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Tuesday, 3 May 2011

USD Gains on Bin Laden Death Report, Falls as Traders Shift to Risk

The US dollar experienced a euphoric jump yesterday morning following an announcement from President Barack Obama that Osama bin Laden had been killed in a military raid in Pakistan. Dollar bears continued to move out of the greenback, however, in exchange for higher yielding currencies immediately following the surprise jump, as record low interest rates remain a prominent factor in America's currency valuation.

EUR/USDGBP/USDUSD/JPYUSD/CHFAUD/USDEUR/GBP
Daily Trenddowndowndowndowndownup
Weekly Trendupnodowndownupup
Resistance1.49051.673081.800.87401.10150.9000
1.48801.670081.600.87201.09850.8980
1.48501.667081.350.86901.09500.8950
Support1.47801.659080.600.86201.08600.8880
1.47501.656580.300.85951.08300.8850
1.47201.654580.000.85701.08100.8820

Economic News

USD - Euphoria Over Bin Laden Death Not Enough to Sustain USD Gains

The US dollar experienced a euphoric jump yesterday morning following an announcement from President Barack Obama that Osama bin Laden had been killed in a military raid in Pakistan. Dollar bears continued to move out of the greenback, however, in exchange for higher yielding currencies immediately following the surprise jump, as record low interest rates remain a prominent factor in America's currency valuation.

The EUR/USD rose to a three-and-a-half year high, reaching 1.4900 in Monday's trading session, not long after it had initially fallen back towards 1.4805 amid triumphal celebrations across the US. Manufacturing pricing data released yesterday also revealed steady growth in US inflation, as construction spending appears to have also jumped 1.4% in April, beating out expectations for a 0.4% gain.

Osama bin Laden's death may affect short-term outlook, with minor upticks in sentiment and optimism, but the news challenges much of the effort taking place in US policymaking circles as current missions get reevaluated following the conclusion of this 10-year manhunt. Will America face difficulties staying engaged in the region following the conclusion of this endeavor? As the US military pulls out of Iraq, how will this affect government spending towards future operations of this sort? How will market participants evaluate the effect this may have on future budgetary decisions? All such questions remain open to debate, but for the time being the dollar appears to still be losing ground against its currency rivals due to its low interest rates.

EUR - EUR Bullish as Investors Seek Higher Yields

Yesterday's sudden drop in the EUR/USD appears to have been countered by investors seeking higher yields amid surging optimism. The pair dipped in early trading due to a strong rebound in the greenback brought about by a wave of optimism due to the report that Osama bin Laden was killed by a commando raid in small Pakistani town north of Islamabad.

With Europe and Great Britain on holiday Monday, currency traders witnessed a relatively thin trading environment with a sudden bounce back in US dollar values. The jump was short-lived; however, as investors took the news, coupled with bullish reports in the United States regarding inflation, and turned to riskier assets. The result was a temporary surge in the greenback followed by a resumption of last week's weakness.

As for today, the euro looks to be gaining against the greenback as sentiment remains fixated on a capital shift to the higher yielding euro zone. The 17-nation economic bloc will be largely absent from today's calendar, though, with only a minor PPI publication scheduled to be released at 10:00 GMT. Little news is expected out of any of the major economies today, meaning traders may end up being more focused on Australia and New Zealand today as both are set to publish a number of impactful data releases.

JPY - Japanese Holiday Continues, JPY Mixed

The JPY has been trading with mixed results recently as investors turn their focus elsewhere amid global reactions to the death of Osama bin Laden. After reaching upwards of 82.75 on Monday, the USD/JPY quickly dropped to a daily low of 81.61 Tuesday morning, and looks to fall farther in today's sessions as investors remain bearish on the greenback.

With Japan celebrating Golden Week since last Friday (with the exception of Monday), liquidity throughout the region will be somewhat depressed. The JPY could gain from this absence as the rest of global traders shift towards Europe. Yesterday was the only lull in the Golden Week holiday celebrations and Japan released its Average Hourly Earnings index, which revealed significant contraction in the earnings across Japan as global industry continues to falter. As for today, the JPY will be absent from the market meaning global investors will continue to focus their attention elsewhere, creating mixed results for the yen.

Crude Oil - Crude Oil Price Dips on News of Bin Laden's Death

Crude Oil prices ended Monday lower on the day as traders largely began to speculate a scaling back of US involvement in the region would affect oil prices over the long-term, pushing down on commodity values. After climbing towards $114 a barrel last Friday, the price of oil moved bearish today, declining to as low as $111.10 before finding mild support.

As for today, crude oil traders may want to consider that commodities, which are linked to the value of the US dollar, are likely going to continue receiving a boost in the immediate future due to recent monetary policy statements out of the US. Hawkish statements about economic growth may suffice to hold prices stable between $112 and $115, but many speculators are beginning to anticipate another bull run in commodity prices.

Technical News

EUR/USD

For the past several days the EUR/USD pair is trading within a restricted range, between the 1.4750 and the 1.4900 levels. The technical indicators on the daily chart continue to provide mixed signals, suggesting that the range-trading will proceed today as well. Buying in dips and selling on highs seems to be the right strategy for today.

GBP/USD

The GBP/USD pair saw a mild bearish correction over the past few days, and the cable is currently trading near the 1.6600 level. In addition, as a bearish cross takes place on the 4-hour chart's MACD, it seems that another bearish session could be expected today, with a key-target level of 1.6450.

USD/JPY

The USD/JPY pair continues with the free-fall, and is currently trading near the 81.00 level. All the technical indicators on the daily chart continue to provide bearish signals, suggesting that the pair's bearish momentum has more room to go. Going short appears to be the right choice today.

USD/CHF

There is a very distinct bearish channel formed on the daily chart and the pair is currently trading in the middle of it. Currently, as both the RSI and the MACD on the daily chart continue to point downwards, it seems that the pair's bearish move is likely to proceed today, with potential to reach the 0.8560 level.

The Wild Card

Crude Oil

After about six weeks on which crude oil saw a rising trend, crude prices have stabilized for the past few days, and failed to cross the $115.00 resistance level. In addition, as a bearish cross takes place on the daily chart's MACD and Slow Stochastic, it seems that a bearish correction might be impending. This might be a great opportunity for forex traders to catch the trend at its beginning.

Current Time: 10/25 02:41 GMT
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