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Thursday, 9 Apr 2009
U.S Dollar Uptrend Continues
The U.S. and Japanese currencies are likely to keep drawing demand as investors stay away from higher-yielding currencies such as the AUD, analysts said. The Yen rallied against Sterling and the Australian and New Zealand dollars, which each fell roughly 1.5% against the Japanese currency.
USD - Trader's Flight to Safety Benefits the Dollar
The Dollar continues to show considerable strength over its currency rivals as financial worries have returned to the market. The 1st quarter earnings season has arrived and drops in equity markets are fueling renewed risk concerns which weigh on the currency market, strengthening risk-averse currencies such as the US Dollar. It is apparent that the desire for riskier, higher yielding currencies has waned given the decreased risk appetite in the forex market. As risk sentiment falls, the Dollar may be the primary beneficiary.
One event seen as triggering the flight to safety was the announcement that the International Monetary Fund (IMF) is increasing its forecast for bad debt held by global financial firms to an astonishing $4 trillion. This announcement has been driving the trading of the USD the past few days as there has been a lack of economic data during the first part of the week.
However, big fundamental indicators will be released today that could swing the markets against the Dollar. At 12:30pm GMT both the U.S. Trade Balance and weekly unemployment claims are due out. A deficit of $36.7 billion is forecasted for the month of month of February. Traders may look for this reading to be worse than the forecasted value as the month of Feb may have been one of the most trying months in U.S. economic history. Also, the US Unemployment Claims figures could be worse as well. U.S. unemployment is currently at a 25-year high and job losses have yet to show a sign of slowing. Traders may be able to profit by the market's pessimism. Being short on the Dollar may be the right move with the release of these two economic indicators today.
EUR - EUR Weakens As Risk Aversion Continues
The EUR has been declining this week against its major pairs with no sign of the selling to cease. The depreciation of the EUR appears to be largely due to perceived higher risk in the market this week after consecutive losses in equity markets. Profit taking has also been seen from the previous week's trading sessions. The EUR appreciated 5.5% against the JPY last week as traders ramped up their aggressive positions in light of reduced risk aversion. However, those gains have largely dissipated as greater risk is once again the topic in financial markets.
Risk aversion may continue to be present in the market, so long as equities continue to slide. The approaching earnings season has traders weary of placing too much of their capital in riskier currencies, such as the EUR. Rightfully so, there is quite a bit of uncertainty out there. One catalyst for the EUR may be a potential bankruptcy of the American car manufacturer, General Motors.
Some economists are predicting a further slide in the EUR. A fundamental analysis shows that the European Central Bank may be running out of options to fight the economic recession in the Euro-Zone economy. An absence of further capabilities by the ECB could set the European economy behind its peers for a sustained recovery.
JPY - Japanese Yen Ends Up as Beneficiary in Foreign Exchange Trading
The Japanese yen rose for another day against its counterparts as the currency has been more sensitive than the Dollar to shifts in investors' willingness to take on risk. The Japanese currency's gains are outpacing other currencies during financial turmoil and its losses usually marked when sentiment improves.
As expected, the Bank of Japan's (BOJ) policy board on Tuesday took additional measures to help the flagging economy, expanding collateral that can be used for loans. In addition to the low interest rate loans it now offers, the bank could also start purchasing corporate bonds and providing loan guarantees, the report said.
The latest measures will put more emphasis on midsize firms, which have fallen outside the scope of the assistance. The BOJ warned, however, that economic conditions will continue to deteriorate. On Friday, Japan is expected to unveil a fresh economic stimulus package, valued at more than 2% of the country's Gross Domestic Product (GDP).
Crude Oil - Oil Prices Decline Amid Economic Contraction
Crude Oil prices are likely to decline even further, as the world's top energy forecasters are likely in the coming days to reduce again their projections for world Oil consumption this year. The 3 top forecasters; the International Energy Agency (IEA), the Organization of the Petroleum Exporting Countries and the U.S. Energy Information Administration (EIA) will publish new oil supply and demand estimates between April 10 and 15.
Their forecasts are followed closely by investors in Oil markets, which have seen prices tumble to around $50 per barrel this week from highs of almost $150 in July last year. World Oil demand is falling for the first time in a generation as the deep global downturn closes factories and brings unemployment to the world's largest economies. Yet, many analysts believe that Crude prices may recover later this year since U.S economic data suggest gasoline demand is rising as pump prices have halved over the last 9 months.
The typical range trading on the 4-hour chart continues. Both the hourly RSI and Slow Stochastic are floating in neutral territory. However, the pair currently sits near the bottom border of the daily chart's RSI, suggesting an upward correction may be imminent. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
Narrow range trading continues as the pair did not make a significant move in either direction, and is currently traded around the 1.4757 level. However, there is a fresh bearish cross forming on the hourly chart's Slow Stochastic indicating a bearish correction might take place in the nearest future. In that case traders are advised to swing in after the breach takes place.
The price of this pair appears to be floating in the over-bought territory on the daily chart's RSI indicating a downward correction may be imminent. The downward direction on the hourly chart's Momentum oscillator also supports this notion. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.
The bullish trend is loosing its steam and the pair seems to consolidate around the 1.1475 level. The 4 hour chart's RSI is already floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.
The Wild Card
Silver prices have dropped significantly in the last two weeks and peaked at $12.30 an ounce. However, on the daily chart RSI is floating in an oversold territory suggests that a bullish correction is impending. This might be a great opportunity for forex traders to enter the trend at a very early stage.
|08:30||EUR||German Flash Manufacturing PMI||52.4||51.8||-|
|08:30||EUR||German Flash Services PMI||56.7||55.5||-|
|09:00||EUR||Flash Manufacturing PMI||51.8||51.4||-|
|09:00||EUR||Flash Services PMI||54.2||53.6||-|
|09:30||GBP||Public Sector Net Borrowing||9.5B||10.1B||-|
|14:45||USD||Flash Manufacturing PMI||55.8||55.7||-|
|15:00||USD||Existing Home Sales||5.04M||5.01M||-|
|15:00||USD||Philly Fed Manufacturing Index||23.9||20.3||-|
|15:00||USD||CB Leading Index||m/m||0.3%||0.6%||-|
|15:30||USD||Natural Gas Storage||78B||-||-|
|ALL||Jackson Hole Symposium||*||*||*|