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Friday, 2 Jan 2009
Traders Look to Today's Trading as the New Year Promises New Forex Opportunities
Looking ahead to the 1st quarter of 2009, traders are advised to pay close attention to Barack Obama's stimulus package. Obama's stimulus package is likely to have an impact on the dollar in 2009. The U.S. may surprise everyone and rise out of the recession earlier than expected. If this turns out to happen, then the U.S. Dollar may increase dramatically against the EUR and JPY in the coming months.
USD - U.S. Economy News Developments and Events in Middle East Likely to Impact Dollar
The Dollar gained nearly 130 pips since opening today as investors look to positive news ahead of Barack Obama's inauguration. The U.S. currency has strengthened against the EUR in recent months. However, it has failed to stabilize in recent weeks, as investors remain undecided on the future of the EUR/USD pair. The New Years Eve close of 1.3987 is a benchmark for the U.S. Dollar for this year as many people are wondering what the future of the currency is as the U.S. Interest Rates are at a historic low.
The Interest Rate that put U.S. rates at 0.25% in December was followed by cuts from the Euro-Zone, Britain and many other countries around the world. The resulting cuts however helped the Dollar hold its value as the other countries comparatively have used similar monetary tactics since the start of the financial crisis.
Many analysts believe that the Pound Sterling is likely to stabilize around the 1.45 rate against the USD in the coming months. However, nothing prevents the pair from going to the 1.38 level. This comes about as Britain has been very badly affected by the global financial crisis. Additionally, several months ago the GBP/USD pair was trading around the 1.95 level. The Pound at this high level against the greenback was obviously overvalued. The impact of the recession on Britain has therefore helped the cable tumble against the Dollar in such a short period, as it was overvalued too.
Today there is likely to be a fair amount of movement in the Forex market as traders and banks return to trading. By the end of the trading session there may be rapid movements in the Forex market as the market is likely to react on today's economic developments as they unfold. Look for volatility in the Dollar before and after the release of the ISM Manufacturing PMI at 3pm GMT. Also, traders are recommended to pay close attention to the correlation between the Dollar and the volatility in the price of Oil as Friday trading unfolds, and traders act on the developments coming out of the War in the Middle East.
EUR - Volatility Set to Be High as Markets Reopen
The EUR and GBP may be more volatile as usual during today's trading as markets act on pre-News Years Day news. In 2008, the EUR saw a good year as it rose rapidly against many of its major currency pairs dramatically. For example, against the GBP it rose 43%, as the pair nearly reached parity in last week. Analysts differ in opinion when it comes to the future of the EUR/GBP cross. On one hand, the pair may reach parity as Britain's economy continues to decline at a faster pace than Europe. On the other hand, the cable's weakness against the EUR may be a trend that could reverse in the coming days, weeks or months.
The Bank of England (BoE) recently announced that it would cut Interest Rates at the beginning of this year. At the same time, the President of the European Central Bank (ECB) Jean-Claude Trichet said that the Euro-Zone is unlikely to cut Interest Rates further in the near future. Therefore, when Britain cuts her Interest Rates, then the Pound is likely to record declines against the EUR, USD and other major currency pairs. The weakness of the cable will also be affected by the weakness of Britain's economy. This is vital, as Britain has been affected more negatively than her European neighbors by the global recession.
Today, the EUR and the Pound may move on economic news coming out of their countries and the United States. There may be an opportunities today to make some short-term gains in the Forex market, as the financial world gets back to business.
JPY - Yen Looks to Global Economic Recovery
Recently, the Yen has recorded some historic highs against the U.S. Dollar as it reached levels not seen in over 15 years. This is largely due to both countries having practically the same Interest Rates. Therefore, the advantage of holding money in U.S. Dollars and other currencies increased as Japan historically had comparatively low Interest Rates to keep the Yen weak. This was to maintain Japan's exports. However, the global economic recession has hindered this strategy, leading to disastrous consequences on the Japanese economy. This shows that a strong currency is not always an advantage as Japan has witnessed.
