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Thursday, 16 Apr 2009
US Housing Data May Spur Further Equity Gains, USD Losses
As the market tests various support and resistance levels, traders are discovering a negative correlation between equities and the value of the USD. Each time there is a rally in the equities market, the USD takes moderate losses. This is likely due to investors pulling their money out of forex trading and into the stock market. With the release of U.S. Building Permits today at 12:30 GMT, the equity market may be affected. Look for the impact this has on the USD throughout today's trading.
USD - EUR/USD Fails to Break Significant Resistance Level
Trading of the EUR/USD was extremely volatile today as the pair failed to break a significant resistance level. The Dollar was heavily sold during the Japanese trading session, but two hours into the European session the pair fell short of the significant 1.3300 level and proceeded to fall 1.1%. The pair made a slight recovery and range trading was experienced for the remainder of the day. The EUR/USD closed down at 1.3227 from 1.3245. Against the other major pairs, the Dollar closed up against the Yen at 99.24 from 98.38, while the Dollar lost ground against the Pound to end the day at 1.4997 from 1.4872.
Much of the currency market has been driven by the recent rally in global equity markets. Yesterday was no different. Gains in U.S. equities helped to drive investors into more risky, higher yielding currencies. This has hurt the U.S. Dollar against such currencies as the Australian and New Zealand Dollars.
Due out today are economic indicators that could help to create more volatility in the Dollar's crosses. U.S. Building Permits, which is considered to be an excellent gauge of future economic activity, is due to be released today at 12:30 GMT, along with the U.S. weekly unemployment claims report. Don't expect these numbers to shock the market with positive news. After these releases, the Dollar could end the day down against the EUR, testing the 1.3300 level once again.
EUR - ECB Member Discusses Interest Rate Cut
The EUR is experiencing a decline against most currencies as many market participants are predicating future quantitative easing measures by the European Central Bank (ECB). Comments made yesterday by ECB governor Axel Weber have led traders to believe a future interest rate cut will be made during the ECB's next policy meeting in May. However, the market is also expecting non-traditional policy moves to ease credit conditions in Europe. This could have a negative effect on the European currency, or it could bolster confidence in the EUR's future.
Yesterday the EUR finished lower against the Pound at 0.8816 from 0.8902, while the EUR finished the day against the Yen at 131.27 from 131.34.
Weber stressed that a floor should be set for European interest rates at 1.00%. Rates currently stand at 1.25%. If progress is not made to turn around Europe's economy, then we are likely to see similar purchases of government securities by the ECB as those of its American counterpart, the Federal Reserve.
Today's trading may see the EUR moved by two key data releases; year-on-year CPI and monthly industrial production figures. While many feel inflation has been all but drowned out by media reports of deflationary pressures, some believe that a higher than expected rate of inflation may signal a bit of improvement in the European economy. Monthly industrial production numbers are expected to show a bit of a turnaround. We could see the EUR recover against the Pound to the 0.8850 level.
JPY - Yen Falls from 2-Week Highs
The Yen declined against the Dollar yesterday as reduced risk sentiment had traders aggressively pursuing higher yielding currencies throughout the day. The Japanese currency came off a two-week high against both the Dollar and the EUR. Earlier in the day, traders sold off the Yen in anticipation of better than expected U.S. economic data. Those gains held throughout the day as the numbers beat market estimates. In early morning trading, the USD/JPY was trading at 98.95 while the EUR/JPY was at 130.67.
With little data to come from the Japanese economy this week, we may expect the Yen to continue to trade based on risk sentiment in the market and leading indicators from other economies. Traders are advised to follow the trends of U.S. equity markets as there appears to be a negative correlation with the valuation of the Yen and these markets.
Crude Oil - Crude Oil Inventories Continue to Rise
Despite the large jump in the supply of U.S. Crude Oil Inventories, the price of Crude still remains relatively high. Oil Inventories rose by 5.6 million barrels this week, more than twice the forecasted amount. This is the third consecutive week that Crude Oil stocks have risen. The price of Crude Oil ended the day's trading at $52.20.
Some analysts feel the price of Crude Oil may be fundamentally overvalued. Rising stock markets and an appreciating Dollar may be artificially supporting the commodity. With an absence of positive economic data, the possibility for a drop in Crude Oil prices exists. A possible price target could be below the $49 level.
This pair appears to be range trading with highs near 1.3300 and lows near 1.3150. With the price sitting near the lower figure, and apparently floating in the over-sold territory on the 4-hour chart, an upward correction back towards 1.3300 may be imminent. Buying on lows and selling on highs within this range might be a good strategy today.
The latest upward movement has pushed this pair into the over-bought territory on the 4-hour and daily charts, signaling an impending downward correction. As the price hovers near the upper border of the daily chart's Bollinger Bands, the downward pressure may be gaining strength. Going short might be a wise choice today.
As this pair levels off after its recent volatility, there appears to be a lack of direction as all oscillators remain in neutral territory. With a potential bullish cross forming on the hourly chart's Slow Stochastic, there is a chance that the next move will be in an upward direction. Traders may consider going long with tight stops today or waiting for a clearer signal.
This pair appears to be lacking any clear indication of its impending movement as all oscillators indicate neutrality. This pair does show that it is trading in an bullish channel, however, with distinct highs and lows. Buying on the lows and selling on the highs within this channel might be a wise choice.
The Wild Card
The recent volatile upward movement pushed the price of this pair above the upper limit on the 4-hour and daily charts' Bollinger Bands and subsequently drove the price into the over-bought territory on the 4-hour chart's RSI as well. With a bearish cross beginning to form on the daily chart's Slow Stochastic, these indicators all point in one direction: down. Traders involved in the forex market have a great opportunity to join this downward movement at a very early stage if they enter the market today.