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Friday, 29 Jul 2011

Strong Data Supports Short-Term Risk Taking in Forex Market

A short series of data released yesterday painted a relatively stronger picture for the US economy's growth. Weekly unemployment claims saw a better than forecast rise, hitting 398,000 for the past week. A home sales report also showed a solid uptick, significantly beating expectations. So far the news has helped drive the USD lower as traders seek out small amounts of risk ahead of the week's conclusion.

EUR/USDGBP/USDUSD/JPYUSD/CHFAUD/USDEUR/GBP
Daily Trendnonodowndownupno
Weekly Trendupupdowndownupup
Resistance1.47001.674581.500.85500.9075
1.45401.655079.600.8385 0.8880
1.44001.644078.500.82701.10800.8840
Support1.42501.626077.500.80001.10100.8700
1.40701.600076.111.08900.8650
1.37401.57801.05250.8610

Economic News

USD - US Dollar under Pressure from Solid Jobs Data

The US dollar was seen trading mildly lower yesterday as traders began to reevaluate the recent jump in USD values. The EUR/USD was seen meeting resistance near 1.4500 yesterday and plummeted towards 1.4430 in late trading. The greenback saw similar movements against most other currency pairs as well.

A short series of data released yesterday painted a relatively stronger picture for the US economy's growth. Weekly unemployment claims saw a better than forecast rise, hitting 398,000 for the past week. A home sales report also showed a solid uptick, significantly beating expectations. So far the news has helped drive the USD lower as traders seek out small amounts of risk ahead of the week's conclusion.

With a heavy news day expected Friday, dollar traders should be anticipating some exciting currency movements brought about by heightened liquidity. The economic calendar, though, will be focused on Japan and the US with several reports on inflation and GDP, respectively. The greenback is in focus as the week concludes considering the intense rollercoaster it experienced these past few trading days, also considering the deadline for lifting the debt limit will be reached next Tuesday.

EUR - EUR Mixed as Italian Bond Auction Flops

The euro was seen trading lower yesterday in light of data releases suggesting stagnation in the German employment sector. Moreover, an auction of Italian bonds this week produced fear that debt contagion was coming back into view. The lackluster performance of the auction drove many regional investors away from the EUR despite the relative potential is has for making gains should the US falter on its debt ceiling talks.

While growth variances between the US and Europe came into view this past week, the higher yielding assets like the GBP and EUR appeared positioned to lose as traders turned away from risk, despite the uptick in risk taking seen by mid-week. The growth in risk aversion may have many investors choosing to store their value in lower yielding currencies, like the USD and JPY as the week comes to a close.

As for Friday, the euro looks to be anticipating an evaluation of its recent downturn against the other major currencies with mild bias further leaning to the downside. The euro zone will be publishing a few economic events on today's calendar. Traders should try and follow the significant publication emanating from the Japanese, US, and Canadian economies today, however, as a heavy string of reports are expected throughout the day.

JPY - JPY Seen in Ascent as Traders Seek Store of Value

The Japanese yen (JPY) was seen trading higher versus most other currencies this week after news began to shift many traders back into safe-haven assets. The yen has been a top performer these past several months considering many traders bank on the Japanese carry trade during times of intense risk appetite and move towards the JPY in times of risk aversion, making it an appealing currency in these recent times of ominous debt talks.

The JPY was in a position to make solid gains yesterday after debt auctions in Italy moved many investors away from the euro zone and into safer assets. Moves toward riskier currencies halted as pessimism took hold and drove much of yesterday's trading liquidity towards traditional stores of value. As such, traders appear to be anticipating an uptick in the JPY prior to this week's close.

Oil - Oil Price Floats near $98 a Barrel

Crude Oil prices sunk yesterday, reaching near $97.50 in late trading. Growth differentials between the Atlantic states have risen into view this week while manufacturing output and service data revealed mild weakness in Europe. This has so far led several large investors and analysts to consider a shift away from the EUR and other risky assets in exchange for the safety of the USD and JPY.

As investors sought safety, the value of crude oil, which has been seen holding steady most of the week, also fell slightly towards $97.50 a barrel. A sudden jump in dollar values due to this week's risk sensitive environment has helped many investors move hesitantly away from assets like gold and silver, but crude oil appears untouched by this sentiment. Should Crude Oil prices hold steady this week, we could see some gains going into the week's final hours.

Technical News

EUR/USD

The EUR/USD has taken a step away from the edge after failing to get a close below its 200-day moving average and the price is testing the falling trend line from the May and July highs at 1.4450. Short term momentum is currently rising and break above this resistance line may find resistance at the peaks from July, June, and May at 1.4580, 1.4700, and 1.4940 respectively. However, a bearish tweezer candlestick pattern has formed on the daily chart from last week's highs on Thursday and Friday, strengthening the argument for the 3-month old resistance line to hold. Support is found at 1.4015, 1.3835, and 1.3780 from the rising trend line off of the June 2010 low.

GBP/USD

After dipping as low as 1.5780 which is the 38% Fibonacci retracement level from the May 2010 to April 2011 move, Cable has broken above both the neckline from the head and shoulders pattern and the resistance line falling from the April and May highs. The pair has now found resistance at the previously broken trend line from the May 2010 low and now serves as initial resistance at 1.6360. A move above this line will likely go on to test the May high at 1.6545 though sterling bears may make a stand before the April high of 1.6745. To the downside support may come in where the neckline and the previous resistance line off the April and May highs intercept at 1.6190. Additional support is located at 1.6000 and the July low at 1.5780.

USD/JPY

The reemergence of yen strength has taken the USD/JPY one step closer to its all-time low at 76.11. Falling stochastics on the monthly, weekly, and daily charts all point to additional declines in the pair. Initial support is found at 78.20 followed by the lower line from the falling wedge pattern from December 2008 which comes in at 77.50. A move higher may find resistance at 79.60 and 81.50.

USD/CHF

An attempt to push the USD/CHF higher ran into resistance at 0.8270. Since failing to hold any gains the pair looks to test the most recent all-time low at 0.8080. Any attempt to move the pair higher will likely encounter resistance at 0.8270 and 0.8385 from the falling trend line off the February high. Relative value sellers of the pair may also be lurking at 0.8550.

The Wild Card

EUR/JPY

A combination of euro weakness and a resurgence of yen strength have taken the EUR/JPY abruptly lower. The pair has broken out from a bearish flag pattern and has support at 110.80 from yesterday's low followed by 109.55. A break here would expose the mid-March low at 106.30. Forex traders will find resistance at 111.50 though move higher could find its way to 113.00 without jeopardizing the bearish chart pattern.

Current Time: 11/22 22:41 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
11/24
JPY+ Bank Holiday---1
08:15CHF+ Employment Level4.20M4.22M-3
09:00EUR+ German Ifo Business Climate103.2103.0-5
14:00EUR+ Belgian NBB Business Climate-6.8-5.3-1
14:45USD+ Flash Services PMI57.157.31
23:50JPY+ Monetary Policy Meeting Minutes3.5%3.6%-3
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