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Tuesday, 24 Mar 2009
U.S. Toxic Debt Plan Spurs Market Optimism
U.S. Treasury Secretary Timothy Geithner unveiled plans last week for a public-private partnership of investors buying out toxic banking and housing debt. Since that time, investors have been in a frenzy to sell off the USD and buy into various private investments, creating a rally on Wall Street, and intense volatility in the forex market. The recent make-or-break attitude of forex traders has generated such volatility that it could bring many investors back into the fold in order to capture profits from the large price swings which have occurred.
USD - Dollar Moves on U.S. Banking Plan
The Dollar recorded a volatile trading session as the U.S. Treasury Secretary Timothy Geithner unveiled plans for a public-private partnership to buy the toxic debts of U.S. banks. In effect, Geithner's speech led to a rally on Wall Street that resulted in a 7% rise in the Dow Jones and other indices. The other big factor that helped spur a rally on Wall Street was better-than-expected U.S. housing data. This showed a 5.1% increase in Existing Home Sales from January to February. As a result, the Dollar cut its losses that it made earlier on in the trading session against currencies such as the EUR.
The Dollar ended yesterday's trading session with some mixed results against its major currency crosses. The Dollar closed down 9 points against the EUR to 1.3654. The Dollar gained 139 points against the Japanese Yen, as the USD/JPY rate approaches the 100.00 mark again. However, against the British Pound, the Dollar made some big losses. The USD dropped about 170 points to close at 1.4683 against the GBP. This comes about as Britain's stock market and currency reacted very positively to the banking plan from the U.S.
Looking ahead to today, there are a number of economic news events and data releases coming out of the U.S. The House Price Index (HPI) and Richmond Manufacturing Index are set to be released at 14:00 GMT, and will be the two of the biggest indicators from the States. However, the news event that may have a very large impact on the Dollar and its main currency pairs in today's trading is Federal Reserve Chairman Ben Bernanke's speech around the same time. This speech is very important as he well be testifying with Timothy Geithner about the controversial American International Group (AIG) bailout. Traders are advised to watch closely, as this may lead to great volatility in Dollar trading.
EUR - Pound Jumps on U.S. Bank Rescue Plan
The Pound made very impressive gains in yesterday's trading, as the U.S. Treasury Secretary Timothy Geithner unveiled an impressive and detailed banking plan to rescue U.S. banks, and uplift the U.S. housing sector. This led to the biggest rally on Wall Street since October. As a result, Britain and Euro-Zone stock markets made big gains as well.
The Pound rose by 170 points in Monday's trading to close at 1.4683 against the USD. This was mainly owed to the fact that investor confidence poured back into the Pound as British banking shares soared in yesterday's trading. Also, the Pound has been undervalued against the Dollar as of late. Against the EUR, the GBP gained an impressive 103 points to close at 0.9310, as the EUR/GBP has moved away from parity yet again. Also, news that Germany's economy will decline by the most in the Western world this year, and unemployment in the Euro-Zone's largest economy will reach 5 million by the end of 2010, helped push down the EUR/GBP. The GBP also rose by about 350 points against the JPY to close at 143.35, as traders dropped safe-haven assets in Monday's trading.
Today, there is plenty of economic news coming out of both Britain and the Euro-Zone that will determine the GBP and EUR levels by the end of today's trading. From the Euro-Zone, there are the Euro-Zone Flash Services PMI, Flash Manufacturing PMI, and Current Account figures that are expected to be published simultaneously at 9:00 GMT. From Britain, the most important news will be the Consumer Price Index (CPI) figures and Inflation Report Hearings at 9:30 GMT, and the Bank of England (BoE) Governor Mervyn King's speech at 15:30 GMT. All these news events will be important in helping set the strength of the GBP and EUR in this week's trading.
JPY - Yen Plummets against Dollar and EUR
The Yen plummeted against its major currency pairs in yesterday's trading as investors ditched safe-haven assets for riskier ones. The Japanese stock market made notable gains too as the U.S. Treasury Secretary unveiled plans for a public-private partnership of investors buying out toxic banking and housing debt. This was the dominant factor leading to U.S. and global stock market rallies, and the ditching of safe-haven assets in yesterday's trading. The Yen was also hit hard yesterday; as the government seeks everything in its power to reduce the value of the JPY in order to spur Japanese exports.
The Yen closed down by 139 points against the Dollar in Monday's trading at the 97.74 level; the USD/JPY could be reaching the 100.00 mark in the near future. The EUR rose by 180 points against the Japanese currency to close at 133.47, as the safe-haven currency was dropped yesterday. Against the Pound, the Yen dropped a massive 350 points on Monday to close at 143.35. This comes about as the British currency reacted extremely positively to the banking news coming out of the U.S. As the Japanese economy continues to deteriorate, despite improvements from the U.S., expect the JPY to lose more ground against the major currencies in the coming days.
Crude Oil - Protests in Brazil and Increased Demand Help Raise Oil Prices
Crude Oil prices hit $54 yesterday, before settling at $53.62. This price is the highest Oil has been since December 2008, but still significantly lower than last July's high of $147 a barrel. Crude prices increased yesterday for a number of reasons. However, the 2 main factors were the U.S. banking plan unveiled by U.S. Treasury Secretary Geithner to buy toxic banking assets, and the better-than expected housing data. Also, there were protests in Brazil, which have been going on for 5 days, which have helped put upward pressure on Crude prices.
China announced yesterday that demand for Oil increased by 0.5%, marking a recent reversal. The underlying reason that has led to stability in the Crude Oil market is the supply cuts by the Organization of Petroleum Exporting Countries (OPEC). It seems their strategy has worked, and if they continue to cut the supply, Crude prices are likely to rise further. Additionally, if the U.S. continues to publish good data, and Obama shows that he is able to lead the world out of recession, then Crude prices may hit the $58-$60 price level by week's end.
The 4-hour chart is showing mixed signals with its RSI fluctuating in neutral territory. However, the daily chart's RSI is already floating in the over-bought territory indicating that a bearish correction might take place in the nearest future. When the downwards breach occurs, going short with tight stops appears to be the preferable strategy.
The bullish trend is losing steam and the pair seems to be consolidating around the 1.4690 level. The daily chart's RSI is already floating in the over-bought territory suggesting that the recent upwards trend is losing steam and a bearish correction is impending. Going short with tight stops appears to be a preferable strategy.
The daily chart is showing that the pair is still in the bullish configuration. However, the 4-hour chart's RSI is already floating in the over-bought territory indicating that a bearish correction might take place in the nearest future. When the downwards breach occurs, going short with tight stops may be a wise tactic.
There is a very accurate bearish channel forming on the daily chart as the pair is now floating in the middle. However, the pair currently sits near the bottom border of the hourly chart's RSI, suggesting an upward correction may be imminent. If an upwards breach occurs, going long might be a good choice.
The Wild Card
Oil prices rose significantly in the last week and peaked near $54 a barrel. However, the 4-hour chart's RSI is floating in the over-bought territory, suggesting that the recent upwards trend is losing steam and a bearish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage.