate. The U.S. weekly Unemployment Claims showed that 484,000 peoples have filed for unemployment insurance for the first time during the past week, well above expectations for 465,000 individuals. This continued the negative employment data from the Non-Farm Payrolls publications which released a week ago. The negative data keeps investors cautious regarding their portfolios, and as a result increases risk-aversion in the market. This boosts the dollar, which is considered to be a safe investment. As long as the U.S. economy continues to provide negative signals the dollar may rise further.
As for the week ahead, many interesting publications are expected from the U.S. economy. Traders are advised to follow the Long-Term Purchases, the Building Permits, the Producer Price Index (PPI), the Unemployment Claims and the Philly Manufacturing Index. These indicators tend to have a large impact on the market, and each publication is likely to influence the dollar's trading.
EUR - Euro Erases Profits as Data Shows Global Recovery May Take Longer Than Expected
The euro fell against most of the major currencies during last week's trading session. The euro dropped about 500 pips against the U.S. dollar, and the EUR/USD pair is now trading around the 1.2790 level. The euro also fell about 450 pips vs. the yen and about 150 pips vs. the British pound.
Two main reasons led to the euro's downfall last week. The first reason was the negative data from the U.S. economy. Data showed that the unemployment condition in the U.S. continued to deteriorate during the past week. In addition, the U.S. Trade Balance fell more than expected, and as a result created concerns that the recovery of the U.S. economy will take longer than expected, which will probably halt global recovery as well. This increased risk-aversion, and turned investors to close their long positions on relatively risky currencies, such as the euro and the pound.
The second reason for the euro's drop is the dissipating data from the euro-zone. The European Industrial Production failed to reach expectations for a 0.7% rise in June, and has fallen by 0.1%. In addition, French Preliminary Non-Farm Payrolls saw merely a 0.2% rise during the 2nd quarter, failing to reach expectations for a 0.4% rise. The disappointing data has added to the uncertainty in the market, and as a result weakened the euro.
As for this week, the economic indicator which might have the largest impact on the euro looks to be the German ZEW Economic Sentiment. This is a survey of about 350 German institutional investors, who are asked to rate the economic outlook of Germany. A positive end result might initiate a correction for the euro against the major currencies.
JPY - Yen Strengthens Against the Euro and the Pound on Increased Risk Aversion
The yen appreciated against most of the major currencies during last week's trading session. The yen gained about 450 pips against the euro, and about 350 pips against the British pound. Against the U.S. dollar the yen saw a volatile session without a clear trend.
The yen rose significantly last week, as disappointing data from the U.S. economy increased concerns that global recovery may take longer than expected. In addition, negative reports from the Japanese economy also contributed to the uncertainty in the market. The Japanese Current Account, which measures the difference between imported and exported goods and services rose to 1.36T, yet failed to reach expectations for 1.44T. In addition, the Core Machinery Orders rose by 1.6% in June, well below expectations for a 5.6% rise.
It currently seems that for as long that data from Japan, the U.S. and the euro-zone will indicate that global economic recovery might be halted, the yen, as safe-haven, is likely to strengthen as a result.
Looking ahead to this week, traders are advised to follow the major economic publications from Japan, the U.S. and the euro-zone, and to take under consideration that positive data might increase risk appetite, and as a result erase the yen's gains from the past week.
Crude Oil - Crude Oil Falls To $75.05 a Barrel
Crude Oil is trading near a one month low, as a barrel of crude oil is currently trading around $75.70. A barrel of crude oil was traded for about $80 when last week's trading took off, yet crude saw a sharp decline, and reached a weekly low of $75.05 on Friday.
Crude oil fell during last week's session as negative data from the U.S. economy has created concerns that the world's largest consumer of energy products will reduce its demand for fuel. Crude oil reached its monthly low following the disappointing U.S. Retail Sales. At the moment, crude oil continues to weaken as an early publication has shown that the Japanese economy has grown less than expected during the 2nd quarter, adding to concerned regarding a reduced demand for oil.
As for the week ahead, traders are advised to follow the main publications from the U.S and the euro-zone, as they usually have a large affect on crude oil's trading. Traders are also advised to follow the U.S. Crude Oil Inventories report on Wednesday, as this report tends to have an instant impact on oil prices.
While the pair took a significant drop to close out last week's trading, it has been fairly steady since markets opened. The Stochastic Slow on the daily chart indicates a bullish cross may form soon, typically a sign that upward movement could occur. This theory is supported by the Relative Strength Index on the 8-hour chart. Traders are advised to go long today.
Despite some small price fluctuations in overnight trading, the pair is trading at the around the same rate as when markets opened for the week. That being said, the Slow Stochastic on the daily chart shows signs of impending upward movement. Traders may want to open long positions today, as bullish movement could take place.
Following a steep drop in overnight trading, the pair now appears to be trading in neutral territory. With most technical indicators not showing a clear indication of where the pair could be moving, traders may want to take a wait and see approach with their positions today. A clearer picture could present itself in afternoon trading.
With no strong price shifts recorded in overnight trading, most technical indicators are not showing a clear direction for the pair at the moment. That being said, market volatility is expected later today, so traders will want to pay close attention to both the Bollinger Bands and Relative Strength Index on the 4 and 8-hour charts for any signs of movement.
The Wild Card
The CFD has seen a steep drop in value over the course of the last week. That being said, the Slow Stochastic on the daily chart and the Relative Strength Index on the 8-hour chart both show the S&P trading in oversold territory, meaning an upward correction is likely today. CFD traders may want to go long today in order to capitalize on a potentially lucrative price shift.
|07:00||CHF||UBS Consumption Indicator||1.65||-||-|
|09:30||GBP||BBA Mortgage Approvals||44.5K||45.5K||-|
|10:00||EUR||Italian Retail Sales||m/m||0.3%||0.5%||-|
|10:01||EUR||German 10-y Bond Auction||0.44|1.2||-||-|
|10:20||AUD||RBA Assist Gov Debelle Speaks||-||-||-|
|12:30||GBP||Autumn Forecast Statement||-||-||-|
|13:30||USD||Core Durable Goods Orders||m/m||-0.3%||0.5%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|13:30||USD||Durable Goods Orders m/m||-1.2%||1.6%||-|
|14:45||USD||Flash Services PMI||54.8||55.2||-|
|15:00||USD||New Home Sales||468K||500K||-|
|15:00||USD||Revised UoM Consumer Sentiment||93.1||93.2||-|
|15:00||USD||Revised UoM Inflation Expectations||2.5%||-||-|
|15:30||USD||Crude Oil Inventories||0.3M||-||-|
|17:00||USD||Natural Gas Storage||-||-||-|