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Thursday, 21 Jan 2010
USD and JPY Continue to Rise as Stocks Decline
American and European stocks traded lower this week due to risk aversion among traders, and this has helped support the Dollar's resurgence. With a EUR-heavy news day ahead of us, the USD may take a back-seat during the morning hours. A slew of positive releases from the Euro-Zone could allow us to see a rebound in a few of the major pairs. On the other hand, if Europe's data falls short of expectations, traders should anticipate a continuation of the bullish run in the USD.
USD - U.S. Dollar Trades Higher on Stock Market Declines
The U.S. Dollar continues to climb against its rivals as risk aversion appears to be on the rise. The USD has in fact climbed exceedingly higher against the EUR by reaching a price level below 1.4100 for the first time in over 20 weeks. The greenback also managed a recovery against the JPY's recent surge by reaching back towards 91.50.
American and European stocks were traded lower this week due to risk aversion among traders, and this has helped support the Dollar's resurgence. This week's data releases have also supported this notion. While figures such as the NAHB Housing Market Index and US Housing Starts have shown a decline in the housing market, other sectors of the economy have shown modest improvement.
Tuesday's release of TIC Long-Term Purchases highlighted a vast improvement in domestic and foreign investment in the United States. If this trend continues with the Phily Fed Manufacturing Index today, we could see the Dollar's rise propel itself forward even more.
With a EUR-heavy news day ahead of us, the USD may take a back-seat during the morning hours. A slew of positive releases from the Euro-Zone could allow us to see a rebound in a few of the major pairs. On the other hand, if Europe's data falls short of expectations, traders should anticipate a continuation of the bullish run in the USD.
EUR - EUR Troubled by Stream of Negative Data
The EUR's woes do not seem to be showing any signs of stopping. As stocks trade lower, risk aversion appears to be winning the day and safe-havens like the US Dollar and Japanese Yen gain support. The EUR, in fact, hit a 20-week low versus the greenback as the American currency seems to be gaining more admirers in these trying times. Without some supportive data, the 16-nation currency may continue to plunge.
The Euro-Zone's common currency's recent plunge is not without merit, however. The recent string of data released from the European Monetary Union does show a steady decline in numbers over the past few weeks.
The Euro-Zone's and Germany's ZEW Economic Sentiment report showed a decrease in consumer/business optimism throughout the region; Italy's trade balance was worse than many were forecasting; Greece's sovereign debt situation continues to deteriorate; and today presents one of the best opportunities for a rebound, but also for a dismal showing that could decimate confidence in the EUR even further.
Today's flood of manufacturing and services data from the Euro-Zone's major economies is in fact predicted to indicate an improvement in the industrial and service sectors of the regional economy. Yet, if these figures fail to provide such evidence, the sentiment surrounding the EUR may rapidly fall further than it already has. Traders should be on the watch for any signs of deterioration as this may be the clearest indication that the EUR is going to be sold against most of its pairs by most investors.
JPY - Japanese Yen Receives Boost from Risk Aversion
The Japanese Yen, while matching the USD's recent gains, has proven itself one of the more valuable safe-haven investments in this recent downturn. The EUR/JPY pair, for instance, has dragged down much of the other major pairs by putting heavy selling pressure on the EUR, and boosting the Japanese currency to a price level not seen since 17 December 2009 against the Euro-Zone's common currency.
If world stocks continue to plummet in this risk averse environment, the JPY could continue rising just as the USD is predicted to do if the market falls short of expectations. The few data releases from Japan have been less than stellar, but the JPY performs better when stocks in Europe and the United States fall, regardless of economic performance in the island economy. If today's data releases show Europe's economy continue its deterioration, the JPY will likely receive heavy support from an increase in risk aversion.
Crude Oil - Oil Inventories May Support a Price above $80 a Barrel
Spot Crude Oil's recent plunge in price has sustained itself over the past few days, with the price recently falling back below $78 a barrel. Much of this downward pressure may be caused by the recent upswing in the value of the US Dollar, but at least a few economists are less certain. Some have claimed that the recent up-turn the market experienced was lacking the fundamental data to support such a move.
If today's Crude Oil Inventories report does shows climbing reserves, it may be that the fundamental data behind oil's spike towards $84 a barrel a few weeks ago was indeed an anomaly. However, if the market can show that stocks are in decline, therefore pushing demand higher, there may be enough support to help lift oil back towards $80 a barrel in the short-term. This makes today's Crude Oil Inventories report vastly more important than it normally has been in recent weeks and traders should pay close attention to its figures.
The long term uptrend on the weekly chart appears to have been broken as the price declines have accelerated. The pair has dropped below the 33% retracement level of the previous uptrend at 1.4220. We may now see the pair decline to its 50% retracement level at the price of 1.3745. Traders that are following the long term trend may look to go short until this support line. If the pair falls to this next major support line, the pair may once again continue the upward slanting long term trend.
The daily chart shows the pair could continue its price decline. The 7-day Relative Strength Indicator is still trending down and has not broken its downward slanting trend line from the pair's recent bearish move. There is also a bearish cross on the chart's Slow Stochastic Oscillator, indicating the potential for a further bearish movement. Traders may want to be short on this pair until the next support line of 1.6195.
The price of this pair appears to be floating in the over-bought territory on the 4-hour chart's RSI indicating a downward correction may be imminent. The downward direction on the hourly chart's Momentum oscillator also supports this notion. When the downward breach occurs, going short with tight stops appears to be preferable strategy.
The USD/CHF cross has experienced much bullish behavior for the past week. However, it seems that this trend may be coming to an end. The RSI of the 4-hour chart shows the pair floating in the over-bought territory, indicating that a downward correction will happen anytime soon. Going short with tight stops might be a wise choice.
The Wild Card
GBP/CHF sustained upward movement has finally pushed its price into the over-bought territory on the daily chart's RSI. Not only that, but there actually appears to be a bearish cross on the Slow Stochastic pointing to an imminent downward correction. Forex traders have the opportunity to wait for the downward breach on the hourlies and go short in order to ride out the impending wave.
|23:30||AUD||AIG Construction Index||45.9||-||-|
|08:00||EUR||German Industrial Production||m/m||0.1%||0.6%||-|
|08:45||EUR||French Gov Budget Balance||-85.6B||-||-|
|08:45||EUR||French Trade Balance||-3.4B||-3.0B||-|
|09:00||CHF||Foreign Currency Reserves||498.4B||-||-|
|10:30||GBP||Consumer Inflation Expectations||2.5%||-|
|14:30||CAD||Labor Productivity q/q||q/q||0.1%||0.2%||-|
|14:30||USD||Non-Farm Employment Change||257K||241K||-|
|14:30||USD||Average Hourly Earnings||0.5%||0.2%||-|