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Thursday, 19 May 2011
Strauss-Kahn Affair Looms over European Finance Meeting
Looming over the current ECOFIN meetings in Brussels, Belgium, is the arrest of Dominique Strauss-Kahn (also referred to by the media as DSK) regarding an alleged attack on a hotel maid while on a trip in New York City. Strauss-Kahn is currently serving as the Managing Director of the IMF and is a member of the Socialist Party of France. Many forex traders had assumed the current finance meetings would provide perspective into the region's debt woes, but this media distraction has many large investors looking for safety instead of higher yields, creating a range-trading behavior for the EUR.
USD - US Dollar Mixed as Traders Eye Manufacturing and Housing Data
The US dollar was trading with mixed results yesterday after traders began to hedge on their euro positions given the recent economic news vacuum in the euro zone. The Strauss-Kahn affair has overshadowed much of the positive comments coming out of the ECOFIN meetings and for that reason traders have tried to balance between European debt woes and interest rate differentials. This dynamic has generated a range-trading pattern for several major currencies, including the dollar.
Economic figures out of the United States have also been partially behind this flatter movement. Monday's TIC long-term purchases figure was well below expectations, as were Tuesday's housing figures. But yesterday's flattening out in US oil stockpiles may have given a short bump to the greenback as traders assumed higher consumption by industry ahead of today's manufacturing figure out of Philadelphia. The Fed's recent policy minutes also signaled healthier growth and relatively hawkish statements about interest rates.
As for today, the euro zone remains absent during the week-long ECOFIN meeting, but the US is scheduled for a heavy news day. To kick things off, the US Department of Labor will publish its weekly unemployment claims figure at 13:30 GMT which may show fewer applications for unemployment benefits than were seen last week.
Shortly thereafter will be the publication of important housing figures followed by the Philly Fed Manufacturing Index and Mortgage Banker Association's report on mortgage delinquencies. All in all, the USD should see some heavy volatility today, but if traders continue to hedge while awaiting more news out of Europe, the dollar may continue to see mixed results.
EUR - EUR Range-Trading as Investors Await Economic News
The euro rose has been trading flat this week as economic news, mixed with some political drama, has had investors balancing between debt concerns and interest rate differentials. Soft data out of the American economy this week has held many traders leery of seeking safety in the greenback, whereas the current absence of news out of Europe has many others skeptical of healthy movements towards handling the current debt crisis. The result has been this week's odd range-trading pattern for EUR pairs.
Looming over the current ECOFIN meetings in Brussels, Belgium, is the arrest of Dominique Strauss-Kahn (also referred to by the media as DSK) regarding an alleged attack on a hotel maid while on a trip in New York City. Strauss-Kahn is the Managing Director of the IMF and a member of the Socialist Party of France. Many forex traders had assumed the current meetings would provide perspective into the region's debt woes, but this distraction has many large investors looking for safety instead of higher yields, creating a range-trading behavior for the EUR.
As for today, the euro zone will be absent from the calendar again as the ECOFIN meetings continue. Hawkish statements could hint towards a tightening monetary policy in the near future, but traders should be wary of a return to risk aversion should the meeting produce less-than-stellar commentary. Major housing and manufacturing news out of the United States today may help provide some needed commentary on this week's soft US data, but any continuation of such weakness may further keep the greenback in a holding pattern.
JPY - JPY Moves Bearish after GDP Shrinks 0.9%
The Japanese yen (JPY) began trading in a bearish direction against most of its currency rivals yesterday after the Bank of Japan (BOJ) released data which showed the Japanese economy contracting by 0.9% so far this quarter. After a week of ups and downs, the Japanese yen now appears to be in a weaker position and is taking a beating by traders in today's early hours. The dominant stance of risk aversion overarching this week and last had many traders moving towards the yen until yesterday. The dominant stance now appears to be a flight to other safe-havens like the Swiss franc and, in many instances, the Scandinavian kroner.
As of this morning, the USD/JPY has moved up over 50 pips from 80.00 to 80.53. Japan's tertiary activity was published yesterday morning and also revealed a severe downturn of approximately 6.0%. This morning's GDP figure was another bearish marker on the currency and so far traders are moving away from their JPY investments as a result. As with the rest of this week, market news released out of the US today will likely be the driving force behind JPY values, though, and traders will definitely want to consider what effect today's GDP data will have on the island economy.
Crude Oil - Crude Oil Prices Jump after US Stockpiles Show No Growth
Oil prices jumped above $100 a barrel this morning following a report out of the United States which revealed zero growth in their weekly stockpile data. These US oil stockpile reports had shown growth of over 3 million barrels a week for the past two consecutive weeks. The sudden halt of this inventory growth had a sharp effect on the value of Crude Oil as its price jumped above $100 a barrel shortly after the report was published.
Whether oil traders decide to respond with a bearish push on oil prices is yet to be determined, especially considering the strangeness of the inverse relationship to USD values this week. The greenback's decline yesterday may have a delayed effect today and oil traders may see the price bouncing even higher if that is the case. The Strauss-Kahn affair in the US is also creating some instability in trading as it masks the commentary emerging from the current ECOFIN meetings. Commodity prices may therefore receive a bump in the rest of this week's trading if this rumor mill doesn't die out.
The Williams Percent Range on the 8-hour chart indicates that this pair has entered overbought territory, signaling a downward correction is likely to take place in the near future. This theory is supported by the Stochastic Slow on the same chart, which has formed a bearish cross. Traders may want to go short in their positions today.
The Relative Strength Index on the daily chart has dropped into the oversold zone, which is typically a sign of an impending bullish correction. In addition, the Williams Percent Range on the same chart is currently below the -80 level, lending further support to the theory of future upward movement. Traders may want to go long for this pair today.
The typical range trading on the hourly chart continues. The daily chart RSI is floating in neutral territory. However, there is a fresh bearish cross forming on the 4-hour chart's Slow Stochastic indicating a bearish correction might take place in the nearest future. Going short might be a wise choice.
The USD/CHF has gone increasingly bearish in the past few days, and currently stands at the 0.87670 level. The daily chart's Slow Stochastic supports this currency cross to fall further today. However, the 8-hour chart's Williams Percent Range 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 Wild Card
This pair's sustained upward movement has finally pushed its price into the over-bought territory on the 8-hour chart's Williams Percent Range. 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.
|08:00||EUR||German Factory Orders||m/m||2.0%||-0.5%||-|
|14:10||USD||FOMC Member Lacker Speaks||-||-||-|
|14:30||USD||Non-Farm Employment Change||215K||220K||-|
|14:30||USD||Average Hourly Earnings||m/m||0.2%||0.2%||-|