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Wednesday, 30 Mar 2011
USD Experiences High Volatility, Yen Drops Sharply
At the beginning of the European trading session the dollar was on its back foot, but those losses were reversed following comments by St. Louis Fed President James Bullard. However, by the end of the trading day, the dollar had given back most of its gains for the day. The yen was sold across the board and looks to continue this trend. This afternoon, traders will be eying employment data from the US as the ADP Non-Farm Employment Change is set to be released today at 12:15 GMT.
USD - Bullard Opens QE II Debate
To start the day, the dollar was sold broadly against the majors as the greenback was used once again for carry trades. However, the selling of the dollar ended following comments by St. Louis Fed President James Bullard. Bullard, who mentioned the Fed should begin discussing scaling back its $600B quantitative easing program sent the dollar soaring. Despite the fact that Bullard is not a voting member of the Federal Reserve Open Market Committee, the his comments are significant as they might open the door for further debate in the media, in turn, increasing dollar volatility.
At the end of the day, the EUR/USD traded near its opening day price of 1.4090. The British pound also finished unchanged at 1.5994. The Canadian dollar was bullish throughout the session and closed near its daily low at 0.9735. The dollar was significantly stronger versus the yen and the Swiss franc. The USD/CHF rose closed just off its high at 0.9233, the pair's highest level since mid-March.
This afternoon, traders will be eying employment data from the US as the ADP Non-Farm Employment Change is set to be released today at 12:15 GMT. Expectations are for an increase of 205K new jobs. Last month the report showed the US economy added 217K new private sector jobs. The correlation between the ADP report and Friday's jobs report is not proven, but some analysts still like to take cues from today's report. While the US labor picture is improving, it will take Friday's non-farm payrolls report to begin influencing the Fed to consider rolling back QE II earlier than expected.
Today's support for the EUR/USD comes in at 1.4050, 1.4020, and 1.3860. Resistance is found at 1.4150, 1.4220, and 1.4250.
EUR - Euro Moves Higher Versus Yen and Franc
Expectations for rising interest rates in the euro zone have traders bidding the euro higher versus the yen and the Swiss franc. Yesterday the 17-nation currency put in a solid performance versus the majors with the lone exception being the US dollar as the EUR/USD traded with high volatility but ended the day near its opening day price.
Traders have put the European debt crisis on the back burner and have been focusing primarily on yield differentials between Europe and the rest of the developed economies. Yesterday S&P downgraded Greece's debt rating, sending the bailed out nation further into junk bond status. S&P noted that last week's agreement for the European Stability Mechanism increases the likelihood of a debt restructuring by Greece.
As the news hit the wires, the euro barely budged from its positions and went higher shortly after. This sends a signal to traders; as the currency fails to react to negative news; underlying fundamentals have changed. Expectations run considerably high for an interest rate increase at the next ECB meeting on April 7th. As such, traders have offered consistent bids for the euro.
Yesterday the euro made significant technical gains versus the Swiss franc and the yen. Against the franc, the EUR/CHF moved higher as the pair closed at 1.3011. The close is above its downward sloping trend line off of the October and February highs. Rising moment signals the pair could move higher with the next resistance levels for the pair falling at the March high of 1.3040, followed by the 200-day moving average at 1.3075. A move above this level will test the February high at 1.3200.
JPY - Yen Pulls Back Sharply
The yen continued is move lower versus the majors, booking sharp declines in particular versus the euro, US dollar, and Swiss franc. In the background of yen trading is the unresolved radiation leak at a Japanese nuclear plant that was damaged in the earthquake.
The USD/JPY pushed higher following St. Louis Fed President Bullard's dollar positive comments and continued its appreciation into this morning's trading. The pair closed on its high at 83.00 and has moved above its 200-day moving average. The next resistance level is found at the March high at 83.30, a level that coincides with the trend line off of the September 2010 and this February's high. A breach above this level would target 84.00.
The EUR/JPY broke sharply higher, rising as high as 117.00 in early morning trade. The pair looks to continue to move higher on both fundamentals and technicals. Rising interest rates in the euro zone and a continued loose monetary policy in Japan should support the pair. On the charts, a lack of resistance barriers stands in the pair's way. Initial resistance come is at the March 2010 low at 119.60. Support is found at the early March high at 116.00.
OIL - Middle East Turmoil Continues to Add Risk Premium
Crude oil prices yesterday rebounded to around $105.50 a barrel on continuing uncertainty in the North Africa and Middle East.
Unrest in Bahrain, Yemen, and Syria has raised further worries about world oil supplies. Those countries don't produce much oil, but they are important transport links. Yemen sits on a strategic shipping lane that handles about 4 million barrels of oil a day.
Supply threats lifted markets, while demand uncertainty helped trim the high prices. The nuclear crisis in the quake-hit Japan, debt crisis in Europe and declining consumer confidence in US made investors not optimistic about the oil demand outlook.
Today, in addition to any developing news out of the Middle East, traders should also pay attention to the US Crude Oil Inventories report as it tends to have a large impact on crude oil's prices recently, especially for the short-term.
Virtually all technical indicators on the 8-hour and daily charts are showing this pair trading in neutral territory. Traders may want to take a wait and see approach for the moment, as a clearer picture is likely to present itself as the day progresses.
Both the Relative Strength Index and Williams Percent Range on the 8-hour chart indicate that the pair is in oversold territory. Traders can take this as a sign that the pair may see an upward correction in trading today.
The pair has recorded much bullish behavior in the past several days. However, the technical data indicates that this trend may reverse anytime soon. For example, the 8-hour chart's Stochastic Slow signals that a bearish reversal is imminent. Going short with tight stops might be a wise choice.
A bearish cross on the 8-daily chart's Stochastic Slow indicates that the pair is in overbought territory and may see a downward correction in trading today. In addition, the Williams Percent Range on the 8-hour chart is hovering in the overbought region. Going short may be the preferred strategy today.
The Wild Card
The Relative Strength Index on the 8-hour chart has just crossed over into the overbought zone, indicating the pair could see downward movement today. Furthermore, the 4-hour chart's Slow Stochastic has just formed a bearish cross. Forex traders now have an opportunity to open up long positions and catch this trend at the beginning.
|00:00||AUD||HIA New Home Sales||0.0%||-||-|
|00:00||EUR||German Prelim CPI||m/m||-0.3%||0.0%||-|
|00:00||EUR||Italian 10-y Bond Auction||2.44|1.5||-||-|
|01:30||AUD||Private Capital Expenditure||q/q||1.1%||-1.7%||-|
|09:00||EUR||Spanish Flash CPI||y/y||-0.1%||-0.3%||-|
|09:55||EUR||German Unemployment Change||-22K||-1K||-|
|10:00||EUR||M3 Money Supply||y/y||2.5%||2.6%||-|
|10:00||EUR||Italian Quarterly Unemployment Rate||12.5%||12.4%||-|
|13:00||EUR||GfK German Consumer Climate||8.5||8.6||-|