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Tuesday, 13 Oct 2009
U.S. Federal Budget Balance Set to Determine Forex Trading Today
The result of the U.S. Federal Budget Balance is set to be the main driver of volatility for the US Dollar and forex trading in general today. The other releases that are expected to be key to the forex market's volatility are the German ZEW Economic Sentiment, the British CPI and BOE Inflation Letter.
USD - Dollar Plummets on Global Economic Recovery
The U.S. Dollar plummeted in Monday's trading on continued signs of a global economic recovery. The Dollar Index, which tracks the USD's performance vs. the EUR, Pound, Yen, Swedish Krona and Swiss Franc, dropped 0.4% to the 76.162 level. The USD's decline was accelerated, as the U.S. equity market rallied, led by the Dow Jones and S&P indices. The USD's decline yesterday came at a time when there was irregular volatility and low liquidity in the forex market, due to the Columbus Day bank holiday in the U.S. The USD's losses were exuberated as traders dropped the USD in favor of the EUR and AUD.
The EUR/USD cross rose by a solid 180 pips in yesterday's trading to the 1.4780 level. The USD also declined significantly against the Canadian and Australian Dollar, as both of these economies continue to grow quicker than the U.S. Moreover, the currencies of these energy dependent economies have continued to benefit from the surge from the bullish energy prices lately. The upside of the USD on Monday was the bearish behavior of the GBP/USD cross, as the pair closed at the 1.5800 level, marking a 3-day losing streak for the Pound.
Looking ahead to Tuesday's trading, there are plenty of opportunities that are out there for USD traders. The leading indicators from the U.S. economy are expected to be the Federal Budget Balance and IBD/TIPP Economic Optimism figures. If the end results show vast improvements, then the USD's bearish trend may continue. In addition, such results could lead investors to go bullish on the leading commodities, such as Gold, Silver and Crude Oil, which would further push-down the USD. It is also recommended that you follow data from the Euro-Zone and Britain, as this will directly affect the USD throughout the trading day.
EUR - Pound Falls to 5-Month Low vs. EUR
The British Pound fell to a 5-month low against the EUR in yesterday's trading. The key reasons for this was the British FTSE 100 rising to a 1-year high, expectations that Britain's Interest Rates will stay low for the next several months and increasing optimism stemming from present economic outlook. Furthermore, traders ditched the Pound as key economists stated that they expected the GBP money printing program to expand in the coming months, which may push the EUR/GBP cross to parity by the end of the year. However, we will have to wait and see if this actually occurs, as some are still skeptical.
The EUR/GBP cross rose to as high as the 0.9382 level to finally close at the 0.9353 level. The GBP's downtrend against the USD continued and the pair closed at 1.5800. This was despite a weak USD in Monday's trading. The EUR on the other hand made a 180 pip gain vs. the USD to close at the 1.4780 level. The European currency also made inroads into the Japanese Yen. The current trends for the GBP and EUR may continue, as long as the global economy continues to recover.
There is plenty of economic news that is expected from both the Euro-Zone and Britain on Tuesday. From Britain, the British CPI and RPI that are expected to be published at 8:30 GMT. Additionally, forex traders are advised to follow the British BOE Inflation Letter. Optimistic results are likely to offer much support for the GBP, which would reverse the recent bearish trend for the Pound. With regards to the Euro-Zone, there will be the publication of the German ZEW Economic Sentiment at 9:00 GMT. A positive result may extend the current bullish trend of the EUR in today's trading.
JPY - Yen Records Mixed Results against the Majors
The Japanese Yen recorded mixed results vs. the main currencies yesterday. This comes about as the Bank of Japan (BoJ) makes its decision on whether or not to begin concluding its credit-easing program, as many businesses have regained access to private funding. Despite this, it is expected that Japan will keep its Interest Rates at about 0.1% through 2010. Therefore, this will continue to keep the volatility high in the forex market, even if the Japanese economy continues to recover.
The Yen declined vs. the Australian Dollar and the EUR. However, the Yen rose vs. the USD. Also, it went bullish vs. the GBP, as the GBP/JPY cross slumped by 75 pips to the 141.90 level. Traders should pay close attention to the CGPI figures at 23:50 GMT from the Japanese economy. It is also recommended that you follow the key releases from the main industrialized economies, as the key releases are expected to drive the sentiment of the Yen and other key currencies today.
Crude Oil - Oil Rises to a 7-week High
Oil rose to a 7-week high of $73.80, and finished trading at about $73 a barrel. This was largely due to the increased global optimism stemming from the current global economic recovery. Investors inferred from this that demand for Crude Oil will rise significantly in the coming months. One of the main factors helping boost the price of Crude yesterday was the weak Dollar, which encouraged traders to buy-up the black gold as a hedge against inflation.
It seems that as long as the Dollar continues to weaken and the forecast for an acceleration of the global economic recovery continues to increase, then the price of Crude will continue to stay strong. Additionally, if this in fact does occur, then investors will be further encouraged to buy-up high yielding commodities such as Crude Oil.
It appears as if the Bollinger Bands on the hourly chart have begun to tighten in expectation of a volatile movement. Most indications show the pair floating in neutral territory, which is common before a large jump. However, the hourly, 4-hour and daily MACD all show bearish crosses, suggesting a level of downward pressure does exist. Going short may be today's preferable strategy.
The price of this pair appears to be floating in the over-sold territory on the 4-hour RSI, suggesting upward pressure. The bullish crosses on the hourly MACD support this notion. With an impending bullish cross on the daily Slow Stochastic, the upward movement may be confirmed. Going long could prove to be a wise choice today.
There seems to be bearish crosses forming on the 4-hour MACD and daily Slow Stochastic, suggesting a relatively strong expectation for a downward correction today. Going short with tight stops may be a good idea.
Exhibiting similar behavior as the EUR/USD, this pair shows a tightening of the Bollinger Bands on the hourly chart, but with a level of upward pressure. Going long on this pair could prove beneficial in the hours ahead.
The Wild Card
This commodity continues to show that it is expecting a downward correction. The price currently floats in the over-bought territory of the daily and 4-hour RSI, and there are bearish crosses on the hourly, 4-hour and daily MACD, as well as the daily Slow Stochastic. Signals are strongly in favor of a downward movement in the coming days and forex traders can benefit by riding out this momentum by placing early sell positions.
|EUR||French Bank Holiday||-||-||-|
|EUR||German Bank Holiday||-||-||-|
|07:00||JPY||BoJ Monthly Report||-||-||-|
|17:00||USD||FOMC Member Fisher Speaks||-||-||-|