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Friday, 13 Aug 2010
US Dollar Gaining Ground; Analysts Uncertain about Why
With retail sales and consumer confidence figures expected from the United States later today, there is a high possibility that the greenback will experience a modest level of volatility before the market closes out for the weekend. If the figures come in line with the expected wave of positive news, the USD could go either way depending on which forces are actually in control of the market. If optimism is in charge, then positive figures will drive the USD higher. However, if risk aversion is the dominant theme, the USD could actually decline from a positive release as traders bail out of their USD safe-haven positions and move into riskier assets.
USD - Which Market Force is Behind the USD's Rise?
Tuesday's Federal Open Market Committee (FOMC) statement on future monetary policy seems to have taken its toll on US dollar trading. The greenback has risen steadily against most of its primary currency rivals since the announcement was made that steps would be taken to correct the recent wave of bearishness.
The greenback has pared much of its recent losses to the euro, British pound, Canadian dollar, and Australian dollar. Against the euro, the USD changed direction, breaking its bullish channel, and went from 1.3333 to 1.2833. Similar gains were seen on the GBP/USD cross as well; currently trading at 1.5600, down from 1.6000.
While it appears that the statement released by the Fed's FOMC is the cause of the dollar's recent strength, there is a second explanation which many analysts are putting forth. Mainly, that global growth concerns have played an instrumental role in shifting investments away from the riskier assets and back into safe-havens. This is not a new story, considering it has been taking place frequently since the start of the financial crisis and recession back in 2007.
With retail sales and consumer confidence figures expected from the United States later today, there is a high possibility that the greenback will experience a modest level of volatility before the market closes out for the weekend. If the figures come in line with the expected wave of positive news, the USD could go either way depending on which forces are actually in control of the market. If optimism is in charge, then positive figures will drive the USD higher. However, if risk aversion is the dominant theme, the USD could actually decline from a positive release.
EUR - Euro's Decline Continuing as Risk Aversion Takes Hold
The euro has been in steady decline this week versus most of its currency counterparts. The sudden trading shift away from the 16-nation single European currency has many analysts debating the potential causes behind this movement.
The euro has fallen against the US dollar from 1.3333 towards 1.2860 since Tuesday. Against the British pound, we have seen a decline from 0.8355 to as low as 0.8200. Also, versus the Japanese yen the euro zone currency has gone from just below 114.00 to as low as 109.00, and currently trades at 110.40 after Japan's yen took a dive from statements made by the Japanese finance minister.
The question on the minds of many analysts now is whether this transition away from the euro represents a return of weakness to the euro zone - a type of resurgence of the Greek crisis from earlier this year - or just a rise in risk aversion as traders seek to put their assets into safer investments. Statements from the American Federal Reserve about monetary policy shifts has made many traders feel uneasy about future growth prospects and could explain the move back into safer investments.
With the euro zone primarily absent today's economic news, the euro shouldn't be much affected by today's events except indirectly. The US market appears to be the front-runner in today's market with a number of indicators carrying a traditionally heavy impact. Traders would be well advised to follow the opening of the US market since it will be releasing its retail sales and core retail sales figures at that time.
JPY - Japan's Finance Minister Hints at Possible Currency Manipulation
While the Japanese yen has been predominantly gaining on most of its currency rivals lately, it seems a sharp weakness struck the island currency today following statements from Japan's finance minister. It seems that a comment made to a reporter by Japanese Finance Minister Yoshihiko Noda put a level of unease in yen-trading as many are now speculating a further possibility of government intervention.
Noda's statement seemed to suggest that unnatural strengthening of the yen was looked upon as unfavorable and harmful to the Japanese economy. The message appears to have been interpreted as a comment that future market meddling may be in the works by the Bank of Japan (BOJ). As a result, traders have seen the JPY losing ground against most of its rivals in yesterday's and today's trading.
OIL - Crude Oil Price in Decline on Rising USD
The price of spot crude oil has been declining moderately for over a week as growth concerns continue to take their toll. The various market forecasts made by the United States, Europe and Australia have apparently put a damper on demand and pushed a number of traders out of riskier assets and back into safe-havens for the time being. The result has been a strengthening US dollar, and weakening commodity prices.
While the USD climbs in value, the commodities which are linked to the greenback will react in an opposite fashion; losing value as it becomes more expensive to purchase them. If the dollar continues its rise, either from risk aversion or market growth in the US, the price of commodities such as oil will undoubtedly continue their fall.
The pair continues to fall following a breach under the bullish channel that the pair had traded in. Yesterday the pair fell as low as 1.2775, just above the next support level at 1.2740. A bullish cross is forming on the daily chart's Slow Stochastic oscillator, indicating a move higher could be in store for the pair. The first resistance level for the pair rests at yesterday's high of 1.2930.
Yesterday the pair fell as low as 1.5560, dropping below the 20-day moving average, but managed to close near the 50% Fibonacci retracement level from the high seen last August. Further drops in the price today may test the bullish trend line that has held since early June. Support for the pair comes in at 1.5450 followed by 1.5250.
The pair has seen strong resistance near the price of 86.20 as the price has failed to close above this level all week. The Momentum (7) has pushed above the 100 level, indicating the next move may be to the upside with resistance at 87. Traders may want to cover shorts prior to the bullish move.
Strong resistance for the pair is seen at 1.6050, the 61.8% Fibonacci retracement from the previous bullish trend that ended at a high in June. Support is found at the 78.4% Fibonacci retracement at a price of 1.0350. Traders may want to use this support level as a take profit target with the range trading that is taking place between these two levels.
The Wild Card
Spot crude oil prices have fallen dramatically from a recent high of $82.95 to test the support level at $75.50. A breach below this support line would then test the bullish trend line that began in late May. CFD traders will want to target the price of $74.50 today as close below this level would signal a shift in the long term trend.
|07:00||CHF||UBS Consumption Indicator||1.65||-||-|
|09:30||GBP||BBA Mortgage Approvals||44.5K||45.5K||-|
|10:00||EUR||Italian Retail Sales||m/m||0.3%||0.5%||-|
|10:01||EUR||German 10-y Bond Auction||0.44|1.2||-||-|
|10:20||AUD||RBA Assist Gov Debelle Speaks||-||-||-|
|12:30||GBP||Autumn Forecast Statement||-||-||-|
|13:30||USD||Core Durable Goods Orders||m/m||-0.3%||0.5%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|13:30||USD||Durable Goods Orders m/m||-1.2%||1.6%||-|
|14:45||USD||Flash Services PMI||54.8||55.2||-|
|15:00||USD||New Home Sales||468K||500K||-|
|15:00||USD||Revised UoM Consumer Sentiment||93.1||93.2||-|
|15:00||USD||Revised UoM Inflation Expectations||2.5%||-||-|
|15:30||USD||Crude Oil Inventories||0.3M||-||-|
|17:00||USD||Natural Gas Storage||-||-||-|