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Wednesday, 20 Jul 2011
US Housing Stability Helps Wall Street Pare Losses
Recent losses on Wall Street were mostly offset yesterday as investors sought out riskier assets from positive data on the American housing market. Optimistic earnings reports from large companies like IBM have also helped turn several larger investors into a risk-seeking posture in this week's marketplace. Should today's housing report out of the American economy prove positive, this sentiment could continue, driving the value of the US dollar (USD) lower while the EUR makes gains.
USD - USD Weakly Bearish as Stocks Climb
The US dollar was seen trading with mildly bearish results at the start of Wednesday's trading sessions as traders began to view the improved housing sector a sign of positive growth in capital markets and stabilization, albeit weakly, on Wall Street. The dollar has been primarily gaining from the recent shift into safer assets, but yesterday's rising stock values helped push some traders into riskier positions.
Though news has been both positive and negative, traders have been predisposed to short the higher yielding assets in general as the US and European economies falter. Moreover, as the August 2 deadline for lifting the US debt limit rapidly approaches, we are beginning to see some hedging behavior with the Swiss franc (CHF) and Japanese yen (JPY) acting as alternate stores of value should the US default on its loans.
As for today, the US economy will be publishing another installment of the optimistic housing data released yesterday. On today's docket is a report on existing home sales, with expectations for additional growth in the US housing sector. With the latest direction of the housing market looking positive, this report could either reverse yesterday's appetite for risk or feed it. Trader should expect heavier than normal volatility as this report approaches.
EUR - EUR Paring Some Losses as Traders Test Risk Sentiment
The euro (EUR) was seen trading somewhat higher yesterday following news of optimistic growth in the US housing sector. Against the US dollar (USD) the euro was trading above 1.42 briefly before settling near 1.4150 at day's close. The EUR/CHF was also finally experiencing some bullishness with a strong upward move coming by mid-Tuesday, followed by a flattening towards the day's conclusion. The pair opened this week at a record low of 1.1414 after closing last Friday at 1.1539, but so far it has seen a retracement back towards 1.1650.
It appears the EUR also moved mildly higher versus the Japanese yen as safe-haven assets across the board experienced a small downtick due to increased market optimism from the bump in American housing data. With only minor news expected out of the euro zone today, much of this sentiment is not likely to be reversed today unless US Existing Home Sales disappoints.
Sentiment across the euro zone remains mostly negative, with many analysts and economists expecting further moves towards safety by traders this week unless the housing market gives cause for seeking out physical assets. Any more bearishly-leaning news out of either economy will likely pull down on the EUR even further as investors again tuck tail and flee risk.
AUD - AUD Trading Higher as Oil Demand Rises and Traders Seek Risk
The Australian dollar (AUD) was seen trading moderately higher versus most other currencies last Tuesday after news began to shift many traders back into riskier assets. The Aussie has been experiencing several wide swings lately from the various shifts into and away from riskier assets. A vote on China's economic confidence after its latest rate hike also impacted the AUD heavily, causing movements away from the soaring Aussie. However, China's latest increase in demand for oil has helped the commodity-linked currencies, like the AUD, Norwegian krone (NOK) and Russian ruble (RUS), experience a strong uptick.
As traders witnessed a turn towards safety after last Friday's economic reports from the United States. The resultant move into safe-haven assets has helped to push down on the AUD throughout the early hours of this week as traders shied away from its high interest rates in order to store value in lower yielding assets like the Japanese yen (JPY) and US dollar (USD). A sudden return of risk appetite due to positive earnings reports on global stock markets from companies like IBM, and from the growing stability of the US housing market, has so far helped to prop up the Aussie in mid-week trades. This sentiment could continue if the US publishes further optimistic data regarding existing home sales later this afternoon.
Oil - Oil Prices Advance on Heightened Chinese Demand
The price of Crude Oil found support this week as large oil consumer China increased its demand for the black gold. A barrel of Light, sweet crude traded above $98 for a short while yesterday afternoon and evening as investors viewed China's sudden binge as a sign that further growth in the global market place would return shortly. Stock market gains have also pushed the value of the US dollar (USD), which oil is valued in, slightly lower, helping to bolster the upward movement of crude.
As investors seek out risk, the value of crude oil, which has been seen trading with mixed results, jumped to a weekly high of $98.94 per barrel. A sudden stagnation in dollar values due to this week's somewhat riskier trading environment has so far assisted this price movement. Should risk sentiment hold steady this week, the prices for commodities could continue to gain.
After a gapping lower to start last week the pair moved below the 200-day moving average and on the subsequent rebound the EUR/USD found resistance at its 100-day moving average, a previous level the pair struggled to close below between the months of April and July. While the rebound higher was sharp the failure of the pair to move above the 100-day moving average and to close above the opening gap signals weakness in the pair. Initial support is found at last week's low at 1.3870 followed by the rising trend line from the June 2010 low which comes in at 1.3750. A break here is significant as it would compromise the long term uptrend for the euro, exposing the 50% retracement level at 1.3410. To the upside last week's high at 1.4290 is the first resistance followed by the falling resistance line from the May and July highs at 1.4490.
The GBP/USD price collapsed only to find support at the 38% retracement level of the May to April move at 1.5780 while the rebound higher was capped at the neckline from the head and shoulders reversal pattern. Positive divergence is found on the RSI-14 as the price made a new low but the RSI did not. This signals a potential warning sign for sterling bears. Resistance is located at 1.6230 off of the falling trend line from the April high. Above this level the previously broken trend line from the May to April move at 1.6330 will come into play. To the downside a break of 1.5780 would signal a resumption of the downtrend and would target 1.5650 which has served as both support and resistance in October and in December of last year.
The USD/JPY downtrend resumed with a vengeance last week as the pair broke below the 80 yen “line in the sand” and the support from May 5th at 79.55. This level has now turned into resistance as often happens to previously broken support levels. Only last week's low at 78.46 and the bottom of the long term wedge from Sept 2004 at 77.60 stands in the way of the all-time low at 76.11.
The Swissie has moved in one direction and one direction only. The pair made a halfhearted attempt close above its 50-day moving average and moved sharply lower from there setting a new all-time low at 0.8082 which serves as the initial support level. Any move higher may find resistance at 0.8275, the falling trend line from the February high which comes in at 0.8450, and 0.8550.
The Wild Card
The kiwi has jumped out to a 30-year high versus the USD. The New Zealand dollar has performed particularly well as a rising trade surplus and increasing GDP has boosted the commodity currency. Rising inflationary forces may also force the RBNZ to raise interest rates sooner than expected. As such,
forex traders may prefer to be long on this pair.
|08:45||EUR||French Consumer Spending||m/m||0.7%||-0.3%||-0.8%|
|10:00||EUR||Italian Monthly Unemployment Rate||12.3%||12.4%||12.6%|
|11:00||EUR||CPI Flash Estimate||y/y||0.3%||0.4%||-|
|11:00||EUR||Italian Prelim CPI||m/m||-0.3%||-0.1%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|13:30||USD||Employment Cost Index||m/m||0.7%||0.6%||-|
|14:55||USD||Revised UoM Consumer Sentiment||86.4||86.4||-|
|14:55||USD||Revised UoM Inflation Expectations||2.8%||-||-|