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Monday, 20 Jul 2009
Traders Focus on Commodities as USD Slides
The U.S. dollar has ceded further ground on Monday as concerns about the U.S. economy abated and broadly improved corporate earnings lifted risk appetite and regional stock markets. The weak U.S. dollar had traders pushing up commodity prices. Crude remained relatively steady above $64 a barrel, after rising 2.5% on Friday on positive U.S. housing data that revived hopes of a global economic recovery.
USD - Dollar Declines on Concerns About the U.S Economy
Last week the U.S dollar saw bearish trends against most of the major currency pairs. The Dollar dropped over 200 pips against the EUR and over 300 pips against the Pound during last week's session. The Dollar weakened last week despite rather positive indications from the U.S economy. Economists said that although the earnings and data from the housing sector suggest the U.S. economy is showing signs of a recovery investors are still reluctant to pour capital in to it.
It seems that the positive figures from the U.S economy has lead investors to believe that the world is showing real signs for pulling out of recession. Expectations are that an improvement in the U.S economy situation will be resulted in an improvement in different economies as well, especially the European ones, and this has raised the European currencies against the U.S dollar.
There is little U.S. data to drive the market this week, so the focus will be on Federal Reserve Chairman Ben Bernanke's semiannual monetary policy testimony to Congress. Traders will be seeking clues on whether the Fed will begin unwinding some of the huge stimulus measures it undertook at the height of the U.S. financial crisis.
EUR - EUR Soars against the Majors
The EUR rallied last week against all the major currencies. The EUR's most significant appreciation was against the Japanese yen, as the pair rose over 400 during last week's session. The EUR also marked a bullish session against the U.S dollar and the British pound.
The EUR soared last week as a result of some relatively positive data from the Euro-Zone leading economies. Both the German and the European ZEW Economic Sentiments delivered positive figures, proving that investors and analysts continue to hold their optimistic view regarding the European financial condition. The two reports have failed to reach expectations, yet the final result was still positive enough to strengthen the EUR. The slide of the Dollar also contributed to the rising EUR, and as a result, traders who went long on the EUR last week saw nice profits.
Looking ahead to this week, many interesting economic publications are expected from the Euro-Zone. The data that should affect the EUR the most will probably be from the leading economies such as Germany and French. The Purchasing Manger's Index from the leading economies is expected on Friday, and currently analysts forecast rather positive results for the indices. If the actual results will be similar to predictions, traders might see the EUR continues its bullish trend.
JPY - Yen Bullishness Halts
Last week may have signaled the end of the JPY's bullish trend. The Yen has weakened against all the major currencies including the Dollar, the EUR and the Pound.
During last week, the Bank of Japan (BoJ) has decided to leave the Japanese Interest Rates at 0.10%, which are the lowest rates in the western world. It seems that the Japanese chiefs have managed to weaken the JPY. The Japanese leaders feel that a weak Yen will support the export of the country, and thus will improve the general economic condition. In addition, the Tertiary Industry Activity reports has shown that the change in the total value of services purchased by businesses dropped by 0.1% on June. This means that businesses in Japan are cutting off spending, proving that Japan has yet to pull out of recession. If the BoJ will continue with its policy to depreciate the Yen, and the financial reports from Japan will continue to show negative figures, the Yen could depreciate further.
As for the week ahead, many significant data is expected from the Japanese economy. Yet the most significant report seems to be the Trade Balance, which is scheduled in Wednesday. The report will show the difference in value between imported and exported goods and services during May. Current expectations are for a very positive result. If the actual result will indeed be similar to forecasts, this will mean that the BoJ succeed in supporting the Japanese export, and might strengthen the Yen.
OIL - Could Crude Oil Reach $70 a Barrel?
Crude Oil marked an extremely bullish session last week, rising from $58 a barrel up to $65 a barrel. The bullish trend came mainly as a result of the better than expected U.S data and the weak U.S dollar.
Oil's gains on Friday were boosted by a government report that showed construction of new homes and the issue of building permits in the United States rose more than expected in June, signaling a potential economic recovery.
In addition, the demand for Crud Oil in the U.S has an immense influence on the value of oil, and thus, when positive signals from the U.S economy are likely to create speculations that demand for oil will rise soon.
Looking ahead to this week, traders should continue follow the leading indicators from the U.S economy, as they seem to have a very string influence on Crude Oil prices. Traders should also closely watch for the U.S Crude Oil Inventories report on Wednesday, as this report has proven to have an immediate impact on Crude oil's prices.
The 4 hour chart shows quite a wide range-trading with no specific direction; however, the daily chart's Bollinger Bands are tightening, indicating upcoming increased volatility. A bearish cross on the hourly chart's Slow Stochastic indicates an upcoming test of the 1.4075 level once again. If that level is breached, swinging in the trend would be the best strategy.
It seems that the Cable has limited its bullish correction after peaking at the 1.64 price level. And now, a bearish cross on the hourly chart's Slow Stochastic indicates that the general downtrend might extend. Going short seems to be the preferable choice today.
There is a very distinct bullish formation continues on the hourly level, as the pair is now floating in its lower section. In addition, all oscillators on the daily chart are pointing up, suggesting that the bullish move might extend. Going long might be the right strategy today.
The daily chart shows that the pair is currently range-trading within a restricted price range. However, as the RSI on the daily chart has already dropped beneath the 60 line and it appears that a bearish momentum might be impending. In this case, going short with tight stops might be the right choice today.
The Wild Card
There is a very accurate bullish channel forming on the 4 hour chart, as Gold prices had consecutively appreciated reaching the $940 an ounce price. Currently, as the RSI on the hourly chart is floating above the 50 line and the Slow Stochastic is pointing up, Gold might extend its bullish trend. This might be a great opportunity for forex traders to join a very popular trend.
|10:30||GBP||Manufacturing Production m/m||m/m||-0.8%||0.4%||0.5%|
|10:31||EUR||German 10-y Bond Auction||0.69|1.2||-||0.62|1.1|
|16:00||GBP||NIESR GDP Estimate||0.5%||-||-|
|16:30||USD||Crude Oil Inventories||4.0M||2.2M||-|
|19:01||USD||10-y Bond Auction||2.24|2.7||-||-|
|01:01||GBP||RICS House Price Balance||53%||54%||-|
|01:50||JPY||Core Machinery Orders||m/m||-3.6%||3.3%||-|
|05:45||JPY||30-y Bond Auction||1.41|3.1||-||-|
|07:00||JPY||BoJ Monthly Report||-||-||-|
|07:00||JPY||Economy Watchers Sentiment||49.3||48.6||-|
|08:00||EUR||German Trade Balance||22.8B||20.2B||-|