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Monday, 26 Jan 2009
USD Continues to Climb Higher on Weaker European and British Economies
The Dollar has strengthened in early trading as last week's worries of fundamental weakness in the European and British economies continue. Will the Dollar further appreciate as the appetite for riskier currencies dwindles?
USD - U.S. Dollar Starts the Day Strong Ahead of Busy Week
Pushing below 1.2800 against the EUR last Friday, the USD has seen some intense ups and downs ever since. In early trading hours Friday, the USD saw some significant gains against its primary European counterpart, but then turned around to lose it all, ending the day at 1.2970. Today, however, the USD appears to be back on the upswing. Starting the trading day with a sharp 50 pip gain against the EUR, the USD appears to be on track to recover the position it was heading for during Friday's early trading hours.
As confidence in the European markets dwindles, the U.S. Dollar appears more and more to be the safe-haven currency of choice for most investors. Despite the continuing downtrend in important economic sectors, such as housing - which has dropped consecutively for months now - the U.S. economy remains the king which many believe must be saved in order to rescue the entire system. As such, we see large investors bailing out of other currencies and shoring up their positions within the USD regardless of fundamental data.
This week will no doubt see high volatility in USD pairs as the U.S. economy is set to receive one of its busiest news weeks. On top of all of the information regarding Barack Obama's economic stimulus package being released, we also have a number of significant indicators coming out this week. Of primary importance is the first meeting for the Federal Reserve Board in 2009; they will be discussing the possibility of cutting the Federal Funds Rate even lower than its present target rate.
Moreover, two important pieces of information regarding the U.S. housing sector will be released Monday and Thursday. We also have the Advanced GDP report for the 4th quarter of 2008 coming out this Friday. Forex traders should mark these events in their calendars as they will no doubt generate exceedingly high volatility in the market, especially surrounding USD pairs and crosses.
EUR - Credit Downgrades of Smaller Euro-Zone Economies May Weaken EUR
The EUR has been experiencing some interesting price swings these past few trading days. With sharp fluctuations against the USD, JPY, and GBP, the 16-nation currency is poised for an important news week. Ending last week against the USD at 1.2970, the pair currently sits around the 1.2900 level as the greenback made strong gains earlier today, but is currently losing steam. Moreover, against the GBP, the pair is continuing to move steadily towards parity, with a current price of 0.9475.
As the economies in Portugal, Spain, Greece, and Italy are all experiencing a credit downgrade, some analysts are beginning to wonder what the benefit of multi-billion EUR bailout packages will offer when their focus is almost exclusively on France and Germany, leaving the countries on the periphery out to dry.
A type of "save the king" mentality may be present in the Euro-Zone, which believes that rescuing France and Germany will help stimulate the others to return to growth. However, the decentralized economic system in Europe, in a way, prevents such top-down overflow from occurring. The two economic giants will use bailout funds to shore up their assets and ensure the safety of their system, but possibly too late to effectively rescue these other countries before they are forced to declare bankruptcy and exit the European Monetary Union (EMU). This does not bode well for the Euro-Zone regional economy.
Looking ahead this week, the 16-nation Euro-Zone is anticipating important consumer data which will lend a better understanding as to how much confidence Europeans have in their economic system. With the regional unemployment rate reaching almost as high as 8%, and sales decreasing consistently, it may be right to assume that this consumer data will no doubt show a lack of trust in the EMU. It may be wise for forex traders to look for an unwinding of EUR positions as these consumer reports weaken the EUR in the coming days.
JPY - Yen Remains Strong; Japanese Economy Weakened
The Japanese Yen continues to gain in relative strength to its currency counterparts as the recent lowering of European interest rates has made the Japanese-funded carry trade less relevant. This comes as bad news for the Japanese economy. As its currency becomes stronger; its ability to sell goods overseas decreases, which further weakens its economic strength.
This week will highlight more specifically the negative impact the recent economic downturn and subsequent strengthening Yen has on the Japanese economy. With an unusually high number of economic indicators being delivered this week, the JPY could see one of its worst economic data releases since the financial crisis of the late-1990s. Every single figure to be given throughout this week is forecasted to be lower than the previous release, signaling very clearly how bad Japan's economy has gotten since this crisis started. Without a major market event to turn things around, Japan's economy, and currency, could face more difficult times up ahead.
OIL - Iraq Increases Oil Production by 8%; May Drive Oil Prices Lower
After making a sharp increase during the final hours of last week's trading, the price of Crude Oil appears to be stabilizing near $45.75 a barrel. Last Friday, the price of Crude Oil remained steady around $43 a barrel until the final hours of trading when the price jumped to reach almost as high as $47 a barrel prior to market close. However, most economists remain steady with their forecasts that the price of Crude Oil will continue downward once these small corrections lose momentum.
One of the reasons analysts claim the price of oil will sink in the coming days is because Iraq's oil producing and exporting capabilities has begun to increase these past few months. Increasing production by over 8% last month, Iraq, which remains outside of OPEC quotas while rebuilding its infrastructure, may actually put increased downward pressure on the price of Crude Oil unless the remaining OPEC countries cut their production to compensate for Iraq's sudden surge of oil surplus. Traders may want to look for the price of Crude Oil to continue on its downward slide.
After several failed attempts to breach the1.2750 support level on the 4 hour chart, the pair is now consolidating around 1.2900 price level. The hourly studies show mixed signals, and the daily charts support that notion as well. 4 hour charts' Slow Stochastic is showing a bearish cross suggesting that a downwards correction might take place in the nearest time frame. Going short with tight stops appears to be preferable strategy.
The Cable has resumed its downtrend and is attempting to breach the 1.3550 level. The daily chart shows that the current price has dropped beneath the Bollinger Band's lower border, indicating that the bearish move is gathering more steam. Should the breach take place, the pair might further extend its bearish run, with a potential price target of 1.3500.
The pair has made a substantial bearish correction, and is now floating around a key Fibonacci level 88.80. The hourly chart is showing a bearish cross which indicates that if a bearish breach through that level will occur; we shall probably see the bearish trend continue. Traders are advised to hold for the breaching attempt before making an entry.
The bullish momentum the pair has shown since the breach of the channel on the daily chart continues. The daily Slow Stochastic is showing the continuation of the trend. It seems that the pair could face another bullish session today. Going long might be the right choice.
The Wild Card
The Crude Oil prices are once again increasing, and a barrel of Crude Oil is currently trading around $45.50. Now, all oscillators on the 4 hour chart are providing bullish signals, indicating that Crude prices will probably continue its upward momentum. This might give forex traders a great opportunity to enter a very popular trend.
|01:00||AUD||CB Leading Index||m/m||0.1%||-||-|
|01:00||EUR||German 10-y Bond Auction||1.41|1.6||-||-|
|01:30||AUD||MI Leading Index||m/m||0.2%||-||-|
|09:30||GBP||MPC Meeting Minutes||0-0-9||0-0-9||-|
|10:00||CHF||ZEW Economic Expectations||2.2||-||-|
|15:30||USD||Crude Oil Inventories||2.5M||-||-|
|19:00||USD||FOMC Economic Projections||*||*||*|
|19:00||USD||Federal Funds Rate||<0.25%||<0.25%||-|
|19:30||USD||FOMC Press Conference||*||*||*|