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Monday, 26 Oct 2009
The EUR/USD Trades Past $1.50 First Time in 14 Months
The U.S dollar fell against the EUR and the Yen in Asian trading this morning after an official newspaper of the Chinese central bank said China should cut its USD holdings, adding to concerns over the unit's global reserve currency status.
The greenback could weaken further later in the day, particularly against the risk-sensitive EUR, which is also benefiting from stronger stock markets, analysts said.
USD - Dollar Sees Mixed Results against the Majors
The Dollar saw an extremely volatile session during last week's trading. The Dollar dropped to a 14-months low against the Euro, as the pair crossed the 1.50 level. However the Dollar appreciated against the Yen, and saw mix results against the Pound.
It appears that the mixed results of the major economic publications from the U.S economy could explain the irregular trading of the Dollar. On the positive side, the housing sector continues to recover. The Existing Home Sales, which are the number of residential buildings that were sold during September, rose to 5.57M from 5.37M on August. In addition, the Building Permits, which measures the number of new residential permits issued during September, remained at a high level as well.
Nevertheless, the Producer Price Index (PPI), a leading indicator of consumer inflation, failed to rise, and dropped by 0.6% in September. If the relatively low inflation rate fails to rise, it is a warning sign that the U.S economy may not recover as quickly as some may expect. In addition, the employment condition in the U.S continues to be fragile. The weekly Unemployment Claims showed that 531,000 individuals filed for employment insurance for the first time during the past week - the largest number in 3 weeks.
As for the week ahead, the most impacting data expected from the U.S economy looks to be the Consumer Confidence on Tuesday, the Durable Goods Order indices and the New Home Sales on Wednesday, the Unemployment Claims scheduled on Thursday. The results of these indicators are likely to determine the Dollar's direction for this week, and traders are advised to follow their results.
EUR - Euro Continues to Strengthen against Majors
The most significant trend in the currencies world appears to be the European currency. During last week the Euro saw a 14-months record high against the Dollar, as the EUR/USD pair reached the 1.5055 level. The Euro also extended its bullish trend against the Yen, and the EUR/JPY pair is now traded above the 138.0 level.
One of the reasons that the Euro continues to strengthen against most of the major currencies seems to be the positive data from the German economy, which shows clear signs of recovery. The German Business Climate, which is a survey of about 7,000 businesses who are asked to rate the level pf current business conditions and expectations for the next 6 months, kept an above 90 rate for the third month in a row. This indicator rose to a 13-month high, which means that German businesses are under the impression that the recession is over. In addition, several other German economic indicators have provided positive results lately. Considering that the German economy is the largest and strongest economy in the Euro-Zone, any recovery signals are likely to support the Euro.
In addition, it seems that another significant reason for the Euro's bullish trend, is the weak, or unsettled Dollar. Due to an unclear condition of the U.S economy, the Dollar continues to drop against most of the major currencies. As long as this tend continues, the Euro could remain as the safest trend in the market.
Looking ahead to this week, a batch of data is expected from the Euro-Zone. Traders should follow the leading publications, especially from the German and French economies, as they have proven to have a large impact on the Euro. The most influencing news event looks to be the German Preliminary Gross Domestic Product on Wednesday. A positive figure, above expectations could elevate the Euro even further.
JPY - Can the Yen Drop Further?
During the last few weeks, one of the safest investments in the market was to go against the Yen. Even so the Yen saw some bullish corrections close to the weekend, last week was no exception. The Yen continues to sharply drop, especially against the Dollar and the Euro.
The number one reason for the Yen's weakness appears to be the Bank of Japan's (BoJ) policy. The BoJ feels that it is the Japanese interest to keep a very weak Yen. The logic behind this stance is that the Japanese economy relies greatly on its export, and thus the weaker the Yen, the more exporters will allegedly profit. The main tool the BoJ uses in attempt to reach this target is the low interest rate. Japan currently holds the lowest interest rate in the in the industrial world, merely 0.10%.
However, the BoJ's policy may have missed its target. Last week, the Japanese Trade Balance was published. The report showed that the difference in value between imported and exported goods during September have accumulated to 0.06T, failing to reach expectations for 0.38T, and much lower than the 0.17T result from August. Currently it seems that until the Japanese export will recover and a show similar figure to the ones prior recession, the Yen is likely to continue to drop, especially against the Dollar and the Yen.
As for this week, many interesting news events are expected from the Japanese economy. Yet the most fascinating publication seems to be the Overnight Call Rate, which is scheduled for Friday. The Overnight Call Rate is in fact the Japanese Interest Rate announcement. Analysts expect that the BoJ will retain the 0.10% rate. However, if the BoJ will surprise and decide to hike rates, turmoil is expected in the market.
OIL - Will Crude Oil Continue to Slide?
Crude oil continued to rise during most of last week's trading, and a barrel of oil almost reached $82. However, close to the weekend, prices of oil dropped, and a barrel of crude oil is currently traded for less than $80 a barrel.
The rising trend of crude oil, which took place on the first half of last week, came mainly as a result of the weak Dollar. Oil is valued in Dollars and thus tends to strengthen when the Dollar drops. However, later on the week, the prices of oil saw a sudden drop. The main reason for the decline in oil prices seems to be the increasing concerns about global recovery, especially regarding the U.S economy. Current expectations are that the economic recovery in the U.S will elevate demand for oil.
However, the unsatisfying data received from the U.S economy has questioned the reliability of economic recovery, and increased worries that demand for oil may not rise during the first half of 2010. As long as these concerns will remain, crude may fail to see higher prices than $80 a barrel.
As for the week ahead, traders are advised to continue follow the major economic publications from the U.S and the Euro-Zone, as they seems to have the strongest effect on oil's value. In addition, traders should follow the U.S Crude Oil Inventories on Wednesday, as this indicator tends to have an immediate impact on crude oil's trading.
The Bollinger Bands on the hourly chart for this pair appear to be tightening in expectation of a volatile price movement. With a recent bearish cross on the hourly chart's Slow Stochastic, this pair may be due for a strong downward correction. As the RSI of the 4-hour chart is floating in the over-bought territory, going short may be a wise choice today.
The price of this pair is apparently floating in the over-sold territory on the 4-hour chart's RSI, signaling upward pressure. With a fresh bullish cross on the 4H chart supporting this notion, going long may indeed be a good choice today.
The bullish trend is loosing its steam and the pair seems to consolidate around the 91.90 level. The daily chart's RSI is already floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.
Narrow range trading continues as the pair did not make a significant move in either direction, and is currently traded around the 1.0070 level. The 4-hour chart's Slow Stochastic is showing a fresh bearish cross suggesting that downwards correction might take place in the nearest time frame. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.
The Wild Card
Gold prices are once again dropping, and it is currently traded around $1054 per ounce. And now, the hourly chart's Slow Stochastic is giving bullish signals, indicating that gold prices might go up. This might give forex traders a great opportunity to enter a very popular trend.