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Monday, 14 Dec 2009
U.S. Interest Rate Announcement Expected This Week
Last week's major development was the strengthening Dollar. This has shown that a real change in the market might take place, and that the Dollar could strengthen further. The most significant news publication this week will be the U.S Interest Rates announcement on Wednesday. Will the FED hike rates?
USD - Dollar Continues to Strengthen
The Dollar continued to rise on all fronts last week. The Dollar climbed about 300 pips against the Euro, as the EUR/USD pair dropped below the 1.460 level. The Dollar also strengthened against the Pound.
It seems that the main reason for the Dollar's bullish trend is the positive data coming out of the U.S economy. The U.S Trade Balance, which measures the difference in value between imported and exported goods and services during October, came in at -32.9B. This result was much better than predicted, and far better than September's result, -36.5B. This showed that the U.S export industry is beginning to recover, which strengthened the Dollar instantly. In addition, Retails Sales unexpectedly rose by 1.3% in November, beating expectations for a 0.6% rise. It seems that as long as positive figures continue to be published from the U.S economy, the Dollar will continue to soar.
Looking ahead to this week, the main news event is likely to be the Federal Funds Rate scheduled for Wednesday 19:15 GMT. The Federal Funds Rate is constitutes the U.S Interest Rates announcement for December. Current expectations are that the Federal Reserve (FED) will leave rates at the current level. However, if the Fed decides to surprise and hike rates, the potential exists for mayhem in the market.
EUR - EUR Sees Mixed Results vs. the Majors
The Euro underwent an extremely volatile session during last week's trading. The Euro continued to weaken against the Dollar, and the EUR/USD pair dropped below the 1.4600 level. However the Euro saw mixed results against the Yen and the Pound.
The Euro's volatile behavior seems to be a direct result of the mixed news coming out of the Euro-Zone's leading economies. On the one hand, German Factory Orders dropped by 2.1% in October, and the French Trade Balance failed to reach expectations for a -2.3B result, instead coming in at -4.4B. On the other hand, the German Trade Balance rose to a 12.9B surplus in October. In addition, the German Final Consumer Price Index dropped by 0.1% in November, much better than expected. According to both of these indicators, the German economy is recovering nicely.
As for the week ahead, many interesting publications are expected from the Euro-Zone. The most significant publication appears to be the German ZEW Economic Sentiment survey on Tuesday. Traders should follow this survey, as a better than expected end result could correct some of the Euro's losses against the Dollar from the past two weeks.
JPY - Yen Rises Again
The Yen saw mixed results against the major currencies during last week's trading session. The Yen strengthened against the Dollar and the EUR, and only failed to rise against the Pound.
Several positive economic publications from Japan supported the Yen during last week's trading. The Japanese Leading Indicators Index rose by 89.7% on October. This index is designed to predict the direction of the Japanese economy. It is a combination of 12 economic indicators related to employment, production, new orders and more. The extremely positive figure has shown that the Japanese economy is indeed recovering, and as a result boosted the Yen.
As for the week ahead, traders should look forward to the Tertiary Industry Activity report on Tuesday. This report measures the change in the total value of services purchased by businesses. If the end result will reach expectations for a 0.5% rise in October, this may support the Yen further.
Crude Oil - Crude Drops on Global Demand Concerns
Following the positive Dollar news on Friday, the price of crude temporarily rose above $70.00. This increase proved to be temporary, largely due to a Japanese business confidence report, and prices have since dropped to around the $69.50 level. The report showed that business confidence increased marginally, implying that demand for crude is down in the world's third largest oil consuming country.
A U.S. Energy Department report released last week also showed that consumption levels in the U.S. are down compared to this time last year. This has the potential to change this week. If the Dollar continues to rise, consumption levels may go up in America, especially ahead of Christmas. Traders may want to pay attention to news events this week concerning the Dollar, as they may have a direct correlation to the price of oil. If the Dollar decreases in value, the price of crude oil may as well.
According to the Relative Strength Index (RSI) on the 1-hour chart, the pair is expected to enter a bearish trend in the near future. The Bollinger Bands on the same chart also say that volatility for the pair will occur soon. Going short may be the preferred option today.
According to the Stochastic Slow on both the 1-hour and 4-hour charts, the pair is currently floating in neutral territory. The Relative Strength Index on the 1-hour chart states this as well. Traders may want to take a wait and see approach with the pair today, as a clearer signal may come about later.
The Relative Strength Index on the 4-hour chart indicates that the pair has entered a bearish trend. The Stochastic Slow on the 1-hour chart does not support this theory and shows the pair trading in neutral territory. Traders are advised to wait for a clearer indication before trading with the pair today.
The Bollinger Bands on the 2-hour chart indicate that volatility with the pair may occur in the near future. This theory is supported by the Relative Strength Index on the 8-hour chart, which indicates a bearish trend is imminent. Going short with tight stops may be the best option for today.
The Wild Card
Both the Relative Strength Index and the Stochastic Slow on the 1-hour chart indicate that Gold is heading for a bearish trend today. The Bollinger Bands on the daily chart indicate volatility may be imminent. Forex traders may want to go short with tight stops today.