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Thursday, 15 Oct 2009
U.S. Unemployment Claims to Be at the Forefront of Today's Trading
The U.S. Unemployment Claims and U.S. Core CPI data are set to drive forex trading today when they are released at 12:30 GMT. If strong economic data continues to be published from the U.S, U.K and Europe today, combined with strong equity performances this may continue to lead to a sell-off of safe haven currencies today, and push investors to higher yielding, riskier currencies as many see the global recession coming to an end. This could also push Crude Oil to the $77 price level.
USD - Dollar Falls to a 14-Month Low
The Dollar fell to a fresh 14-month low against most of it major currency pairs yesterday, as solid earnings by JP Morgan Chase, and rising stock and commodity prices stoked optimism for an improving global economy. By yesterday's close, the USD fell against the EUR, pushing the oft-traded currency pair to 1.4959. The Dollar experienced similar behavior against the GBP and closed at 1.6054.
The Dollar, which has been a safe-haven investment previously, was hit by the sharp rise in profit reported by JP Morgan Chase, as well as forecast-beating earnings from Intel Corp late on Tuesday. These factors all helped brighten the economic outlook, and encouraged investors to move into perceived riskier and higher-yielding currencies.
The greenback also remained under broad selling pressure on expectations that U.S. Interest Rates will stay at very low levels for some time, following comments by Federal Reserve Vice Chairman Donald Kohn on Tuesday. Low rates reduce the attractiveness of U.S. assets and ease demand for the Dollars to buy them.
Looking ahead to today, the two main news events that may have a very large impact on the Dollar and its main currency pairs in today's trading are the Core CPI and Unemployment Claims at 12:30 GMT. These reports are very important, as they are likely to greatly impact the value of the USD. Traders should pay close attention to the market as there is an opportunity for traders to capitalize on the fluctuations which are likely to follow today's key data publications.
EUR - EUR Rises on Increased Optimism
The EUR rallied against the Dollar yesterday after minutes from the last meeting of the Federal Reserve's policy-setting panel showed officials expect inflation to remain subdued for some time. The EUR touched a fresh 14-month high versus the Dollar above 1.4950, a fresh session high and it's highest since August 2008. The European currency finished around 100 pips higher against the JPY to finish yesterday's trading session at the 133.75 level.
Another leading indicator released yesterday was EUR Industrial Production. European industrial output rose for a fourth month in August, adding to signs the Euro-Zone economy is emerging from the recession. Production in Europe increased 0.9% from July, when it gained 0.2%.
Confidence in the European economic outlook improved to a one-year high last month, and a gauge of Euro-Zone manufacturing and services industries showed a stronger expansion than initially estimated. The survey showed a significant improvement, thereby boosting hopes that the rate of decline in the Euro-Zone economy is now moderating.
Sentiment in the Euro Zone economy has brightened in the past week following better-than-expected news. The EUR is showing signs of resilience even though there was volatility throughout non-EUR crosses. It will be crucial for traders to identify how the preceding economic indicators from the U.S., European and Japanese economies will affect their positions.
JPY - Yen Loses Ground on All Fronts
The Japanese Yen fell sharply against most of its major currency crosses on Wednesday after the Bank of Japan deferred a decision on when to end support for corporate finance after the government pressed the central bank to consider the economic cost of its retreat from credit markets. By yesterday's close, the JPY fell against the EUR, pushing the oft-traded currency pair to 133.75. The Japanese Yen experience similar behavior against the GBP and closed at 143.65.
The central bank had been tipped to decide whether to stop corporate bond purchases and other measures used to cushion the shock of the financial crisis. BOJ Governor Masaaki Shirakawa suggested that an exit from the corporate finance market was a foregone conclusion and that the debate was primarily about timing. The decision on support for corporate finance could be taken at the next meeting at the end of October.
Crude Oil - Crude Oil Rises Above $75 a Barrel
Oil prices rose yesterday above $75 a barrel for the first time in a year because of a weak Dollar and the belief that the upcoming holiday shopping season will bring more traffic to the roads. Also helping to lift oil prices was the Dow Jones Industrials Average, which hit a new annual high, and pushed past the 10,000 mark for the first time in more than a year.
A plunge in the Dollar lately has convinced many investors to pump money into Crude as a hedge against inflation. Today, traders are advised to the major economic indicators which will be published from the U.S., such as the Crude Oil Inventories at 15:00 GMT. If the USD continues to weaken today, $80 a barrel seems like a very realistic target for the end of the week.
The EUR/USD cross has been experiencing much volatility lately, and currently stands at the 1.4960 level. The chart's RSI shows that the pair is currently floating in the overbought territory, and a downward correction is imminent. This view is also supported by the MACD of the 4-hour and weekly charts. Entering the pair now before the downward breach occurs may turn out to pay off today.
The cross is currently recording very bullish behavior in the past 2 days, and there may be room for even further bullishness in this pair today. The Slow Stochastic of the daily chart shows a fresh bearish cross, and that a further upward move for today is imminent. Going long with tight stops may turn out to be a wise choice today, as end-of-week trading nears.
The USD/JPY cross has become very volatile lately, and currently stands at the 89.37 level. On the one hand, the RSI of the weekly chart shows the pair floating in the overbought territory. On the other hand, the MACD of the daily chart supports a further bullish move for today. Entering the pair when the signals are clearer seems to be the right choice for today's trading.
The cross has recently recorded a 3-day losing streak, and there are signs for further volatility for the pair today. The RSI of the daily chart shows the pair sitting in the oversold territory. On the other hand, the RSI of the weekly chart shows that the pair is overbought. It may be a good to enter the pair when the signals are clearer.
The Wild Card
Crude Oil has been an extremely bullish and attractive commodity for forex traders in the past 2 weeks. The daily chart's Slow Stochastic shows a fresh bearish cross, signaling that a downward move for today is imminent. The bearish move for today's trading is also supported by the MACD of the 4-hour chart. Going short with tight stops may turn out to bring big returns for today.
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