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Tuesday, 12 Jan 2010
USD Declines on Renewed Confidence regarding the Global Economic Recovery
The U.S Dollar declined against major counterparts Monday as risk appetite returned on renewed confidence about an impending global economic recovery. The renewed optimism fueled demand for the EUR as well as currencies from commodities-rich countries such as the AUD and NZD.
USD - USD Declines on Rise in Optimism
The Dollar was lower Monday, falling to the lowest level in 3 weeks against the EUR on speculations the U.S economic recovery will lag behind the rest of the world. Risk appetite increased following a better than expected surge in Chinese trade. The Dollar was further pressured by comments by a Federal Reserve official who stated that interest rates are likely to remain low for “quite some time”.
In today's early trading the Dollar is at $1.4490 per EUR from $1.4513 in New York yesterday, when it declined to $1.4557, the weakest level since Dec. 16. The USD is at 92.00 Yen from 92.09.
The Dollar's decline was prompted last Friday after the release of a disappointing Non Farm Payroll report, which showed payrolls dropped by 85,000 in December, as opposed to slight increase anticipated by investors. The disappointing data reduced expectations the Federal Reserve will raise interest rates sooner than expected. While negative mood regarding the U.S economy persists, Stronger than anticipated exports from China in December, fueled a rally in the EUR and other higher yielding currencies as optimism regarding the global economic recovery improved.
A slow news day is expected today from the U.S; however, the Trade Balance which I expected to be released at 13:30 GMT is likely to provide some volatility for the Dollar, possibly intensifying the current negative sentiment.
EUR - EUR Rises as Demand for Riskier Currencies Grows
The EUR extended Friday's gains versus the Dollar following the release of Friday's unexpected drop in U.S. Non Farm Employment data for December. Monday in New York, the EUR was at $1.4524 from $1.4414 late Friday and at Y133.78 from Y133.48. The U.K. Pound was at $1.6112 from $1.6034
The Dollar's decline versus the EUR intensified Monday on speculation investors will increase carry trades with the greenback as the funding currency. Carry trades are trades in which investors sell a certain currency with a relatively low interest rate and use the funds to purchase a different currency yielding a higher interest rate. The U.S. benchmark rate of zero to 0.25% and the Dollar has become a popular choice for a funding currency along with the JPY. With the recent negative U.S economic data dampening expectations of imminent interest increases and an increase in risk appetite, demand for growth sensitive currencies such as the EUR and Australian and New Zealand Dollars is fueled at the expense of the U.S Dollar.
With no news expected from the Euro-Zone today, the EUR's movements will likely be determined by movements in equities as well as news from the U.S. the release of the U.K Trade Balance at 9:30 GMT is likely provide some direction to the Pound, possibly pushing it higher versus the Dollar as it is expected to show improvement.
JPY - The Yen is higher against Major Counterparts
The Japanese Yen advanced higher against major currency counterparts in today's early trading. The JPY is currently trading around 133.48 against the EUR and at 92.10 against the Dollar. It also advanced against the Pound to currently trade around 148.20. However, the outlook may not look so bright for the Yen as Japan's new finance minister, Naoko Kan, stated shortly after taking over the position this week that he is in favor of a continued weakening of the Yen versus the U.S Dollar. With no news expected from Japan today, the Yen's movements will likely be determined by data released from the U.S and Euro-Zone.
OIL - Crude Prices Decline on Prospects of Warmer Weather
Oil Prices declined Monday as forecasts that the recent streak of freezing temperatures in the U.S is soon ending. Light, sweet crude for February delivery settled 23 cents, or 0.3%, lower at $82.52 a barrel on the New York Mercantile Exchange, after touching an intraday high of $83.95 a barrel.
The frigid weather across the U.S, Europe and parts of Asia has been a key factor behind Oil's rally to 15-month highs as a boost in heating oil demand boosted prices. However, after weeks of freezing temperatures, a January thaw is on the way for U.S. Northeast and Midwest as well as international regions; a return to normal temperatures is expected later this week in Shanghai and Beijing. These places represent the heaviest energy consumers. With milder weather outlook it seems that Oil looses its support as demand concerns resurface.
The recent bullish trend is losing its steam and the pair seems to be consolidating around the 1.4490 level. The 4 chart's RSI is already floating in the over-bought territory suggesting that the upward trend may see a bearish correction soon. When the downwards breach occurs, going short with tight stops appears to be the preferable strategy.
The hourly chart is showing mixed signals with its RSI fluctuating in neutral territory. However, the daily chart's RSI is sitting near the bottom border, suggesting that the possible next move might be a bullish one. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
The pair has been range-trading for a while now, with no specific direction. The Daily chart's Slow Stochastic providing us with mixed signals. All oscillators on the 4 hour chart do not provide a clear direction as well. Waiting for a clearer sign on the hourlies might be a good strategy today.
This pair is in the middle of a very intensive downtrend that started a week ago and shows great momentum that on a bigger scale appears to have more room to run. Currently, all oscillators on the daily chart are pointing down and it seems that going short will be the right choice today.
The Wild Card
The Slow Stochastic on the 4 hour chart points towards a current bullish momentum. The daily Slow Stochastic strongly supports this notion. This might be a great opportunity for forex traders to join a very promising bullish trend.
|00:00||GBP||MPC Rate Statement||*||*||*|
|03:45||JPY||10-y Bond Auction||0.61|3.7||*||-|
|10:30||AUD||AIG Construction Index||54.4||-||-|
|11:15||GBP||Autumn Forecast Statement||*||*||*|
|12:00||GBP||Asset Purchase Facility||375B||375B||-|
|12:00||GBP||Official Bank Rate||0.50%||0.50%||-|
|12:30||USD||Challenger Job Cuts||y/y||-4.2%||*||-|
|12:54||EUR||Minimum Bid Rate||0.25%||0.25%||-|
|13:30||EUR||ECB Press Conference||*||*||*|
|13:30||USD||Prelim GDP Price Index||q/q||1.9%||1.9%||-|
|15:00||USD||Natural Gas Storage||-13B||-||-|