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Thursday, 17 Sep 2009
USD Continues Decline; Slow Economic Recovery Expected
With recent fears over inflation and fiscal deficits, the market surprisingly appears calmer than it should be. The USD has continued its decline, suggesting that either faith in the American economy is fleeting, or investors are increasing their risk appetite and dumping US Treasuries. Either way, the decline in the value of the USD has helped boost energy prices and fueled export growth worldwide. Economic recovery seems to be underway, but many caution that it will still be a long and bumpy ride.
USD - Dollars Falls on Market Optimism
The Dollar dropped to near 1-year lows against most of its major currency pairs yesterday as optimism about the global economy eroded the greenback's safe-haven appeal. By yesterday's close, the USD fell against the EUR, pushing the oft-traded currency pair to 1.4730. The Dollar experienced similar behavior against the GBP and closed at 1.6492.
Traders have sold the Dollar heavily this month as recovery hopes have diminished safe-haven demand. The prospect of low U.S. yields and concerns about the U.S. fiscal deficit also fueled Dollar selling. In addition, market participants increased bets on stocks and commodities, encouraged by better-than-expected U.S. consumer price index (CPI) and Industrial production data yesterday, while Federal Reserve chairman Ben Bernanke said the U.S. recession was most likely over, though he also warned the recovery would be slow.
Today's Unemployment Claims and Building Permits releases are expected to have a strong impact on the U.S currency. Any result could be a surprise, and the Dollar could go either way as a result. In any case, traders are unsure how the market will react to today's data. A weak report could feed risk aversion, boost Treasuries and actually aid the U.S Dollar. Then again, a better than expected result might be seen as a sign of relative U.S. economic strength, and lift the Dollar. Or it could also encourage risk-taking and aid commodities and higher-yielding currencies at the Dollar's expense.
EUR - EUR Rises on Weaker Dollar
The EUR strengthened against most of its major currencies yesterday as gains in stocks and commodities prompted investors to wade into riskier currency trades. The 16 nation currency extended gains to hit a near one-year high against the dollar and closed at around 1.4714. The EUR experienced similar behavior against the CHF as the pair rose from 1.5150 to 1.5195 by day's end.
The EUR was affected by the global stock market rally and the bearish Dollar. The U.S. stock market rally led investors to buy-back into the EUR, as they looked for returns on buying commodity-linked and higher-yielding currencies in Wednesday's trading.
The Sterling extended losses against the EUR and JPY yesterday, after U.K. unemployment jumped to the highest level since 1995 as the recession destroyed work in industries from banking to construction, stoking concerns about the pace of recovery in the British economy. The GBP was also down 0.8% against the EUR at 0.8920.
Looking ahead to today, the most important economic indicator scheduled to be released from Britain is the Retail Sales report at 8:30 GMT. Analysts are forecasting this figure to decrease from its previous reading. Traders will be paying close attention to today's announcement as a better than expected result may boost the GBP in the short-term. Traders are also advised to follow the Trade Balance figures coming out of Euro-Zone at 9:00 GMT, as this result may set the EUR's main currency crosses going into today's trading.
JPY - USD/JPY Hits 7-Month High
The Yen completed yesterday's trading session with mixed results versus the other major currencies. The JPY was broadly unchanged versus the EUR yesterday and closed its trading session around the 133.70 level. The Japanese yen also saw bullishness against the Dollar, closing in on a 7-month high against the U.S. currency after Japan's incoming finance minister said a strong yen had advantages for the nation's economy.
The Japanese market should have a heavy effect on the JPY versus its major currency counterparts, as the Overnight Call Rate will be announced today. The rate is expected to remain unchanged, but traders should pay close attention to the BoJ Press Conference that will follow to look for expectations of Japan's economic future. A bullish statement from the BoJ could lead some traders to believe that it is forecasting a rosier financial climate in Japan.
Crude Oil - Crude Oil spikes on Better Inventory Data
Crude Oil prices experienced another day of appreciation as the oft-traded commodity rose above $72.80 during yesterday's trading session. Oil prices traded up for the second straight day. This has been compounded by a weaker Dollar that has also caused investors to flee to commodities such as Crude Oil.
Moreover, with crude oil inventories in the US shrinking more than anticipated, there is a chance that prices will continue to rise as demand climbs from market optimism and economic growth. These factors point to the notion that Crude Oil's price may stumble across more support in the near future and continue to rise.
The price of this pair appears to be floating in the over-bought territory on the hourly and daily RSI, suggesting downward pressure. There also appears to be a fresh bearish cross on the 4-hour and daily Slow Stochastic, indicating that the next movement will likely be down. Going short might be a wise choice today.
This pair seems to be consolidating around 1.6500 lately. With a doji candlestick formation on the daily chart, and bullish crosses on the hourly and 4-hour MACD, the next movement may indeed be an upward reversal for this pair. Going long with tight stops could turn out to be a smart move today.
All oscillators on this pair have completed a bullish indication and are now cascading upward. The momentum of this pair seems to have shifted from a downward direction to an upward direction. Going long may be today's preferable tactic.
There seems to be a distinct bullish cross on the daily Slow Stochastic of this pair, suggesting the next movement may be in an upward direction. The price also floats in the over-sold territory of the daily RSI, which supports this notion. Going long might not be a bad idea today.
The Wild Card
This precious metal's sustained upward movement has resulted in its price floating in the over-bought territory on the 4-hour and daily RSI, suggesting significant downward pressure. With 2 consecutive bearish crosses on the 4-hour Slow Stochastic and hourly MACD, forex traders may have an opportunity to jump on the downward correction of this commodity, and at a great entry price.
|15:00||USD||Existing Home Sales||4.92M||4.99M||4.97M|
|15:00||USD||Fed Chairman Bernanke Testifies||*||*||*|
|15:30||USD||Crude Oil Inventories||-0.6M||-||-|
|19:00||USD||FOMC Meeting Minutes||*||*||*|
|02:00||AUD||MI Inflation Expectations||2.2%||-||-|
|06:00||JPY||BoJ Monthly Report||*||*||*|
|08:00||EUR||French Flash Manufacturing PMI||44.4||44.8||-|
|08:00||EUR||French Flash Services PMI||44.3||44.7||-|
|08:30||EUR||German Flash Manufacturing PMI||48.1||48.9||-|
|08:30||EUR||German Flash Services PMI||49.6||50.2||-|
|09:00||EUR||Flash Manufacturing PMI||46.7||47.1||-|
|09:00||EUR||Flash Services PMI||47.0||47.4||-|
|09:00||EUR||Italian Retail Sales||m/m||-0.2%||0.3%||-|
|09:30||GBP||Prelim Business Investment||q/q||-0.8%||1.7%||-|
|09:30||GBP||Index of Services||q/q||0.1%||0.7%||-|
|09:30||GBP||Second Estimate GDP||q/q||0.3%||0.3%||-|
|13:30||USD||FOMC Member Bullard Speaks||*||*||*|
|14:00||USD||Flash Manufacturing PMI||52.1||52.3||-|