The Yen is likely to remain strong in the coming days, weeks, and months, as the world's economies continue to deteriorate further in what is the worst economic crisis since “The Great depression.” A more desirable and weaker Yen may only be reached when the U.S. and global economies start to recover. The earliest this may happen in the best case scenario is in the 3rd quarter of 2009. Forex traders are advised to look at the strength of America and Europe's economy today as they make decisions on trading the Yen.
OIL - Oil Prices Slide to Below $42 on the Start of New Years Trading
The price of Crude Oil continues to be volatile as it dropped over 130 pips from near $43 to $41.70 in the opening hours of today's trading. This comes about as analysts' expected Oil prices to hit $35 Dollars a barrel in the coming weeks. However, the black gold continues to defy people's expectations, as it rose in the week prior to today. The latest strength in Oil prices is largely due to the prolonged war in the Middle East between Israel and Hamas in the Gaza Strip. However, the market is moving on decisions that it couldn't make when markets were closed yesterday. The price of Crude may change as developments unfold throughout the day.
The current situation in the Middle East just shows that predicting the price of Oil is never 100% right. Oil continues to be a volatile commodity as 2009 enters its early days. If the Middle East crisis ends within a few weeks, then prices of Crude may stabilize. Also, it is important to see what the how the market re4sponds to the Middle East situation and the global economic situation in the coming weeks. For example, if things get dramatically worse economically in the weeks to come, the price of Crude is likely to slip. When the war in the Middle East ends, the price of crude is likely to slide. In the short-term though, the price of Crude is likely to rise on decreased production and uncertainty in the Middle East.
After experiencing some bullish momentum before the holidays the pair is going through a mild bearish correction and is currently traded around the 1.3855 level. The hourly studies show that the current price has dropped beneath the Bollinger Band's lower border, suggesting that another bearish session is expected. Next target price might be 1.3799
The pair is continuing to provide mixed results with no specific direction. However, a bearish cross on the hourly chart's Slow Stochastic suggests that additional downwards correction might take place in the near future. Going short with tight stops might be the right strategy today.
The 4 hour chart is showing that the pair still does not have a distinct direction, as the chart appears to be quite horizontal for the past week. However, a bearish cross on the daily chart's Slow Stochastic implying that a possible next move might be a bearish one. Going short with very tight stops might be a good strategy today.
The pair continues to be traded in relatively tight range, and no distinct direction is being observed on the hourly and 4 hour chart's studies. The pair might continue to linger in neutral territory until a clearer signal will be formed. It is advised to stay out of this one until the smoke of uncertainty clears.
The Wild Card
Oil price are continuing to fluctuate within a restricted range after they rallied on New Year's Eve, and a barrel of oil is currently traded around $41.60. Nevertheless, a bearish cross on the 1 hour chart's Slow Stochastic indicates that Oil prices may depreciate. This might be a good opportunity for forex traders to join a very popular trend.
|01:30||AUD||MI Leading Index||m/m||-0.1%||*||-|
|09:30||GBP||Average Earnings Index||q/q||-0.2%||0.5%||-|
|09:30||GBP||Claimant Count Change||-33.6K||-29.7K||-|
|09:30||GBP||MPC Asset Purchase Facility Votes||0-0-9||0-0-9||-|
|09:30||GBP||MPC Official Bank Rate Votes||2-0-7||2-0-7||-|
|10:00||CHF||ZEW Economic Expectations||2.5||-||-|
|15:00||USD||NAHB Housing Market Index||55||56||-|
|15:30||USD||Crude Oil Inventories||-1.0M||-0.9M||-|
|19:00||USD||FOMC Economic Projections||*||*||*|
|19:00||USD||Federal Funds Rate||<0.25%||<0.25%||-|
|19:30||USD||FOMC Press Conference||*||*||*|