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Friday, 14 Oct 2011
US Data Set to Dominate Friday's Market
With an unusually intense news day ahead, traders are anxiously awaiting the large string of reports out of the US which should clear up the picture somewhat in regards to inflation, retail sales, and consumer confidence. The Federal Budget Balance will also be published, though its impact is not expected to be as high as the retail sales reports. Traders should look towards another bullish day on the dollar should news disappoint.
USD - USD Bullish as Retail Sales Expected to Disappoint
The US dollar (USD) was seen trading mildly bullish Thursday ahead of retail sales reports out of the United States where many are expecting disappointment many investors seem to be anticipating. A sudden wave of risk aversion seems to have helped the greenback surge this week and data so far has only reinforced this momentum.
Additionally pessimistic data was released from several other economies as well. Switzerland inflation at the producer level appears to be in decline, industrial production across the euro zone and in Japan is stagnating, and the Australian housing market is contracting. The only optimistic piece of data out yesterday was the employment reports from Great Britain which saw, not necessarily job growth, but a not-as-bad-as-expected rate of unemployment growth.
With another unusually intense news day ahead, traders are anxiously awaiting the large string of reports out of the US which should clear up the picture somewhat in regards to inflation, manufacturing, and consumer confidence. The Federal Budget Balance will also be published, though its impact is not expected to be as high as the retail sales reports. Traders should look towards another bullish day on the dollar should news disappoint.
CHF - CHF in Steep Decline as Interest Rate Decision Approaches
The direction of the Swiss franc (CHF) has been sharply pressured into one of distinct bearishness among investors as the Swiss National Bank (SNB) rate decision approaches. Against the US dollar (USD) the franc has actually been trending mildly flat despite the greenback's bullish moves against its other currency rivals. But the Swissie has seen some setbacks brought about by poor regional fundamentals and a general atmosphere of risk flight, particularly following the SNB's move to peg the CHF to the value of the EUR at 1.20.
A mood of deep pessimism is growing in regards to the investment in Europe at the moment. Market bears still seem to be gnawing on the EUR's strength, sapping its value as its peripheral members struggle with bond auctions and other financial woes. Switzerland was formerly in a position to capitalize on the flight to safety, but saw its exporting capability deeply gouged by an unremitting currency appreciation. The SNB move to peg the currency has so far done its job by keeping the CHF's rise in check.
Sentiment in Switzerland appears to have turned negative this week as well, with many analysts and economists expecting moves towards safety by traders following the SNB's rate statements. An attitude of dovishness has gained traction and investors are worried that a continuation of low rates, coupled with the possibility of a rate reduction in Europe in 2012, could diminish currency values as we get deeper into the third quarter.
AUD - Australian Reports Expected to be Positive on AUD
The Australian dollar (AUD) is expected to be propped up this week as market reports show mild expansion across the boards. Piling atop recent reports on Australia's slowly expanding housing sector, recent publications of Australian consumer and business confidence is starting to show a somewhat disturbing contraction striking several sectors of Australia's economy, as well as its psyche.
Expectations for these recent reports have been for modest growth, and in some instance, at best, zero movement. The week's reporting has so far led many investors to pull away from the Australian dollar (AUD) in recent trading, but many are expecting a rebound. National data on housing and employment has also driven many investors away from the once-burgeoning AUD. This data, combined with dismal housing starts figures and building approvals reports, has so far dragged the Aussie lower and looks to continue doing so this week.
Oil - Crude Oil Sees Minor Uptick as Inventories Grow
Crude Oil prices gained mild support Wednesday as sentiment appeared to favor an uptick brought about by a mild uptick in US stockpiles. The weekly report revealed yesterday that the US has added roughly 1.3 million barrels to its reserves. This news has so far countered the notion of a sinking price of oil brought about by higher USD values and pushed oil into a bullish posture from supply shortfall speculations.
An expected dip in oil values due to this week's risk sensitive environment, which saw the greenback climbing sharply, has so far not affected the price of physical assets in any clearly visible way. The stockpile report out Wednesday surprised many investors who had priced in a far milder decline in reserves. With this sentiment grabbing hold among many traders, oil prices could see resurgence above $90 a barrel in the near future.
A sharp decline in the value of pair and EUR/USD has put in serious technical damage when it closed below its long term uptrend from May 2010. Both weekly and monthly stochastics are falling as the pair undergoes a sharp correction. Support comes in at a range of 1.3400-25 from the February low and the 50% Fibonacci retracement from the bullish move that took the pair from the May 2010 low to the May 2011 high. The 61% retracement at 1.3040 is a significant mile marker while long term players may be focused on the January pivot of 1.2875. To the upside the July low of 1.3835 is the initial resistance, followed by the previously trend line which could prove to be resistive as often occurs with broken trend lines and this level is found at 1.3990.
Three weeks of declines and cable has broken below its long term rising trend line from the May 2010 low. The pivot at 1.5780 is a significant support level which coincides with a 38% Fibonacci retracement from the May 2010 to April 2011 move. Below here the GBP/USD has support at the October lows/early January highs of 1.5650 followed by December pivot at 1.5350. Initial resistance may be found at 1.6080 followed by 1.6375 and the late August high of 1.6450.
The yen has been range bound between its all-time low of 75.94 and 78.85 to the upside. Price action in the crosses has been much more volatile. Daily, weekly, and monthly stochastics are mixed and the next major resistance level is found at the post intervention high of 80.20 followed by the long term trend line from the June 2007 high which comes in at 81.00. A lack of support on the daily chart makes it difficult to predict a downside target but the big round number of 75 stands out.
Last week the pair surged higher by almost 13% on the back of the SNB protective floor at 1.20 for the EUR/CHF. The USD/CHF continues to move higher and is now testing its falling trend line from November 2010 which comes in at 0.8890. This level has additional importance as it coincides with the 68% Fibonacci retracement from the November 2010 high to the August low. Both weekly and monthly stochastics are rising and with a break here the pair could extend its gains to the resistance at 0.8945 from the April 1st high. Support comes in at 0.8545 and 0.8250.
The Wild Card
The S&P 500 has been consolidating since its sharp decline in August and price action has formed a triangle chart pattern from the August 21st low that measures a potential move of 100 points. Forex traders can be prepared for a breakout in either direction though the current trend is to the downside. Initial support is found at 1,130 followed by the early August low of 1076. A break here could open the door to the August 2010 low of 1,037. To the upside resistance is located at the upper boundary of the triangle at 1,183 followed by the August high of 1,229 as well as 1,247 from the 61% Fibonacci retracement off of the July high.