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Monday, 19 Jan 2009
USD Falls Prior to Obama's Inauguration
The Dollar has been loosing ground as investors are looking for U.S. President-elect Barack Obama to quickly roll out hefty economic stimulus spending and a revived plan to buy bad bank assets. The focus is now on the inauguration of the U.S. president who will take office on Tuesday. Hopes are growing again as economic stimulus steps will likely be bigger than previously thought, and may include additional measures to shore up banks
USD - USD Weakened by an Unloading of Safe Havens
The U.S. Dollar ended last week in a losing position to many of its currency counterparts due to a number of factors. However, at the beginning of today's trading it appears to have begun a rally against this recent downward movement. Ending last Friday down against the EUR and GBP, the USD has made small gains against both currencies rivals as of this morning, but vice versa with the JPY; earning moderate gains against the island currency and now appearing to weaken.
As Crude Oil's price rose almost $8, the USD no doubt weakened as a result. As most of the Majors lost ground throughout last week, traders were expected to begin unloading these over-sold, alternative currency positions and re-sell the USD with fresh vigor, adding an unexpected weight to the American currency. Moreover, with additional economic stimulus being added to the U.S. economy, the desire to hold safe-haven currencies has been reduced as risk appetite receives a limited return to the spotlight.
Rising oil prices, rallying stocks in response to bank bailouts, increased risk appetite, and a general unloading of USD buy positions has temporarily weakened the USD as of the end of last week. This week doesn't look much better, either. As U.S. banks close for the celebration of Martin Luther King Jr. Day across America, and many major companies report losses for the first time since 1991, traders may actually expect a low volume trading day for USD currency pairs and crosses.
This low volume may help the greenback rally against its counterparts as they undergo a series of negative news events throughout the week, while the USD receives few. Traders should look to a moderately strengthening USD, at least over the next few days, but be wary of major price movements as they may yet make an appearance.
EUR - Last Week's Rate Cut Appears to Have Calmed the EUR
Most currency advisors would have informed their clientele to sell the EUR last week as the European Central Bank (ECB) reduced its short term interest rates to 2.0%. This revaluation of the 16-nation currency was expected to drive its value to weekly lows, yet the results were almost stunning. The EUR made small rebounds across the boards throughout Friday afternoon and into the end of last week's trading sessions. The EUR has moved from the 1.3200 level against the USD last Thursday up to the 1.3340 level this morning, a significant reversal given recent Euro-Zone data.
While historically a factor which depreciates a currency, the interest rate cut was a actually a decision more intently focused on the strengthening of the Euro-Zone's broader economy. Therefore, while the EUR should have weakened, the policy adjustment made by the ECB actually bolstered consumer spending and helped strengthen the regional economy, at least in theory. Consumer confidence appeared to have risen shortly after the announcement of the rate cut, and sell positions on the various European currencies began to get unwound in exchange for greater risk. European consumers appeared to have bought back into local currencies to fund their increased spending.
With a light news week expected from the Euro-Zone, the 16-nation currency may indeed experience a similar trading week as that of the USD. Low volume trading mixed with few economic indicators may actually signify that this primary currency will not be in the driver's seat this week. As the forex markets become less predictable, traders should increase their knowledge and awareness of any major events. Interest rate cuts and manufacturing output have the heaviest weight on the European currencies, whereas housing and unemployment data drive the American markets. Knowing the difference is what separates long-term, successful traders from temporary ones.
JPY - Yen Sinks from Increased Risk Appetite
The JPY posted continuous losses against the majority of its currency counterparts throughout the final days of last week's trading. Many analysts are claiming that President-elect Barack Obama's recent plan for using bailout funds to shore up mortgage foreclosures has investors looking to take on more risk. As this risk appetite increases, traders are borrowing more Yen to purchase higher-yielding assets and riskier investments.
The rebounding U.S. market, increased oil prices, and weakening Yen will likely convince many investors to snatch up exporting companies, according to some analysts. This will likely bolster the Japanese economy to renew some of its lost strength at least for a short while. However, the Japanese economy benefits from a relatively weaker JPY. As a result, the stronger the Japanese economy gets, the lower the Yen will go. Traders should pay attention to the news coming from the Japanese economy. Any hint at a rebounding stock market and increased exports will likely point to a future depreciation of the JPY.
OIL - Crude Oil under Same Downward Pressure despite New Price Level
With Crude Oil contracts for March delivery beginning this week, traders will notice a slightly different price level for this invaluable commodity. As February contracts came to a close, it is important to note that both contracts are in a price free-fall despite the difference in price level. While February contracts closed around $34 a barrel, March contracts are opening around $42 a barrel, but both are under the same downward pressure from falling global demand.
As economies continue to suffer under the weight of the recent economic recession, energy consumption also continues to fall. As such, demand for Crude Oil is expected to decrease steadily over the following months. Many economists are actually beginning to cut their forecasts in half for energy demand in 2009. This signifies the ever-present belief that Crude Oil prices will not rebound anytime soon.
The typical range trading on the 4 hour chart continues. Both the hourly RSI and Slow Stochastic are floating in neutral territory. On the contrary, the daily chart is showing a moderate bullish momentum with diminishing strength. Forex traders are advised to wait for a clearer signal before entering the market with this pair.
It seems that the Cable has limited its bullish correction after peaking at the 1.4980 price level. And now, a bearish cross on the 4 hour chart's Slow Stochastic indicates that the general downtrend might extend. Going short seems to be the preferable choice today.
There is a very distinct bullish formation continues on the hourly level, as the pair is now floating in its lower section. In addition, all oscillators on the daily chart are pointing up, suggesting that the bullish move might extend. Going long might be the right strategy today.
The daily chart shows that the pair is currently range-trading within a restricted price range. However, as the RSI on the daily chart has already dropped beneath the 80 line and it appears that a bearish momentum might be impending. In this case, going short with tight stops might be the right choice today.
The Wild Card
There is a very accurate bullish channel forming on the 4 hour chart, as gold prices had consecutively appreciated reaching the $840 an ounce price. Currently, as the RSI on the hourly chart is floating above the 50 line and the Slow Stochastic is pointing up, gold might extend its bullish trend. This might be a great opportunity for
forex traders to join a very popular trend.
|14:30||USD||Prelim Nonfarm Productivity||q/q||-2.2%||-1.7%||5.0%|
|14:30||USD||Prelim Unit Labor Costs||q/q||4.1%||4.0%||-1.9%|
|15:15||USD||Fed Chair Yellen Speaks||-||-||-|
|16:30||USD||Crude Oil Inventories||1.9M||1.3M||-|
|19:30||USD||FOMC Member Lockhart Speaks||-||-||-|
|01:30||AUD||AIG Construction Index||50.1||-||-|
|07:45||CHF||SECO Consumer Climate||-6||-11||-|
|08:00||EUR||German Factory Orders||m/m||-0.9%||1.6%||-|
|08:45||EUR||French Industrial Production||m/m||0.0%||0.1%||-|
|08:45||EUR||French Trade Balance||-3.4B||-3.5B||-|
|09:00||CHF||Foreign Currency Reserves||522.3B||-||-|
|10:15||EUR||Spanish 10-y Bond Auction||-||-||-|
|13:30||USD||Challenger Job Cuts||y/y||6.4%||-||-|