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Thursday, 26 Feb 2009
USD Safe-Haven Gains on Negative Housing Data
Despite forecasts for a depreciation of the Dollar, many economists are now saying that the negative housing data released from the United States yesterday may actually bolster the USD. These contradictory claims are a result of the recent economic recession which has many investors going against forecasts in exchange for a safer investment. The USD appears to be the safest investment, as traders are moving en masse to buy into the greenback.
USD - USD/JPY Climbs Back to November 2008 Prices
The greenback was traded near the highest level against the Japanese Yen since November. This came about from speculation that the U.S. durable goods report may show a decreasing figure, adding to the drop in home sales which boosted the currency's appeal as a refuge from the global slump. Analysts expect the Dollar to remain the safe-haven currency of choice in the coming days, as investors are still concerned about the global economic outlook.
The USD traded at 97.53 Yen from 97.39 Yen late in yesterday's New York trading hours. Against the EUR, the USD was at 1.2716, from 1.2723 yesterday, losing some of its momentum against its primary currency rival.
Contrary to forecasts, the greenback may rise against the EUR and GBP after an unexpected reduction in last month's U.S. Existing Home Sales report led to an appreciation of the nation's currency. The National Association of Realtors reported yesterday that purchases of existing homes in the U.S. fell 5.3% in January to an annual figure of 4.49 million, the lowest level since 1997! Apparently, the negative housing data has triggered more USD buying, especially against the EUR, keeping the U.S currency in demand as the safe-haven depended on during this global economic uncertainty and risk aversion.
However, any optimism that the global economy could be recovering might prompt investors to sell the Dollar and buy riskier assets and currencies. Several market players expect the USD to fall sharply once demand for Treasury and agency debt eases and the U.S. current account deficit swells. Once this happens, traders will start investing in other regions, such as Europe.
EUR - GBP Drops on Signs the British Recession is Deepening
The Euro-Zone currency fell more than 1% against the Dollar on Tuesday after European Central Bank (ECB) President Jean-Claude Trichet stated that the financial system was under severe strain, hampering an economic recovery. The economies which make up the Euro-Zone contracted by the most in at least 13 years, pushing the region into a deeper recession. The German economy also contracted the most in 22 years, a government report showed today.
The British Pound dropped against the USD and EUR fueling speculation that the Bank of England (BoE) will likely cut Interest Rates next week. The GBP weakened 1.7% to 1.4238 against the USD. Against the EUR, the Pound depreciated 0.9% to 0.8953. The Pound also slipped from the highest level in almost three months versus the Japanese yen as the Office for National Statistics said Gross Domestic Product (GDP) contracted the most since 1980!
The Pound extended losses after one of the BoE's policy-makers, David Blanchflower, stated that Britain's recession may intensify significantly in the coming months. Analysts say that the underlying fundamentals remain weak and that is having a short-term impact on the Sterling. The BoE meets to decide its Interest Rates next week. Policy-makers already cut the benchmark rate to 1%, a record low, and signaled they're willing to create money to help stimulate the U.K economy, which will likely drive the value of the GBP lower in the short-term.
JPY - Yen Declines as Japanese Economy Gets Worse
Japan's currency slid to a 3-month low against the USD after Japan's trade deficit widened the most in more than two decades, denting its allure as a refuge from the financial crisis. It also weakened versus the EUR after the government said exports tumbled 46% in January, signaling the slump in the world's second largest economy is deepening. It depreciated to 124.43 per EUR, the lowest level since Jan. 9th. Against the Dollar, the Yen continued to drop to 97.75, the weakest level since Nov. 11th.
The Japanese economy's contraction last quarter was the worst since 1974 and analysts predict the slump may drag into the next fiscal year. Output may shrink a record 4% starting April 1st, according to some economists. Bank of Japan (BoJ) officials said last week that the economy will remain in a severe state next quarter and companies will struggle to obtain financing as investors shun risk. The bank, which lowered the key overnight lending rate to 0.10% in December, last week said it will buy corporate bonds for the first time in order to stem the credit squeeze.
Oil - Crude Oil Rises Above $42.50 a Barrel
Crude Oil climbed 6% to above $42 a barrel on Wednesday, after a U.S. government report showed a sharp drop in gasoline inventories in the world's top energy consumer. The U.S. Energy Information Administration (EIA) reported a 1.7% rise in demand for fuel over the four weeks prior to February 20th. Further support for Oil prices came from reports this week of high compliance by members of the Organization of the Petroleum Exporting Countries (OPEC) with deep production cuts agreed last year to stem the slide in oil prices. The 11 OPEC members with quotas, excluding Iraq, reduced output by 3.8% to 25.3 million barrels a day in February.
The rise in Crude prices came despite a drop in the equities markets, with European shares hitting a new 6-year low. U.S. stocks fell after U.S. President Barack Obama's first address to Congress shed little new light on how he plans to stabilize the U.S economy and shore up banks. Analysts expect that Crude Oil prices will probably start rising in the second half of the year as a drop in demand starts leveling off and OPEC cuts supply further.
Yesterday's pennant formation apparently has not finished its development as the pair continues to consolidate towards the 1.2800 price level before making a significant breach. For the time being this pair continues to float between a distinct price-range. Buying on the lows and selling on the highs in this range appears to be a wise strategy today.
There appears to be a bullish cross on the 4-hour chart's Slow Stochastic, signaling an imminent upward correction to the down-trend seen throughout this week. With the weekly Momentum oscillator shifting into a sharp upward direction, it appears this pair may be due for a trend reversal. Going long with tight stops might be a good strategy today.
The price of this pair appears to be floating in the over-bought territory on the RSI oscillators of both the 4-hour and daily charts, indicating a downward correction may occur in the near future. With a bearish cross forming on the daily chart, this downward move may take place later today. Going short with tight stops might be a wise choice.
After two violent breaches of the upper border on the hourly chart's Bollinger Bands late yesterday, this pair now appears to be settling down into a more neutral position. However, the Bollinger Bands on the daily chart are beginning to tighten, indicating that another violent movement may occur in the near future. Traders may want to wait for the breach then swing.
The Wild Card
For the past two days this pair has been trading in a very solid range, with distinct highs and lows. However, the 4-hour and daily chart are beginning to signal that this pair is due for a downward correction. The price appears to be floating in the over-bought territory on the RSI of both charts; and, the daily chart indicates that yesterday's trading ended with a doji formation, signaling relatively strong pressure for a reversal of the recent uptrend. Forex traders can benefit from this knowledge by entering their short positions early and riding the impending wave.
|15:30||USD||Crude Oil Inventories||2.5M||0.5M||0.3M|
|19:00||USD||FOMC Economic Projections||*||*||*|
|19:00||USD||Federal Funds Rate||<0.25%||<0.25%||-|
|19:30||USD||FOMC Press Conference||*||*||*|
|01:00||EUR||Spanish 10-y Bond Auction||4.52|2.5||-||-|
|01:00||USD||CB Leading Index||m/m||0.6%||0.2%||-|
|05:30||CHF||SNB Financial Stability Report||*||*||*|
|08:00||EUR||French Flash Manufacturing PMI||46.4||47.1||-|
|08:00||EUR||French Flash Services PMI||44.3||45.0||-|
|08:30||CHF||SNB Monetary Policy Assessment||*||*||*|
|08:30||CHF||SNB Press Conference||*||*||*|
|08:30||EUR||German Flash Manufacturing PMI||49.4||49.9||-|
|08:30||EUR||German Flash Services PMI||49.7||50.1||-|