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Thursday, 18 Mar 2010
Unemployment Claims in Focus Today
The U.S. Unemployment Claims is the primary publication today that is set to determine the level of the USD when it is released at 12:30 GMT. The other main releases that will dominate forex trading, especially for currencies such as the Dollar, EUR and GBP is the publication of Europe's Current Account Balance and British Public Sector Net Borrowing at 9:00 GMT and 9:30 GMT respectively. Traders may find good opportunities to enter the market following these vital announcements.
USD - USD Drops on Renewed Risk Appetite
The dollar declined against higher-yielding currencies Wednesday afternoon, after data showed producer prices in February posted their biggest fall in seven months, raising doubts about the U.S. economy and causing investors to reduce exposure to risk. As a result, the Australian dollar hit a nearly two-month high against the greenback, while the Canadian currency moved closer to parity against the dollar, which dipped as low as C$1.0070, a 20-month low. The New Zealand dollar jumped as much as 1%, before relinquishing some of the gains.
The greenback also remained under selling pressure on Wednesday after the U.S. Federal Reserve held its pledge to keep interest rates low for an extended period, prompting investors to snap up growth-sensitive assets. Low interest rates make the dollar less attractive to investors than higher-yielding currencies, stocks and commodities. In addition, the economic recovery does not appear to be improving at the speed many investors were hoping for, and currencies appear to be tracing the movement of stocks as a result.
Looking ahead to today, there are several news releases coming out of the U.S. These include the Core CPI, Unemployment Claims and Philly Fed Manufacturing Index. Better-than-expected results may help the Dollar recover some of yesterday's losses against some of its crosses such as the AUD and CAD. On the other hand, if the results turn out to be lower than forecast, then the Dollar may record a fairly bearish session in today's trading. Traders should pay close attention to the market as there is an opportunity for traders to capitalize on the fluctuations which are likely to follow these releases.
EUR - Pound Gains on Unemployment Data
The EUR saw a bearish trading session on Wednesday, losing ground against most the major currencies. The EUR fell sharply against the CHF, pushing the oft-traded currency pair to 1.4475. The 16 nation currency experienced similar behavior against the AUD and closed at 1.4875.
However, the Pound was the best performer during Wednesday's European session, soaring across the board and reaching the highest levels of the last two weeks against its main rivals after UK unemployment data beat expectations, with its largest decline in the last 12 years. As a result, the GBP/USD rally from 1.4975 low on Tuesday has extended around 345 pips higher after the release of unemployment data, and the pair hit a fresh 2-weeks high at 1.5320.
Looking ahead today, the news event that may have a very large impact on the EUR and its main currency pairs in today's trading is the Current Account Balance around 9:00 GMT. This report is very important and is likely to impact the EUR's volatility. Traders will be paying close attention to today's announcement as a stronger than expected result may boost the EUR in the short-term.
JPY - Yen Experiences Mixed Result against Major Currencies
The Japanese Yen completed yesterday's trading session with mixed results versus the major currencies after the bank of Japan eased its monetary policy. The JPY fell against the GBP yesterday, pushing the oft-traded currency pair to 138.05. The JPY did see some bullishness as well as it gained 50 pips against the EUR and closed at 1.2380.
BOJ Governor Masaaki Shirakawa told a news conference the move to double its fund supply operation was not aimed at influencing currency rates. The BOJ's move was widely flagged, although it left the duration of fixed-rate loans to banks unchanged at three months and two of its seven board member dissented.
The JPY's trends will be affected by the rallies of its primary currency pairs today. It seems that the USD, EUR and GBP are expected to continue a volatile trading session today, especially against the Japanese currency. Traders should keep a close look on the news coming from the U.S. and Europe as these economies will be the deciding factors in the JPY's movement today, especially the U.S Unemployment Claims at 13:30. It is also advisable for traders to follow any unexpected comments coming from key Japanese governmental figures, as this is also likely to lead to further JPY volatility.
OIL - Oil Prices Rise Based on Increased Demands
Oil rose more than 1% to trade near $83 a barrel on Wednesday after a U.S. government report showed increased oil product demand and as OPEC decided to leave output targets unchanged. Data from the U.S. Energy Information Administration (EIA) on Wednesday showed oil product demand in the world's largest energy consumer was up 3.5% last week from a year ago.
A weaker U.S. dollar against a basket of currencies also provided support, following Tuesday's U.S. Federal Reserve decision to keep low interest rates steady. Crude oil prices, which are denominated in U.S. dollars, tend to rise when the dollar weakens.
The currency has reversed course the past two trading days after consolidating all the way to the price level of 1.3817. This mark is just above the 50% retracement level from the pair's peak price on the daily chart in December. Since then the pair has fallen sharply and now sits near the support level of 1.3680. Traders should also note the 4-hour chart upward sloping trend line that began on March 2nd. The pair has yet to break this short term trend. A breach of this trend line could send the pair lower to its 1.3625 support.
The Cable has climbed to a recent high of 1.5380 and has begun to fall. The 4-hour chart shows the 7-day RSI indicator has breached below the 70 level, triggering a sell signal, indicating the price may head lower today. The MACD histogram is also downward sloping, providing further support for a bearish price move. Traders may want to go short and target the 1.5210 support level.
The 4-hour chart shows the pair has been consolidating for the past 4 days, trading in a range with support and resistance levels of 90.00 and 90.75. Identifying a price channel with consistent price moves can be advantageous and should be taken advantage of by going long at the support and selling at the resistance.
The daily chart displays a bullish cross formed yesterday, indicating the potential for an upward price movement while correcting the downward sloping trend of the past 2 weeks. Traders may want further technical verification of a price reversal. Traders can look to the 7-day RSI by drawing a trend line from the high point down to the current price level. A break of this trend line and a breach of the 30 level should be a signal to buy.
The Wild Card
The price of spot crude oil continues to push towards its yearly high of $83.90. and yesterday the price climbed as high as 83.31. However, the price of the commodity may be overextended. The price is falling as the 4-hour chart shows the 7-day Relative Strength Indicator has breached below the 70 line, indicating the potential for a price decline. The MACD histogram is also trending lower, providing further support for a bearish price move. Forex and commodity traders may want to cover any long positions they may have as the price of spot crude oil could fall today.
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