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Wednesday, 14 Oct 2009

The Dollar Retreats as Commodities Hit New Highs

The U.S. Dollar fell against a basket of currencies to within sight of recent lows on Tuesday as Gold hit a new high and Oil prices strengthened. The USD and commodities are often inversely correlated, with Gold and Oil priced in dollars and seen as an alternative currency and hard asset themselves. Ahead of U.S. corporate earnings figures and speeches from Federal Reserve officials later in the day, currency investors continued to speculate about when the U.S. central bank will tighten its monetary policy, thus putting more pressure on the U.S currency.

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Economic News

USD - Dollar Trades near 14-Month Low as Investors Favor Gold

The U.S dollar traded near a 14-month low against the EUR as signs that the global economy is recovering spurred demand for higher-yielding assets. The greenback declined to the highest since August 2008 to $1.4828, down from $1.4786 in late trading.

The USD slumped versus major counterparts on Tuesday as investors favored gold, often viewed as the most stable commodity. With the greenback's losses softened by a drop in U.S. stocks amid concerns about the strength of the economy's recovery, analysts have said that traders look to gold as a hedge against inflation and market volatility. Following the enormous bailout packages of 2008-09, inflation has become a real concern. As a result, gold has become largely important as a hedge in today's market.

Analysts also noted reports about what central banks are doing with their reserves that indicate a shift away from the U.S. currency, confirming a long-standing fear in the market. The U.S dollar may decline further today before a government report forecast to show U.S. consumer prices gained last month, curbing demand for safe-haven assets.

EUR - EUR Hits Record Highs

The EUR rose to nearly $1.49 against the USD, its highest level since August 2008, just before the demise of investment bank Lehman Brothers' pushed the global banking system to the edge of collapse and sparked a frenzy of Dollar buying by investors eager to dump riskier currencies.

The European currency strengthened on investors' fear that a weak U.S. labor market and a protracted recovery will keep Interest Rates near zero well into 2010.That makes holding low-yielding U.S. dollars unattractive, and any appeal the greenback has would be dulled further if other major central banks start lifting interest rates as growth picks up.

The British pound was within 1 penny of its lowest level in more than 6 months against the EUR after a business group said the Bank of England should expand asset purchases, and as inflation slowed more than forecast. The currency slid to 94 pence per EUR today, for the first time since March 27, before recouping its losses.

Meanwhile, against the U.S. Dollar, the GBP rebounded from the weakest level since May gaining 0.6% to $1.59. The U.K currency declines may be limited, however, as some indicators show signs that the economy is recovering after the central bank cut its benchmark interest rate to a record low of 0.5% and started buying assets to further depress borrowing costs.

JPY - Yen Gains as Equity Markets Move Lower

The Japanese yen climbed against the EUR and U.S. Dollar as falling producer prices and stocks in Japan boosted demand for the nation's currency as a refuge. The Yen climbed to 132.85 per EUR from 133.26 yesterday. Japan's currency strengthened to 89.36 to the Dollar from 89.71.

Japan's producer prices fell for a 9th consecutive month as oil traded lower than last year's levels and demand for materials waned. The costs companies pay for energy and unfinished goods declined 7.9% in September from a year earlier after sliding a record 8.5%, the Bank of Japan said today. The Yen's 11% gain against the U.S. Dollar in the past 6 months has also contributed to price declines by making imports cheaper.

The government will cut prices of the grain sold to domestic flour millers by the most in at least 39 years as import costs dropped on a stronger currency and a slump in international prices, the Japanese Ministry of Agriculture, Forestry and Fisheries said this month.

Crude Oil - Oil Reaches towards $75 on OPEC Demand Forecast

Crude Oil prices rose for a 5th consecutive day, trading near $75 a barrel, after the Organization of Petroleum Exporting Countries (OPEC) increased its world energy demand forecast, and the weaker Dollar boosted the appeal of commodities. Oil gained 1.2% yesterday as OPEC raised its 2010 global oil-consumption estimate on expansion in emerging economies.

Also helping Crude move higher, the U.S. Dollar fell to the lowest level in 14 months, lifting dollar-denominated commodity prices. Analysts said that in case the equity markets continue to rise and the U.S. Dollar softens further, it cannot be ruled out that Oil prices will attempt to break the annual high of $75 a barrel in the next few days.

Technical News


The price of this pair appears to have just entered the over-bought territory on the daily and 4-hour charts' RSI, suggesting downward pressure. The fresh bearish cross on the hourly chart may indicate that the move is more immediate. If this downward correction can breach the bullish channel of this pair, then going short will be a very wise strategy.


It looks as if there are fresh bearish crosses on the hourly and 4-hour Slow Stochastic indicators, suggesting an imminent downward correction for this pair. As the price is currently cascading downward out of the over-bought territory on the hourly RSI, the downward notion appears to be justified. Going short with tight stops could be a smart move today.


The price has turned upward and begun to exit the over-sold territory on both the hourly and 4-hour RSI, suggesting an upward trend reversal is taking place. The fresh bullish cross on the hourly Slow Stochastic supports this notion. Going long appears to be today's preferable strategy.


It seems like there are brand new bullish crosses on the hourly Slow Stochastic and MACD, suggesting that an upward correction is overdue. With the price just entering the over-sold territory on the 4-hour RSI, the upward pressure appears to be mounting. Going long on this pair could be today's best choice.

The Wild Card

Crude Oil

With upward corrections due for the USD, a correlating downward correction is also building up for the price of Crude Oil. There are bearish crosses on the hourly and daily Slow Stochastic, the price is floating in the over-bought territory on the hourly, 4-hour, and daily RSI, and the hourly MACD has started tilting downwards. Once the downward correction begins, which should happen any minute now, forex traders will have an excellent opportunity to enter the price swing at this year's peak price level.

Current Time: 12/01 16:08 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
14:30CAD+ GDPm/m0.1%0.1%-0.5%5
15:30CAD+ Manufacturing PMI48.0--1
15:45USD+ Final Manufacturing PMI52.652.6-1
16:00NZD+ GDT Price Index-7.9%--5
16:00USD+ ISM Manufacturing PMI50.1 50.6-5
16:00USD+ Construction Spending m/m0.6%0.5%-1
16:00USD+ ISM Manufacturing Prices39.040.0-1
18:45USD+ FOMC Member Evans Speaks---3
00:30AUD+ RBA Gov Stevens Speaks---5
00:50JPY+ Monetary Base y/y32.5%35.2%-1
01:00NZD+ ANZ Commodity Pricesm/m6.9%--1
01:30AUD+ GDPq/q0.2%0.7%-5
02:00EUR+ FOMC Member Kohn Speaks---3
08:00EUR+ German Retail Salesm/m---3
09:00EUR+ Spanish Unemployment Change82.3K--3
09:30GBP+ Halifax HPI---3
10:30GBP+ Construction PMI58.858.4-5
11:00EUR+ CPI Flash Estimate y/y0.1%0.2%-3
11:00EUR+ Core CPI y/y1.1%1.1%-3
11:00EUR+ PPI m/m-0.3%-0.4%-1
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