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Thursday, 13 Jan 2011
US Dollar Gains from Reduction in Federal Deficit
A positive element to emerge from yesterday's economic events from the United States was a reduction in the Federal Budget Balance, from a deficit of $150.4B to a deficit of $80.0B. Following this news, the USD began a retracement against its primary counterparts, but has so far only been able to recapture a small percentage of yesterday's market movement.
USD - Shrinking US Deficit Boosts USD in Short-Term
Following yesterday's moderate downturn, the US dollar now appears on track to be making positive corrections against most of its currency counterparts in today's trading. The EUR/USD, as of this morning, had already recovered 34 points to trade at the 1.3110 price level. Against the British pound, the USD experienced a similar retracement which was limited in scope and duration.
One positive element to emerge from yesterday's economic events from the United States was a reduction in the Federal Budget Balance, from a deficit of $150.4B to a deficit of $80.0B. Following this news, the USD began its retracement, but has so far only been able to recapture a small percentage of yesterday's market movement.
Today's news is expected to be significantly more impactful. The euro zone and Britain will each be releasing their decisions on short-term interest rates, which always tend to increase market volatility. Additionally, the US will be publishing its trade balance figures, which are expected to reveal a deepening of America's trade deficit, signaling a reduction in exports from a gradually strengthening currency.
If the trade deficit has indeed widened, there is a possibility the USD could see a minor downturn through today's trading. However, most of today's trading volume and volatility will more likely be generated from the news coming out of Europe and Britain.
EUR - European Interest Rates to Generate Heavy Volatility
The euro, along with its British counterpart, is expected to drive market volatility today with a series of important publications. The European Central Bank (ECB) will be releasing its latest decision on short-term interest rates, a move which historically increases EUR volatility through portfolio adjustments made in response to the announcement.
Britain will also be publishing its decision on interest rates, as well as its Asset Purchase Facility, and is expected to carry a similar impact on the GBP. The Bank of England's (BOE) announcement will come 45 minutes prior to the euro zone's release, but the close proximity of these announcements to one another will no doubt lead to sharp movements in EUR and GBP pairs.
American markets will contribute to this highly volatile environment with employment and trade balance data at 13:30 GMT, but traders will likely pay closer attention to what is happening in Europe. Should any surprises be published out of the euro zone, or any changes made in monetary policies, the adjustment of currency values and portfolio exposure will either drive these currencies to new highs against their rivals, or reverse yesterday's gains.
JPY - JPY Strength Persists, Weakening Japanese Exports and Manufacturing
The JPY continues to trade in a wide range against the US dollar, suggesting a balancing act between two dominant safe-havens. Against other currencies, however, the Japanese yen appears to be losing some ground. The EUR/JPY moved back above 109.00 today before descending mildly to a current price near 108.80. The GBP/JPY saw similar movements, with a current price of 130.85.
The persistent strength of the yen has pushed Japanese exports lower, driving machine orders down 3.0% over the past month. Japanese consumer sentiment appears to be rising, likely due to the new buying power of Japanese consumers, but this may be tempered with a decline in bank lending and a coinciding reduction in the money supply, which will likely only drive JPY values higher in the long-run, further harming Japanese exports.
Crude Oil - Oil Prices Climb above $92 as USD Declines
The price of Crude Oil is once more on the rise as the US dollar takes a dive from positive economic reports in Europe. Italian industrial production had increased 1.1% over the previous month, with the euro zone's regional industrial output also climbing from 0.7% growth last month to 1.2% growth this month.
The subsequent boost in the EUR has pushed the greenback down somewhat modestly, giving commodities added momentum to rise further. The price for a barrel of Light, Sweet Crude rose from a low near $90.80 yesterday to a current price of $92.02. If the USD continues losing ground against its European counterpart today, Crude Oil will likely continue its bullishness.
The price of this pair appears to have recently entered the over-sold region on the weekly Relative Strength Index (RSI), suggesting upward pressure building on the pair. A fresh bullish cross on the daily Stochastic (slow) supports this notion. Going long appears preferable today.
Yesterday's bullish movement has not yet pushed this pair's oscillators into over-bought territory, but most appear to be approaching that region. The daily Williams Percent Range does, however, reveal a highly over-bought price, suggesting a moderate level of downward pressure. Going short with tight stops may be a good decision today.
The daily Williams Percent Range on this pair appears to be exiting the over-bought territory, suggesting a diminished amount of sell pressure. However, the bearish cross on the daily Stochastic (slow) still appears to be affecting the pair in a bearish direction. Going short appears to be the wiser choice, but a flattening out of the pair may be impending.
The price of this pair appears to be cascading downward out of the over-bought region on the daily Williams Percent Range, highlighting this pair's downward momentum. A fresh bearish cross on the daily Stochastic (slow) supports this notion. Going short may turn out to be a profitable tactic in today's trading.
The Wild Card
The Australian dollar appears to be coming under moderate sell pressure these past few days, while the JPY looks to continue gaining strength against most of its rivals. This pair's indicators appear to be in support of this supposition. The weekly Stochastic (slow) and daily MACD both reveal fresh bearish crosses and a downward descending price. It appears forex traders may have a good opportunity today to gain from the AUD's impending descent by going short on this pair today.
|22:30||AUD||AIG Manufacturing Index||46.9||-||-|
|23:30||AUD||MI Inflation Gauge||m/m||0.0%||-||-|
|01:35||JPY||Final Manufacturing PMI||52.1||52.1||-|
|08:00||EUR||Spanish Unemployment Change||-64.4K||-32.4K||-|
|08:15||EUR||Spanish Manufacturing PMI||53.8||54.2||-|
|08:45||EUR||Italian Manufacturing PMI||48.4||49.3||-|
|09:00||EUR||Final Manufacturing PMI||51.0||51.0||-|
|13:30||USD||Core PCE Price Index||m/m||0.0%||0.0%||-|
|14:45||USD||Final Manufacturing PMI||53.7||54.1||-|
|15:00||USD||ISM Manufacturing PMI||55.5||54.9||-|
|15:00||USD||ISM Manufacturing Prices||38.5||40.1||-|