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Wednesday, 18 Mar 2009
U.S Interest Rate Announcement on Tap
The technical correction continues to dominate the leading currencies, as both the EUR and the GBP have strengthened significantly against the Dollar lately. This could change today as the U.S Funds Rate will be announced at 18:15 GMT, and is forecasted to stay at 0.25%. However, any change that might take place is prone to sow disorder in the market, and forex traders should be ready for it.
USD - Dollar Moves on U.S. Housing Market Data
The Dollar recorded a volatile trading session on Tuesday after U.S. data showed that the construction of new houses increased by an unexpected 22%. In some cases in Dollar trading, this positive news went against the greenback, as many investors feel that the news indicates a bottoming out of the housing slump in America. The reason why this is so critical is because the roots of the current U.S. and global financial crisis lie in the U.S. housing bubble, which burst after over 10 years of bullishness. These positive figures also led to a rally on Wall Street.
The Dow Jones climbed by nearly 180 points or 2.5%. The main gainers on Wall Street were housing and banking stocks. For example, J P Morgan, Citigroup, and Bank of America shares increased due to recent figures showing that all 3 companies were profitable in the first 2 months of this year. This led to the Dollar's failure to gain a strong bullish momentum against the EUR yesterday. This was due to the possibility that the beginning of the end of the current financial crisis in the U.S. has arrived. Therefore, demand for the greenback has started to sway, as demand for safe-haven currencies diminishes when economic times are good.
The Dollar fell against the EUR to eventually close down 42 pips at the 1.3046 rate. The Dollar closed up 14 pips against the JPY at 98.44, as the JPY also lost some of its safe-haven status, as the Japanese economy continues to deteriorate. The Dollar made more inroads against the GBP to close up 81 pips at 1.4041. This comes about as investors preferred to keep their money in the Dollar over the fragile Pound, which is dependent on the unstable British banking industry and energy sector.
Looking ahead to today, there is likely to be high volatility in the Dollar's currency crosses. This is so, as traders weigh-up on what's next for the U.S. economy. Traders are advised to follow the U.S. Current Account figures at 12:30 GMT, the Federal Open Market Committee (FOMC) Statement and the Federal Funds Rate at 18:15 GMT. Positive economic figures and an increase, or unchanged U.S. Interest Rate may lead to a rally on Wall Street, leading to a bearish Dollar in trading later on today as investors eye risk taking.
EUR - EUR Climbs Against Dollar
The EUR climbed against the Dollar on positive Euro-Zone figures, and a rally on Wall Street. German ZEW Economic Sentiment was better than expected at -3.5. The Euro-Zone recorded better-than-expected ZEW Economic Sentiment figures of -6.5 too. Both of these data releases helped push the EUR up against its other major currency pairs. Later on, this was helped when the U.S. released better-than-expected figures showing that construction of new houses was up 22% in February from January. This led to a rally on Wall Street, and a bullish demand in predominantly housing and banking stocks.
The rally on Wall Street helped in the drop in demand for the safe-haven U.S. Dollar vs. the EUR. Therefore, the EUR finally closed up 42 pips against the Dollar at 1.3046. The EUR also closed up against the Yen by 58 pips at 128.44. This comes about as the JPY loses some of it safe-haven status, and the EUR returns to the forefront. The EUR finished yesterday's session up by 82 pips against the Pound at 0.9288. This came about ahead of today's British Claimant Count Change at 09:30 GMT that is expected to show poor figures, as Britain's economy continues to deteriorate.
Today, there is plenty of news that is expected from Britain and the Euro-Zone, which is likely to affect the main currency crosses pairs of these respective currencies. However, 2 of the most important data releases will be coming out of Britain later today. At 09:30 GMT, there is the release of the Monetary Policy Committee (MPC) meeting from the Bank of England (BoE) in regard to future rate cuts. Additionally, at the same time there is the release of the British Unemployment Rate figures. These 2 data release may help determine the GBP's currency crosses going into end-of-week trading.
JPY - JPY Tumbles on Japanese Banking Plan
The JPY tumbled on Tuesday against most of its main currency counterparts on renewed plans for a Japanese banking stimulus and U.S. housing data. Firstly, U.S. housing data showed better-than-expected results. This led to a drop in demand for safe-haven currencies, such as the JPY and USD. Additionally, forex traders are dissuaded on putting big sums of money in the Japanese currency as Japan's economy is scheduled to shrink by 13.1% this quarter. The Bank of Japan (BoJ) concludes their 2 day meeting later today, and it is expected that they are going to unveil an aggressive plan to tackle the Japanese recession. This is in coordination with Japan's government, which is scheduled to push through the 3rd stimulus through Japan's parliament of over $2 billion for Japan's banks.
The leaks from the BoJ yesterday that it will continue lending large amounts of money to banks led to a rally in Japan's stock market. This was also spurred by the stock market rally on Wall Street. These events led to a higher risk appetite in Japan, and therefore a bearish Yen. The Yen closed down 14 pips against the USD at 98.44. This is significant, considering both currencies are safe-haven and usually show little volatility when trading against each other. The JPY rose against the Pound, as traders preferred the Japanese currency over the unstable British economy. However, against the EUR, the JPY closed down about 60 pips at 128.44. Today, Traders are advised to make their trading decisions in regards to the Yen on the conclusion of the BOJ Press Conference.
Crude Oil - Crude Oil Hits $50 Mark
Crude Oil prices jumped a staggering $2 yesterday, hitting $50.55 a barrel, before closing at the $49.45 price level. This was owed to the good news coming out of the U.S. that the construction of new houses was up a better-than-expected 22% in February from a month earlier. This signaled to investors that the worst of the U.S. housing crash and recession was over, and that a recovery is in sight. Automatically, investors took advantage of this, leading to the bullish Crude prices.
The dramatic increase in Oil prices comes on the back of an OPEC meeting last Sunday, which was pessimistic about a global economic recovery. Ministers concluded at this meeting that they will delay any further supply cuts in Oil. In the coming days, Oil may climb further if the U.S. releases more positive economic data releases. Additionally, if the Crude Oil Inventories figures at 14:30 match forecasts or are better-than-expected, then Crude prices may hit $54 by the end of today's trading.
There is a very accurate bullish channel formed on the 4 hour chart, as the pair is now floating in the middle of it. Currently, a bearish cross on the daily chart's Slow Stochastic implies that a bearish reversal is imminent. Going short appears to be the right choice today.
The cable has dropped over 200 pips in the last two days, and after peaking at 1.4205, it is now traded at 1.3960. The 1-hour chart shows that the RSI has reached the over-bought zone and has dropped straight down, suggesting that a downtrend might take place. A drop beneath the 1.3880 level might validate the bearish move.
Lately, the pair has been trading within a restricted range, without making any significant breach. And now, a doji formation on the daily chart suggests that a sharp move is impending. With all oscillators pointing up, it appears that going long might be the preferable choice today.
It appears that little by little that pair has lost strength over the past few days, as it is now testing the 1.1800 level. A bearish cross on the daily chart's Slow Stochastic implies that the down trend could even deepen today. Going short with tight stops could be a good strategy today.
The Wild Card
Gold prices have dropped quite significantly over the past 4 days, and an ounce of gold is currently valued at $911.50. And now, the 4-hour chart shows that the current price has dropped beneath the Bollinger Bands' lower boarder, suggesting that a sharp bearish move is impending. This might be a great opportunity for forex traders to join a very popular trend.