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Wednesday, 28 Apr 2010
Stormy Weather Hits Forex Markets
An extremely volatile trading day ended yesterday with the U.S. Dollar gaining against most major currencies. The EUR/USD pair hit a one-year low not seen since April 2009, trading below 1.3200. Volatility is expected to continue today, while European Union (EU) representatives would probably try to reassure investors regarding the stability of the EUR and aid to support Greece. This should support the EUR, which was already trading higher at Wednesday's trade opening.
USD - U.S. Consumer Confidence Comes High, Markets End Low
Yesterday's trading session proved once again that markets are still fragile. Better than expected Consumer Confidence data did not improve investors' mood regarding recovery in the global economy. The Case Shiller index added to the negative sentiment, published Tuesday, it showed an increase in home prices, but was worse than forecasted.
The greenback rose sharply against all its major counterparts. The EUR/USD is currently trading at 1.3200, almost 200 pips down compared to Tuesday's opening. The GBP/USD is trading at 1.5268, also around 200 pips bearish compared with early trading on Tuesday.
Today's trading will continue to be influenced by the ranking downgrades, some currencies, hit yesterday, might rebound slightly while short positions are closed to take on profits. Yet European debt sentiment would continue to halt any major EUR up-trend, it seems that only a serious aid package would help lift the EUR. Today's FOMC statement and Federal Funds Rate decision, expected to remain at
EUR - Greece & Portugal Downgrade Sent EUR to Yearly Low
The EUR tumbled yesterday when the S&P group published their ranking downgrade to Greece and Portugal. Greece payment is due on 19 May, and Germany has reassured that the EUR will not collapse because of Greece. On the other hand, they continue to raise difficulties over a complete aid package to Greece.
UK elections coming in less than two weeks may add some volatility to the pair. Investor fear of a weak government with limited power may shake things up if there is belief that important economic decisions cannot be made by central authorities which would direct the UK economy out of recession.
The EUR/USD was trading lower following the closing of the New York session when the pair opened slightly higher at around 1.3200. The EUR/USD is expected to test the 1.3200 level later today, any failure to cross it would signal further decline for the pair. The GBP/USD also improved since yesterday closing and is currently little changed at 1.5268.
JPY - Yen Rises as Investors Divert from Risk
The Japanese Yen (JPY) traded higher during Tuesday's trading sessions as investors returned to safe-heaven currencies such as the USD and the JPY. As long as unresolved issues, such as European debts, continue to occupy investors, the trend may continue to support the JPY against the EUR and GBP. The JPY might be less bullish against the USD, however. The pair is currently trading at 93.33.
Retails Sales in Japan, published earlier, signaled strong growth. This was good news for Japan's economy as it continues to try to escape deflation. The JPY today will continue to be influenced by traders' lack of risk appetite as no major news will be published today as it is a bank holiday in Japan.
The Yen is expected to trade neutral during the day. If investors see more ranking warnings they may continue to support the Yen against other major currencies as a part of the risk averse trading environment currently present. The EUR/JPY is currently trading at 123.29, and USD/JPY improved since the day started to 93.30.
OIL - Crude Oil Prices Rise as Recovery Concerns Take Over
The S&P group rating downgrade took over Tuesday's trading session, sending riskier assets lower. This was including Crude Oil prices, which fell below $83 a barrel, a strong support level. The price of a barrel of light sweet crude oil opened at $82.30, higher compared to yesterday's price during New York closing.
Oil prices declined mainly on concerns about the strength of the economic recovery. Investors are extremely worried about European countries' mounting debts. Moreover, a U.S. barometer of oil inventories showed a larger than expected increase, which sent oil prices further down.
Better statistics on oil inventories are due to be published later today. However, in recent weeks oil prices were little changed following this figure. Oil is expected to continue its decline today, although on a more moderate level, $83 a barrel may turn out to be a healthy resistance level.
There is a fresh bearish cross forming on the hourly chart's Slow Stochastic, indicating a bearish correction might take place in the nearest future. The downward direction on the 4-hour chart's Momentum oscillator also supports this notion. When the downward breach occurs, going short with tight stops appears to be a preferable strategy.
The price appears to have entered the over-sold territory on the 4-hour RSI, but it still points downward, indicating that the downward movement may not have finished yet. The bearish cross on the 4-hour MACD supports this notion. Staying short on this pair for the time being may not be a bad tactic today.
The 4-hour chart is showing that the pair is still in the bearish configuration. However, the RSI is already floating in the over-sold territory indicating that a bullish correction might take place in the nearest future. When the upward breach occurs, going long with tight stops appears to be a preferable strategy.
The bullish trend is losing its steam and the pair seems to be consolidating towards the 1.0850 level. The pair currently sits near the upper border of the daily chart's RSI, suggesting a downward correction may be imminent. When the downwards breach occurs, going short with tight stops appears to be a preferable strategy.
The Wild Card
This pair has been in a steady bullish channel for a number of days now with hardly any signs of stopping. However, the daily and hourly charts show the price floating in the over-bought territory of their respective RSIs. A bearish cross on the daily Slow Stochastic has also just formed, indicating that this pair is due for a strong downward movement giving forex traders a great opportunity to call the reversal and ride out the downward wave for some hefty profits.
|10:00||EUR||Italian Monthly Unemployment Rate||12.6%||12.6%||13.2%|
|10:00||EUR||Italian Quarterly Unemployment Rate||12.5%||12.4%||12.8%|
|11:00||EUR||CPI Flash Estimate||y/y||0.4%||0.3%||0.3%|
|11:00||EUR||Italian Prelim CPI||m/m||0.1%||-0.3%||-0.2%|